Liquor stocks have rallied up to 200% in a year; is there more steam left?

Liquor stocks: The past year has been good for investors in liquor companies' shares as the stock prices have skyrocketed. Shares of companies such as Som Distilleries and Breweries Ltd, United Spirits, Globus Spirits, Radico Khaitan, Sula Vineyards, and Tilaknagar Industries have gained between 5 per and 258 per cent in a year.

Individually, Som Distilleries and Breweries Ltd shares climbed over 258 per cent in a year, followed by Tilaknagar Industries', which have rallied over 198 per cent, Sula Vineyards has surged 55 per cent, United Spirits shares have gained over 33 per cent, Radico Khaitan has risen over 24 per cent and Globus Spirits has jumped over 5 per cent.

According to Zee Business Research, the following reasons can be attributed to the surge in liquor stocks:

- Strong demand for premium products;

- Improvement in realisation to support growth;

- Eight to nine states have given approval to increase the price of products;

- There has been a strong demand for wine.

- Foreign institutional investors (FII) and domestic institutional investors (DII) have shown confidence by increasing their stakes in many liquor companies.

Recently, Motilal Oswal Fund bought a stake in Global Spirits. FIIs holding in United Spirits rose to 15.92 per cent from 15.38 per cent in the June quarter. In the same period, FIIs holding in Sula Vineyards rose to 6.78 per cent from 5.86 per cent.

Liquor stocks outlook:

According to Zee Business Research, better realisation from premiumisation is expected. Further, strong demand is expected in the upcoming festive season. Margins are also expected to improve due to price hikes in both Indian-made foreign liquor (IMFL) and country liquor.

Additionally, the companies will benefit from the backward integration of Extra Neutral Alcohol (ENA), a primary material for making alcohol.

A fall in glass prices will also benefit liquor companies.

What analysts say about liquor stocks

"Som Distilleries and Breweries Ltd's stock is still trading below its average industry PE ratio, which suggests comfort for investment. From a technical perspective, the stock is trading above all averages. One can buy the stock for a target of Rs 440 apiece for a year and keep the stop loss at Rs 270," said Vaibhav Kaushik, Research Analyst, GCL Broking.

HDFC Securities has given a 'buy' call on United Spirits for a target price of Rs 875 apiece. The brokerage believes that in the medium to long term, the company will continue to focus on driving profitable growth.

On the other hand, Kotak Securities has given a 'reduce' rating on Radico Khaitan Ltd. for a target price of Rs 1,110 apiece.

"We have factored in Q4FY23 results in our estimates and downgraded FY24-25E earnings in the range of 6–17 per cent," Kotak Securities said in the brokerage report.

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