India’s second-largest domestic spirits maker by volume, Allied Blenders and Distillers, expects inflationary pressures driven by geopolitical disruptions in West Asia to remain a near-term challenge for the alcoholic beverages industry, even as it sharpens its focus on premiumisation and overseas expansion.

Alok Gupta, managing director and CEO of the company, said rising energy prices linked to the West Asia conflict have pushed up packaging costs, particularly glass and polymers, prompting the industry to seek price increases from state governments.

“The inflationary pressures are largely to do with the West Asia war,” Gupta told Fortune India. “Increases are only on account of energy price and on account of polymer. Both are linked to crude or gas.”

He added that the company expects the pressure to ease over the next few months if the conflict stabilises. “We believe that this is a short-term adverse wave which will correct itself very quickly,” he said.

The company, known for brands such as Officer’s Choice, Sterling Reserve and ICONiQ White, said the impact is more manageable in the spirits business because packaging costs are spread across glass, PET bottles and tetra packs, unlike the beer industry, which relies heavily on glass bottles and aluminium cans.

Gupta said the industry body has already approached several state governments seeking approval for price hikes to offset the temporary rise in costs. “Discussions are on to take meaningful price increases to meet the short-term cost,” he said, adding that talks have already begun in markets such as Telangana.

Premium portfolio drives growth

Even as premiumisation continues to reshape alcohol consumption trends in India, the company’s strategy is not merely about premiumisation but about identifying profitable “state-brand combinations” where it can deploy capital efficiently and gain market share.

Currently, 47% of the company’s volumes come from its prestige and above (P&A) portfolio, while the segment contributes 57% of overall value. The company expects the P&A share to cross 50% of volumes over the next two years and contribute 70% to 75% of value.

“Consumers are moving towards drinking better,” Gupta said. “Value growth is far higher than volume growth.”

India remains overwhelmingly a dark spirits market, with whisky accounting for nearly two-thirds of overall consumption and dark spirits making up about 95% of the market. Officer’s Choice continues to remain the company’s largest cash-generating brand. Gupta said the company has improved gross margins on Officer’s Choice to levels comparable with premium and prestige brands. “We make similar margins on Officer’s Choice,” he said, referring to the industry’s typical 45% to 50% gross margin range in the prestige and above category.

ABD sees strong momentum in the premium whisky segment through brands such as ICONiQ White, Officer’s Choice Blue and Sterling Reserve. ICONiQ has crossed 10 million cases and could eventually emerge as a segment leader. It commands roughly 18 million cases in a 120 million-case whisky segment, translating into nearly 15% market share.

While white spirits such as gin and vodka are gaining traction on a smaller base, the broader consumption pattern is unlikely to change dramatically over the next three to five years.

“The higher the price point, higher the growth,” he said.

The company is also building its luxury portfolio, where it currently has nine brands across whisky, gin, vodka and rum. Gupta said the luxury segment contributes only about 3% by volume but nearly 20% of industry profits.

Allied Blenders is simultaneously investing in backward integration to improve margins and strengthen supply chain resilience. The company has announced capital expenditure of around ₹1,000 crore across extra neutral alcohol, malt and PET manufacturing capacities.

By FY28, the company expects these investments to add nearly 300 basis points to margins, followed by another 100 basis points by FY29.

The company is also expanding internationally. Its footprint has grown from 24 countries in FY25 to 36 countries in FY26, with plans to reach nearly 50 markets over the next two years.

The recently signed India-UK free trade agreement could further support profitability for the company. Allied Blenders imports significant quantities of scotch as a raw material and expects the agreement to improve margins by nearly 200 basis points once duties are reduced.

“For us, it will be about improvement in our margins by 200 basis points,” Gupta said.

For FY26, the company reported its highest-ever annual EBITDA of ₹568 crore, up 25.8% year-on-year, while profit after tax (PAT) rose 13% to ₹220 crore. Revenue from operations grew 11.5% to ₹3,949 crore.

In the March quarter, revenue rose 9.1% to ₹1,020 crore, while quarterly EBITDA climbed 21.2% to a record ₹182 crore with margins expanding 179 basis points to 17.9%. However, quarterly PAT fell 52.1% to ₹38 crore due to one-time costs. The board has also recommended a dividend of ₹5.4 per share for FY26.