Buy United Spirits, Radico Khaitan: Motilal Oswal

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26 Aug, 2025 12:21

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Motilal Oswal has come out with its report on Alcoholic Beverages space. The research firm recommends buying United Spirits and Radico Khaitan.

UNSP-Diageo deal can change dynamics of IMFL industry: The UNSP-Diageo deal will result in Diageo gaining management control of UNSP. Given Diageo's focus on the premium/super-premium segments, the industry trend towards premiumization will be further boosted. Post the deal, over 50% of the IMFL market will be controlled by MNCs. This should result in greater transparency, operational discipline and more efficient deployment of resources. With the shift in competitive landscape, we expect advertising spends and brand investments to go up considerably. Also, the passage of management control of the industry leader to a foreign company could pave the way for lower import duties.

United Spirits: The party has just begun: Post the deal , United Spirits (UNSP) stock has been re-rated on the back of expected balance sheet improvements following management control by Diageo. Though the IMFL sector offers an attractive long-term opportunity, there are also challenges pertaining to regulations, duties/taxes, and ban on advertising, none of which will change immediately. The benefits will, therefore, be back-ended. Nonetheless, we expect the stock re-rating to sustain - a precedent exists in the deal between Heineken and United Breweries (UBBL). We reiterate Buy, with a revised target price of INR2,490.

Radico Khaitan: Premiumization strategy working: Radico Khaitan (RDCK) has demonstrated its ability to drive premiumization - the salience of premium brands has risen from 8% of total volumes in FY09 to 16% in 1HFY13. Also, the IMFL pricing environment is turning favorable, which should enable margin expansion. We expect RDCK to deliver strong 23% earnings CAGR over FY12- 15, led by 230bp margin improvement. The stock has appreciated ~25% since our initiation on 31 October 2012 and subsequent announcement of the Diageo-UNSP deal. We reiterate Buy, with a revised price target of INR181 - 24% upside.

Institutional holding more than 40% in Indian cos

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