Shares of Allied Blenders and Distillers Ltd. surged as much as 4% on Thursday, November 14, after brokerage firm Antique initiated coverage on the stock with a ‘Buy’ recommendation and a price target of ₹405.

Antique’s price target implies a potential upside of 32% on Allied Blenders from Wednesday’s closing levels.

Allied Blenders is the third largest IMFL (Indian Made Foreign Liquor) company in India, with 8% market share and four millionaire brands in its portfolio. Going ahead, Antique expects a turnaround in the company’s performance.

This turnaround will be driven by three key factors:

1) New launches in its premium portfolio and scaling up brands in the Prestige & Above (P&A) segment, backed by strong distribution network. Historically, Allied Blenders has successfully scaled brands like SR B7 and ICONiQ White, turning them into millionaire brands within 1-2 years of launch.

2) Focusing on profitable growth in the popular segment, where other large players are reducing focus, by strategically targeting states with higher gross margins.

3) Improving profitability through premiumisation of the portfolio, cost rationalisation in packaging, and other overhead reductions.

Additionally, the company’s capital expenditure plans of ₹525 crore for backward integration and strengthening the supply chain (PET bottles) should aid in margin expansion over the long term.

According to the brokerage, the premiumisation trend in the alcoholic beverages sector is here to stay, which provides superior growth visibility over the long term.

This, along with Allied Blenders and Distillers’ improved execution and efficiencies, is expected to help the company deliver revenue and EBITDA CAGRs of 9% and 29%, respectively, from FY24-27. This will be driven by 13% volume and 15% value growth in the P&A segment.

Antique expects a significant improvement in the company’s performance with focus on driving premiumisation by expanding the P&A brand portfolio and driving profitable growth in the popular segment.

Currently, Allied Blenders is trading at 40%-60% discount to peers. With an improvement in its performance, the brokerage expects the valuation gap to narrow down to 20%-40%.

Shares of Allied Blenders and Distillers Ltd. are currently trading 2.40% higher at ₹315.60. The stock has risen over 13% from its IPO price of ₹281.