Associated Alcohol & Breweries Ltd : A stock with Huge Potential
CMP : 265-270
BSE CODE : 507526
Market Cap : 485 Crore
LISTED ON : BSE
TARGET : 600/800
TIME-FRAME : 12-18 Months
History of the Company :
Associated Alcohol and Breweries Ltd was incorporated in the year 1989 and have been leading supplier of IMIL to Government of Madhya Pradesh. In 2017-18 company was present in Delhi and Madhya Pradesh. In 2018-19 company plans to enter 5 more states namely Kerala, Maharashtra, Goa , Pondicherry and Chhattisgarh.
As a leading player in alcohol industry in India, company has presence in every aspect of value chain. Company holds portfolio for manufacturing international brands like Bagpiper Whisky, MC Dowell No.1 Celebration Rum, White Mischief Vodka,Blue Riband Gin, Director Special Black.
Extra Neutral Alcohol (ENA) is a vital ingredient in the making of an alcoholic beverage. Associated alcohol and Breweries Ltd supplies this vital ingredient to many leading manufacturers under a special agreement. In the IMFL segment, the company has an understanding with reputed companies like Diageo (owner of brands like Smirnoff vodka and johnnie Walker Scotch Whisky), Mason & Summers and Diageo-Radico. These companies buy a total 50-50% of the total IMFL produced by company. The balance production is used for direct supplies to the branded suppliers across the country, apart from manufacturing it has it's own branded products.
In-house brand names of the company include jamaican magic rum, titanium tripple distilled vodka, central province whiskey etc. Franchise brand include black dog, smirnoff, captain morgan etc.
In 2016-17, 20% of revenues came from IMFL and 3% of it was from premium offerings. Moving forward, by 2020, company expects to increase the IMFL revenues to 50%, and 50% of IMFL revenues will be from premium varities.
In the beginning, 100% of power was sourced from the grid. In 2016-17 Company derived 60% of electricity needs through a high-pressure turbine. The rest was acquired from solar energy and the grid. Company intends to be more than self-sufficient for it's electricity needs.
Main Business Activities :
- Potable Alcohol
Financials of the Company :
- Profit After Tax (PAT) for the year ended on 31st March,2018 has been reported at Rs 25 Crore and turnover at Rs 324 Crore.
- As per the numbers as on 31st March,2018 the company has generated Return on Equity of approx. 24% , Return on Capital Employed of 32% and Return on Assets of 19%
- The company is a regular dividend paying company and has paid dividend for past 5 consecutive years.
- Debt to Equity ratio is below 1 and is reasonable in nature
- The company has carried out and completed a major expansion in 2018 which has resulted in 50% capacity expansion. It has gone live from August 2018 and it will yield in higher top and bottom line from Q3. Entire Capex was self-funded.
- Company plans to further carry out another 100% capacity expansion from current levels to be completed by 2021
Investment Rationale : Why to Invest in this Stock ??
- Shareholding of the promoters in the company is 59% as on 30th September,2018 which strongly indicates interest of promoters in growth of the company.
- Market Cap to Sales Ratio : 1.38 is attractive for an Alcohol/brewery company
- Technically on chart the stock appears to have completed bottom formation which was going on since past 2-3 months and is ready for surge soon.
- At current price of 265 Rs per share and EPS of 17 Rs on trailing basis , the stock is presently trading at an attractive P/E ratio of 15
- At a forward reasonable P/E of 25 and EPS of 25.00, we expect the stock price to soar higher atleast to 625 and higher levels in coming time.
Disclaimer Note: The above is not a research report but information as available on public domain and it should not be treated as a research report. Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations.
Disclosure: It is safe to assume that I might have Associated Alcohol and Breweries Ltd in my portfolio and hence my point of view can be biased. Readers should perform own due diligence before investing. We do not assume any responsibility or liability resulting from the use of information , judgments and opinions for Trading or Investment purposes on the Blog.
