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Dolat Capital Report
We recently downgraded Indian alcobev companies (demand blip plus raw material peril = earnings risk) on account of risk of moderation in volume growth, raw material prices continues to remain elevated and the recent run-up in stock prices.
Raw material (both extra neutral alcohol and glass bottles) were expected of being stable/soft in FY24. On the contrary ENA has been on uptick and unlikely to decline in six- nine months in our view.
This is likely to delay the margin recovery/impact margins in the near-term. Share prices of United Spirits Ltd./ Radico Khaitan Ltd./United Breweries Ltd. have moved up by ~20/36/16% in trailing six months versus 15% by Nifty.
Premiumisation is a longer-term alcobev industry trend and thus we are not calling it out a structural risk to prestige and above category demand but more of short-term blip phenomenon with higher raw material prices.
Hence, we have not downgraded our target multiple viz. 50 times FY26E earnings per share for all three names.
That said time correction seems inevitable, price correction likely on account of high earnings expectations and rich valuations leaving limited room to err.
Our preference in pecking order is Radico Khaitan, United Spirits and United Breweries.
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