Fizz returns to liquor stocks

The war-torn countries of Russia and Ukraine have stirred a food prices-led crisis across the world.

Together, the two nations used to export nearly a third of the world’s wheat and barley produce – key raw materials for liquor companies.
 

Rice, a third major raw material, was also exported heavily by Russia. It was the world’s 28th largest exporter of the commodity in 2020.

With the two countries battling it out in eastern Europe, prices of rice and barley have jumped around 15% and 59%, respectively, over the last six months.
 

On the bourses, shares of related companies have shed over 30% so far this calendar year. Among the lot, Radico Khaitan, GM Breweries, and Globus Spirits saw over 20% cuts. In comparison, the benchmark Nifty50 index declined around 9% during the period.

The fall came as soaring input costs put pressure on related companies’ margins in Q4 of FY22. 

Individual companies saw Ebitda margin contraction of up to 800 basis points in the January-March quarter, with average contraction at around 200-250 bps. However, analysts believe the worst may be behind the sector. 

Manoj Menon, Head of Research, ICICI Securities said input costs have been going up and investors should expect price hikes to be provided by states. State govts have announced rolling back of tax increase, reduction of custom duties, and reduction in local levies on imported products, he said. Industry is seeing positive changes.

Amid these developments, Officer’s Choice whisky-maker, Allied Blenders and Distillers Ltd, has filed documents with Sebi to raise 2,000 crore rupees through an initial public offering. That said, most analysts recommend investors selectively buy these stocks from a medium-to-long term.

Speaking to Business Standard, Rohit Khatri, Fundamental Analyst, Religare Broking said near-term outlook hazy. Stocks may remain under pressure over six months, and the long-term growth story of the liquor industry remains intact, he said. Premiumisation to support margins, profitability, he said.  

ICICI Securities is bullish on United Breweries; Sharekhan on Globus Spirits and Radico Khaitan; and HDFC Securities on United Breweries.