Allied Blenders & Distillers Ltd. (Subscribe)

HighlightsIssue Size – 53,380,783 sharesIssue Open/Close – 25 June / 27 June, 2024Price Band (Rs.)  267-281Issue Size (Rs.) – 15,000 mnFace Value (Rs) 2Lot Size (shares) 53Allied Blenders and Distillers Limited (ABDL) is the largest Indian-owned Indian-made foreign liquor (IMFL) company and the 3rd largest IMFL company in India, in terms of annual sales volumes between FY14 and FY22. The company is one of the only four spirits companies in India with a pan-India sales and distribution footprint, and a leading exporter of IMFL, and had an estimated market share (in terms of sales volume) of 11.8 pct in the Indian whisky market for FY23.In 1988 they launched their flagship brand, Officers Choice Whisky. As of 9MFY24, their product portfolio comprised 16 major brands of IMFL across whisky, brandy, rum and vodka. Certain of their brands, such as, Officer’s Choice Whisky, Sterling Reserve, Officer’s Choice Blue and ICONiQ Whisky, are millionaire brands or brands that have sold over a million 9-litre cases in one year.Their products were retailed across 79,329 retail outlets across 30 States and Union Territories in India and they exported their products to 14 international markets, including countries in the Middle East, North America, Africa, Asia and Europe.The company owns and operates their distillery located in Rangapur, Telangana. Their in-house distillation capacity of extra neutral alcohol (ENA), the key material used in the manufacture of their products, is 600.00 lakh litres per year. They also have extensive bottling capabilities across India. As of 9MFY24, they relied on 32 bottling facilities, including bottling facilities owned and operated by them and contract bottling facilities both on exclusive and non-exclusive basis, for bottling their products.Out of the total proceeds of Rs. 15,000 mn, Rs. 7,200 mn would go towards the prepayment or scheduled re-payment of a portion of certain outstanding borrowings availed by the company. ~Rs. 2,800 mn would go towards general corporate purposes, and Rs. 5,000 mn would go towards existing selling shareholders of the company.Key HighlightsIndia is primarily a distilled alcohol market, with more than 92 pct of recorded pure alcohol consumption in the form of distilled spirits. India is one of the fastest growing alcoholic beverage markets in the world, growing from a small base of 1.3 litres per capita of recorded consumption of pure alcohol in 2005 to 2.7 to 3.12 litres per capita consumption in 2023. The size of the Indian alco-beverage sector was estimated at Rs. 3.2 trillion operates and it projected to grow at a CAGR of 11.3 pct and reach Rs. 5 trillion by FY28P.Over the years, ABDL has developed a well-recognized product portfolio, and transformed from a single brand company to a multi-product and multi-brand company with a presence across various categories and segments of the IMFL industry in India. They have 3 brands that cater to the premium segment, 5 brands that cater to the semi-premium segment. 3 brands cater to the deluxe segment and 6 brands cater to the mass premium segment.The mass-premium segment requires a large scale of operations, multiple units across various states, a strong distribution network, and the ability to deliver products cost-efficiently while maintaining product quality to match consumer expectations. ABDL believes that their Officer’s Choice Whisky is best positioned for this role and there is a natural barrier to new entrants given the significant entry barriers and complexities.ABDL’s extensive and pan-India network of bottling facilities ensures that they are able to manufacture products locally and at optimum cost without overlaying tariffs associated with inter-state movement, which also ensures that delivery to their distribution network is in a timely manner while aligning with various regulatory requirements.ABDL’s key strategies include: (i) increasing the market share of Officer Choice Whisky across regions; (ii) introducing new products within the premium, semi-premium and deluxe segments to strengthen presence in other categories (iii) continue to focus on improving operating efficiencies (iv) Evaluate growth opportunities through selective acquisitions; (vi) Focus on environmental and social practices; and (vii) enhance brand awareness and engagement through digital marketing.Net Sales (after deducting Excise duty) of the company has grown by ~15.75 pct CAGR During FY23, company reported net sales of Rs. 34,466 mn, which increased by ~17.16 pct YoY, while EBITDA fell by 5.54 pct YoY to Rs. 1,960 mn as EBITDA margin fell from 7.73 pct in FY22 to 6.23 pct in FY23. As of FY23, the company reported profit of Rs. 16.01 mn which was up 8.46 pct YoY. During 9MFY24, the net Sales/EBITDA/Profit came at Rs. 25,603 mn/Rs. 1,862 mn/Rs. 42.29 mn.Key RiskAn increase in taxes or a change in the tax calculation method may affect the demand for ABDL’s products and could adversely affect their business.Their operations are subject to extensive central and state regulations. Changes in the regulatory environment may cause them to incur additional costs or limit their business activities.ADL’s growth prospects may be harmed if they are unable to expand into the higher-priced segments of the alcoholic beverages market. In the higher-priced market segment, they currently do not have a material market presence in order to increase their revenues.ParticularsFY21FY22FY239MFY239MFY24Sales (Rs.mn)63,78871,96971,05653,89059,111EBITDA (Rs.mn)2,1302,0761,9611,4581,862EBITDA Margin9.07%7.73%6.23%6.14%7.27%Profit (Rs.mn)25.0814.7616.0128.8142.29Profit Margin0.11%0.05%0.05%0.12%0.17%ROCE26.45%25.13%25.87%18.80%*24.35%*ROE0.66%0.37%0.39%0.71%*1.03%*Net Debt/Equity2.392.051.851.891.88ParticularsUnited Spirits ltd.Radico Khaitan ltd.Globus Spirits ltd.Allied Blenders and Distillers ltd.Sales (Rs.mn)278,154127,43928,22571,056EBITDA (Rs.mn)16,6503,6782,5341,961EBITDA Margin15.70%11.70%12.00%6.23%Profit (Rs.mn)11,2582,0441,22216.01Profit Margin10.60%6.50%5.80%0.05%ROCE23.00%11.90%19.80%25.87%ROE18.80%9.30%13.80%0.39%Annual Sales Volume (mn cases)72.5028.2014.4032.20Working Capital Days62.0090.008.0031.00Net Debt/Equity0.000.300.301.80Net Debt/EBITDA-0.101.601.003.80ValuationAllied Blenders and Distillers Limited (ABDL) is the 3rd largest IMFL company in India, with 16 major brands of IMFL across whisky, brandy, rum and vodka. The company has pan-India sales and distribution footprint, and a leading exporter of IMFL, and had an estimated market share (in terms of sales volume) of 11.8 pct in the Indian whisky market for FY23. The company is planning to reduce its debts, which will reduce its financial costs and boost its profit. At the upper end of the price band of Rs. 281 the stock is priced EV/EBITDA of 31.3x of its annualized FY24E earnings. The issue looks fully priced; however, one can subscribe for listing gains.Also read: Why Is Financial Advisory Important?Disclaimer: The views shared in blogs are based on personal opinions and do not endorse the company’s views. Investment is a subject matter of solicitation and one should consult a Financial Adviser before making any investment using the app. Investing using the app is the sole decision of the investor and the company or any of its communications cannot be held responsible for it.