Liquor Industry All Set for New Highs. A Watchlist of 5 Best Liquor Stocks that Could Witness a Spirited Rise

Humans and their enduring love for alcohol dates back centuries.

Evidence shows that early humans fermented fruits and grains to create alcoholic beverages.

It's no longer a beverage reserved just for the wealthy, as millions of consumers consume it across the globe.

In India alone, liquor consumption is around 5.7 litres per capita per year.

With increasing alcohol consumption, the top companies in the liquor industry are seeing strong growth in their revenue and profit.

According to CRISIL, in the financial year 2023, the revenue of leading organised liquor players grew by 15%, supported by growth in the tourism and hotel industries.

No wonder many global companies are looking to enter the Indian liquor market. Recently, Coca-Cola India made its first move into the alcohol segment by launching Lemon-Dou, its global alcoholic ready-to-drink beverage.

Coca-Cola is India's largest soft drinks company. The company's foray into alcoholic drinks comes three decades after it re-entered India.

With growing disposable incomes and the premiumisation trend just kicking in, the liquor industry is further expected to grow.

To capitalise on this growth, Indian breweries and distilleries are expanding production capacities and launching new products.

Here's a list of five stocks that could benefit from the strong growth in the liquor industry.

Take a look...

#1 United Breweries

First on the list is United Breweries.

The company is engaged in the manufacturing and sale of beer and non-alcoholic beverages.

It has a strong presence in the domestic market, with a market share of 54% in the beer industry and in over 50 countries in the world.

United Breweries' flagship brands are Kingfisher and Heineken, which are the most reputed names in the liquor industry.

Over the last three years, the company has focused on solidifying its market leadership and rebuilding the Kingfisher brand by concentrating on premiumisation.

This is why the company's financial performance has improved in the last three years.

The revenue has grown at a CAGR (compound annual growth rate) of 20.7%, driven by high volume growth. The net profit grew at a CAGR of 39.1% during the same period, driven by cost control and efficiency measures taken by the company.

Its return on equity (RoE) and return on capital employed (RoCE) currently stand at 7.7% and 11.4%, respectively.

The promoter holding also stands high at 71%, but the promoters have pledged 12.4% of their shares.

United Breweries Financials (2018-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue (Rs m)	65,070	65,180	42,930	58,680	75,490
Revenue Growth (%)		0.20%	-34.10%	36.70%	28.60%
Net Profit (Rs m)	5,630	4,280	1,130	3,660	3,040
Net Profit Margin (%)	8.70%	6.60%	2.70%	6.30%	4.10%
Return on Equity (%)	17.70%	12.20%	3.20%	9.30%	7.70%
Return on Capital Employed (%)	27.70%	16.90%	5.40%	12.80%	11.40%
Average Price to Earnings (P/E)	57.2	69.2	254.2	102.7	139
Price to Book Value (P/BV)	10.1	8.4	8.1	9.6	10.7

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Going forward, the strong demand for liquor and the company's focus on revenue management and cost initiatives is expected to drive its revenue and net profit.

To know more, check out United Breweries' financial factsheet and latest quarterly results.

#2 GM Breweries

Second on the list is GM Breweries.

The company manufactures and markets alcoholic beverages, country liquor (CL), and Indian-made foreign liquor (IMFL).

It has a monopoly in country liquor in Mumbai with a sizable market share. Some of its brands include GM Santra, GM Doctor, GM Limbu Punch, and GM Black.

It has the capacity to produce and process 140 million (m) of country liquor, which is about 50,000 cases per day.

In the last few years, the company has concentrated on country liquor to capture the growing demand in rural areas.

It also received a license from the Food and Drugs Administration to manufacture hand sanitisers.

To overcome the challenges with glass bottles, such as shortage, breakage, and price fluctuations, PET bottles were introduced.

All this has helped the company improve its financials post-Covid.

The company's revenue and net profit have grown at a CAGR of 18.3% and 7.4%, respectively, driven by high volume growth and price realisations.

The RoE and RoCE stand at 14.6% and 19.3% at the end of financial year 2023.

GM Breweries also pays consistent dividends to its shareholders.

The company's promoter holding stands at 74.3%, making it one of the high promoter holding stocks in India.

GM Breweries Financials (2018-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue (Rs m)	4,770	4,780	3,700	4,870	6,130
Revenue Growth (%)		0.20%	-22.60%	31.60%	25.90%
Net Profit (Rs m)	820	670	800	930	990
Net Profit Margin (%)	17.70%	14.50%	23.50%	20.40%	16.80%
Return on Equity (%)	22.40%	15.80%	15.90%	15.80%	14.60%
Return on Capital Employed (%)	33.60%	21.10%	19.80%	20.00%	19.30%
Average Price to Earnings (P/E)	18.7	12.2	9	12.7	11.6
Price to Book Value (P/BV)	4.2	1.9	1.4	2	1.7

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Going forward, the company's strong presence in the country liquor segment is expected to drive its revenue and profit.

To know more, check out GM Breweries' financial factsheet and latest quarterly results.

#3 Aurangabad Distillery

Next on the list is Aurangabad Distillery.

The company operates a molasses-based distillery that performs PLC distillation and manufactures spirits and alcohol.

It has a diversified product portfolio, including rectified spirit, neutral alcohol, potash, bio potash, and de potash vinasse. The company's products are used in diversified sectors, including liquor, pharma, cosmetics, and fertiliser.

In the past three years, the company's revenue has grown at a CAGR of 13.7%, driven by strong growth in volumes. The net profit also saw a healthy growth of 75.7% during the same period.

Its RoE and RoCE have improved from 7.6% and 15.3% to 25.2% and 36.5%, respectively, in the last three years.

The promoter holding is also high at 74.9%.

Aurangabad Distillery Financials (2018-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue (Rs m)	559	564	700	852	1,030
Revenue Growth (%)		0.90%	24.10%	21.70%	20.90%
Net Profit (Rs m)	65	41	31	90	168
Net Profit Margin (%)	11.60%	7.50%	4.50%	10.70%	16.90%
Return on Equity (%)	19.50%	11.00%	7.60%	18.20%	25.20%
Return on Capital Employed (%)	21.60%	19.90%	15.30%	26.70%	36.50%
Average Price to Earnings (P/E)	4	6.8	8.7	5.3	5.5
Price to Book Value (P/BV)	0.8	0.7	0.7	1	1.4

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To know more, check out Aurangabad Distillery's financial factsheet and latest quarterly results.

#4 Globus Spirits

Fourth on the list is Globus Spirits.

The company is present across the entire alcohol value chain.

It was the first to set up a grain distillery and launched branded distiller's dried grains with soluble (DDGS).

It manufactures Indian-made Indian liquor (IMIL), Indian-made foreign liquor (IMFL), and bulk alcohol hand sanitiser and also undertakes bottling for companies.

The company's product portfolio consists of a consumer segment consisting of value liquor, premium liquor, and craft spirits and a manufacturing segment consisting of grain-neutral alcohol, bioethanol, and technical alcohol.

The company recently invested in a greenfield project to enhance its capacity for ethanol blending.

It is also working on building a portfolio of brands under its premium liquor segment. So far, the company has introduced craft spirits such as Terai, Snosk, and Mountain Oak, which received a good response.

Globus Spirits is also launching new variants of craft gin, whisky, and premium rum to benefit from the demand for premium alcohol.

Coming to its financials, the company's revenue has grown at a CAGR of 9.3% in the last five years, driven by high demand. The net profit also grew at a CAGR of 38.8%.

The RoE and RoCE at the end of the financial year 2023 are 13.8% and 19.8% respectively.

It has also been paying dividends for the last four years, with an average dividend payout and dividend yield of 7.1% and 0.6%, respectively. The promoter holding stands at 51%.

Globus Spirits Financials (2018-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue (Rs m)	8,982	10,739	7,960	8,211	14,035
Revenue Growth (%)		19.60%	-25.90%	3.20%	70.90%
Net Profit (Rs m)	237	497	1,408	1,873	1,222
Net Profit Margin (%)	2.70%	4.60%	17.80%	23.00%	8.80%
Return on Equity (%)	6.00%	11.10%	24.10%	24.20%	13.80%
Return on Capital Employed (%)	10.40%	15.60%	31.90%	33.20%	19.80%
Average Price to Earnings (P/E)	19.6	6.4	5.2	15.8	27.6
Price to Book Value (P/BV)	1.2	0.7	1.2	3.8	3.8

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Going forward, the demand for premium liquor and the company's significant presence in bulk and consumer liquor will drive its growth in the medium term.

To know more, check out Globus Spirits' financial factsheet and latest quarterly results.

#5 United Spirits

Last on the list is United Spirits.

A subsidiary of Diageo PLC, the company is a leading beverage alcohol company in India.

It manufactures, sells and distributes a wide portfolio of premium alcohol brands spread across product categories, including popular, prestige, premium and luxury.

The company has a market share of around 25% in the Indian spirits industry and a 45% share in the Indian whisky market.

With a portfolio of more than 80 brands of scotch whisky, IMFL whisky, rum, brandy, vodka, and gin, the company sells over 79 million cases every year.

Some of its well-known brands include Johnnie Walker, Black Dog, Antiquity, Signature, VAT 69, and Smirnoff.

Being a leading player in the industry, the company's revenue is one of the highest among its competitors.

In the last three years, the revenue of the company has grown at a CAGR of 9.4%, driven by high demand. The net profit also grew at a CAGR of 45.9% during the same time, primarily driven by the strong management and operational support from its parent.

The net margin also improved to 10.6% from 4.5% during the same period.

As a result, the RoE and RoCE have improved and currently stand at 18.8% and 23% respectively.

The promoter holding is also high at 56.7%, but the promoters have pledged 1.2% of their shares to raise money.

United Spirits Financials (2018-2023)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue (Rs m)	94,100	93,470	81,700	97,470	1,06,840
Revenue Growth (%)		-0.70%	-12.60%	19.30%	9.60%
Net Profit (Rs m)	6,850	6,230	3,630	8,100	11,270
Net Profit Margin (%)	7.30%	6.70%	4.50%	8.30%	10.60%
Return on Equity (%)	22.20%	16.70%	8.80%	16.40%	18.80%
Return on Capital Employed (%)	32.30%	36.70%	17.70%	23.70%	23.00%
Average Price to Earnings (P/E)	217.5	69.4	112.4	68.5	53.8
Price to Book Value (P/BV)	48.2	11.6	9.9	11.2	10.1

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The company has been growing through acquisitions, and it has acquired several companies and brands to grow its business.

It is also concentrating on launching new brands every year to expand its product portfolio.

Given the company's leading presence in the alcohol beverage sector, it is expected to strongly benefit from the growing demand for premium alcohol.

To know more, check out United Spirit's financial factsheet and latest quarterly results.

Conclusion

The Indian liquor industry is growing rapidly, driven by growing disposable incomes and high demand for preimmunised liquor.

This presents an exciting investment opportunity as liquor stocks enjoy healthy profit margins and strong cashflows.

Moreover, the defensive nature of liquor stocks is another added advantage.

However, it's important to note that the industry is highly regulated by centre and state-specific policies.

The industry also faces strong competition from established and new players, which can affect the market share and profitability.

To add to this, alcohol consumption is still considered a sensitive topic which impacts the market perception and brand reputation.

Hence, it is important to do thorough research and understand the market dynamics before investing in this sector.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...