Nomura initiates coverage on Allied Blenders with Buy rating, sees up to 20% upside

Nomura has initiated coverage on Allied Blenders & Distillers with a Buy rating and a target price of Rs 850, indicating a potential upside of nearly 20% from its current market price of Rs 708.80. The brokerage firm attributes this positive outlook to Allied Blenders' strategic shift towards premium and luxury brands, which now account for a growing portion of the company's volumes and value.

Prestige & Above (P&A) products, previously making up 37% of volumes in FY24, have risen to 47% by FY26 and are projected to surpass 50% by FY28. Iconiq White, a key brand in this premium line, sold 10.7 million cases in FY26 alone. Allied Blenders is also expanding its portfolio with additional luxury brands such as Sterling Reserve, ABD Maestro, and Woodburns.

To support this transformation, the company is investing in its supply chain, aiming to increase its captive production of extra neutral alcohol (ENA) to 100% for its whisky portfolio. This move is expected to enhance cost control and supply security. Additionally, investments in malt production are being made to secure supplies for premium brands and potentially launch single malt whisky.

Allied Blenders' performance has already shown positive results, with gross margins rising from 37% in FY24 to 45.6% in FY26, and EBITDA margins expanding from 7.3% to 13.8%. Nomura expects further improvements as new capacity is added. The brokerage firm forecasts a 26% Compound Annual Growth Rate (CAGR) in earnings per share (EPS) over FY26-FY29 and values the stock at 48 times September 2028 earnings.