Allied Blenders Q2 FY26: Strong Profit Growth Masks Valuation Concerns as Stock Tumbles 30%

The quarter-on-quarter profit growth of 13.70% came on the back of a 7.28% sequential revenue increase to ₹990.06 crores, with operating margins expanding to 12.67%. Despite these positive fundamentals, investor sentiment has turned decidedly cautious, with the stock trading 36.97% below its 52-week high of ₹719.95 and facing mounting valuation pressures at a P/E ratio of 49 times trailing earnings.

The beverage manufacturer's performance in the September quarter reflects a company navigating the delicate balance between growth ambitions and profitability. Whilst the topline expansion of 14.11% year-on-year demonstrates market share gains in India's competitive spirits industry, the stock's recent underperformance—losing 24.60% in just the past month—signals deeper concerns about sustainability at current valuations.

Financial Performance: Margin Expansion Amidst Revenue Growth

Allied Blenders delivered its strongest quarterly revenue performance in Q2 FY26, with net sales reaching ₹990.06 crores, up from ₹922.86 crores in the preceding quarter. The 7.28% sequential growth was accompanied by a year-on-year expansion of 14.11%, significantly outpacing the company's historical growth trajectory. The first half of FY26 witnessed consolidated revenues of ₹1,912.92 crores, representing a healthy 17.85% increase over H1 FY25.

Operating profit before depreciation, interest, and tax (excluding other income) stood at ₹125.42 crores in Q2 FY26, translating to an operating margin of 12.67%—the highest in recent quarters and a marked improvement from 11.91% in the year-ago period. This 76 basis points year-on-year margin expansion reflects improved operational efficiency and better cost management despite inflationary pressures in raw materials.

Net profit after tax margin for Q2 FY26 stood at 6.36%, up from 5.48% in the corresponding quarter last year. The improvement in bottom-line profitability was supported by controlled interest costs—₹29.81 crores in Q2 FY26 compared to ₹25.09 crores in Q2 FY25—and a stable tax rate of 24.98%. For the first half of FY26, consolidated net profit reached ₹120.87 crores, representing a substantial 105.48% growth over H1 FY25's ₹58.76 crores.

Employee costs increased to ₹63.94 crores in Q2 FY26 from ₹38.09 crores in the year-ago quarter, reflecting strategic investments in talent acquisition and retention. Depreciation remained relatively stable at ₹16.50 crores, whilst other income contributed ₹4.76 crores to the topline. The company's EBIT to interest coverage ratio improved to 5.18 times in the latest quarter, marking the highest level in recent periods and indicating enhanced debt servicing capability.

Operational Excellence: Capital Efficiency Drives Returns

Allied Blenders' return on equity (ROE) of 16.49% positions it favourably within the beverages sector, demonstrating superior capital efficiency compared to industry averages. This strong ROE reflects management's ability to generate attractive returns on shareholder capital, particularly impressive given the capital-intensive nature of distillery operations and the regulatory complexities of India's alcoholic beverages market.

The company's return on capital employed (ROCE) stood at 17.47% for the latest period, up from an average of 13.46% over recent years. This improvement in ROCE signals better asset utilisation and operational efficiency, with the company generating ₹17.47 of operating profit for every ₹100 of capital employed. The elevated ROCE relative to the cost of capital suggests the business is creating genuine economic value for shareholders.

Fixed assets increased to ₹630.64 crores in FY25 from ₹511.88 crores in FY24, reflecting ongoing capital expenditure in production capacity and infrastructure. This 23.19% growth in fixed assets positions the company for future volume expansion, particularly as it seeks to capitalise on premiumisation trends in the Indian spirits market. The company's sales-to-capital-employed ratio of 1.91 times suggests reasonable asset turnover efficiency.

The Valuation Conundrum: Premium Pricing Meets Reality Check

Allied Blenders trades at a trailing P/E ratio of 49 times, representing a modest discount to the beverages industry average of 54 times but a significant premium to its own historical valuation levels. The stock's price-to-book value of 8.14 times reflects market expectations of sustained high returns on equity, yet this multiple appears stretched given the company's growth trajectory and competitive positioning.

The enterprise value-to-EBITDA multiple of 27.75 times and EV-to-sales ratio of 3.57 times place Allied Blenders in "very expensive" territory according to traditional valuation frameworks. The company's market capitalisation of ₹12,846 crores implies expectations of robust earnings growth, yet the five-year sales CAGR of -21.20% raises questions about sustainability. The disconnect between historical performance and current valuation has contributed to the stock's recent underperformance.

The company's valuation grade has oscillated between "expensive" and "very expensive" over the past year, with the most recent assessment confirming the "very expensive" tag. This classification reflects not just absolute multiples but also relative positioning versus historical averages and peer group metrics. The 36.97% correction from 52-week highs has partially addressed valuation concerns, yet the stock remains elevated on most traditional metrics.

Peer Comparison: Middle-of-the-Pack Positioning

Within the beverages sector, Allied Blenders occupies a unique position—neither the most expensive nor the cheapest, but rather a middle-ground player seeking to balance growth aspirations with profitability. The company's P/E ratio of 49.39 times sits below sector heavyweights United Breweries (99.36 times) and Radico Khaitan (68.45 times), yet above Tilaknagar Industries (38.49 times).

Allied Blenders' ROE of 16.49% compares favourably against most peers, trailing only Varun Beverages (22.82%) and United Spirits (19.22%). This superior capital efficiency justifies a moderate valuation premium, yet the company's price-to-book ratio of 8.14 times remains reasonable relative to United Spirits (11.51 times) and Radico Khaitan (12.17 times). The debt-to-equity ratio of 0.58 indicates prudent financial leverage, positioning between the zero-debt Varun Beverages and the more leveraged Tilaknagar Industries.

The company's market capitalisation of ₹12,846 crores places it as the fifth-largest player in the peer group, reflecting its mid-tier positioning in India's spirits industry. Whilst larger competitors benefit from brand strength and distribution networks, Allied Blenders has carved a niche in the mid-premium segment with brands like Officer's Choice commanding significant market share in key states.

Shareholding Dynamics: Stable Promoters, Rising Institutional Interest

Promoter holding in Allied Blenders has remained rock-solid at 80.91% across the past five quarters, with no dilution or sell-down activity. This unwavering commitment from the promoter group—led by Bina Kishore Chhabria (58.2%) and Resham Chhabria J Hemdev (19.4%)—provides strong governance comfort and signals confidence in the company's long-term prospects. The absence of any pledged shares further reinforces this positive narrative.

Foreign institutional investor (FII) holding has shown a gradual upward trajectory, rising from 2.55% in December 2024 to 3.35% in December 2025. The consistent quarter-on-quarter increases—particularly the 39 basis points jump in the latest quarter—suggest growing international investor confidence despite the stock's recent price weakness. The presence of 67 FII investors indicates broad-based institutional interest rather than concentrated positions.

Mutual fund participation has also strengthened, with holdings increasing from 3.30% in March 2025 to 3.85% in December 2025. The 17 basis points sequential rise in the latest quarter, coupled with participation from 17 different mutual fund houses, demonstrates domestic institutional conviction. However, the complete absence of insurance company holdings (0.00% across all quarters) represents a notable gap in the institutional investor base.

Non-institutional holdings declined from 12.53% in December 2024 to 11.12% in December 2025, suggesting retail investor profit-booking or repositioning during the stock's volatile phase. The total institutional holding of 7.97% remains relatively low for a company of Allied Blenders' size, indicating significant room for institutional accumulation should the growth narrative strengthen.

Stock Performance: Stellar Annual Returns Overshadowed by Recent Weakness

Allied Blenders has delivered a one-year return of 16.65%, significantly outperforming the Sensex's 7.88% gain and generating positive alpha of 8.77 percentage points. This outperformance extends to sector comparison, with the stock beating the beverages index by a substantial 26.53 percentage points over the past year. However, this longer-term strength masks considerable recent turbulence.

The past three months have witnessed a dramatic reversal, with the stock plunging 30.01% compared to the Sensex's modest 2.86% decline. This 27.15 percentage points of negative alpha reflects a sharp reassessment of valuation multiples and growth expectations. The one-month performance of -24.60% further underscores the severity of the correction, with the stock surrendering gains accumulated over several quarters.

From a technical perspective, Allied Blenders currently trades in a "mildly bearish" trend that commenced on January 28, 2026, at ₹463.35. The stock has broken below all key moving averages—5-day (₹449.00), 20-day (₹506.07), 50-day (₹581.20), 100-day (₹574.78), and 200-day (₹499.98)—indicating sustained selling pressure. The immediate support level rests at the 52-week low of ₹278.90, whilst resistance emerges at the 20-day moving average of ₹506.07.

The stock's beta of 1.35 classifies it as a high-beta security, exhibiting greater volatility than the broader market. With an annualised volatility of 39.09%—significantly higher than the Sensex's 11.23%—Allied Blenders presents a high-risk, medium-return profile. The risk-adjusted return of 0.43 trails the Sensex's 0.70, suggesting investors are not being adequately compensated for the elevated volatility.

Investment Thesis: Quality Business Trapped in Valuation Quicksand

Allied Blenders presents a paradoxical investment case—a fundamentally sound business demonstrating improving profitability and operational efficiency, yet burdened by elevated valuation multiples that limit near-term upside potential. The company's Mojo Score of 54 out of 100 reflects this duality, placing it in "HOLD" territory with mixed signals across key investment parameters.

The quality assessment of "average" acknowledges both strengths and limitations. On the positive side, the company boasts a healthy ROE of 16.49%, zero promoter pledging, improving EBIT-to-interest coverage of 5.18 times, and a five-year EBIT CAGR of 38.70%. These metrics demonstrate operational competence and financial discipline. However, the negative five-year sales CAGR of -21.20%, moderate debt levels (debt-to-EBITDA of 3.03), and low institutional holding of 7.97% temper enthusiasm.

Outlook: What to Watch in Coming Quarters

The investment narrative for Allied Blenders hinges on the company's ability to sustain margin expansion whilst delivering consistent volume growth. The positive financial trend designation—driven by highest-ever quarterly sales and operating profit-to-interest coverage—provides near-term optimism. However, the bearish technical trend and valuation concerns create a challenging backdrop for fresh capital allocation.

For the company to justify its premium valuation, sustained revenue growth in the 15-20% range coupled with operating margins above 13% will be essential. Any slippage in these key performance indicators could trigger further valuation compression. Conversely, successful premiumisation initiatives and market share expansion in key states could provide upside catalysts.