Mount Shivalik Industries Ltd - 102.00 Rs

Incorporated in 1993, Mount Shivalik Industries (MSIL) is engaged in the business of manufacturing and marketing beer. It belongs to the well known Mount Shivalik group promoted by Bali family, who are pioneers in brewery’s business since 1970’s thru Mount Shivalik Breweries Ltd (MSBL), a group company. They were the first to introduce the concept of the super strong beer in India way back in 1984, with its flagship brand ‘Thunderbolt'. The group was also the first to bring in pub culture in north India by opening pubs in Chandigarh. Later, they diversified into hospitality sector too with Mount Shivalik Hotels and Resorts Ltd, which owns and runs Motels, beer gardens, pubs, highway restaurants and other recreational facilities. On the other hand, MSIL today specializes in production of strong as well as mild beer and markets then under various brands across India. ‘Thunderbolt’, ‘Torpendo’, ‘Punjab Extra Strong’& ‘Stroh super strong’ are its popular brand under strong beer category, whereas ‘Golden Peacock’ & ‘Stroh’s Premium Lager’ are its mild beer brands. MSIL also has the privilege to brew and market “Cobra” beer which is one of the most popular beer brands in the UK.

MSIL’s state-of-the-art brewery plant is located at Delhi-Jaipur highway, Dist. Alwar, Rajasthan with an intalled capacity of 300,000 hecto litres per annum. It is the single largest manufacturing unit of beer in Rajasthan. Notably, it produces international class beer under technical expertise and tie up with world leaders like M/s Stroh Brewery, USA & Cobra Beers, UK. Incidentally, company also has a small hospitality division which has recently opened its first restaurant-cum-bar at Jaipur in Feb’07. Meanwhile, its other group company MSBL, has also augmented its manufacturing capacity at its plant in Delhi-Chandigarh highway, Punjab. Together, they enjoy a market share of nearly 10% in India with dominant presence of about 25% share in north Indian market. Off late, the Indian breweries and distillery industry is witnessing accelerated consolidation with leading foreign players picking up controlling stake in domestic majors. And at one point of time, SAB miller, Heineken and Carlsberg were interested to acquire majority stake in Mount Shivalik group, but the deal didn’t match on the valuation front. It even makes sense for Cobra Beers to takeover this group, as they are quite bullish on Indian market and intends to increase their market share which is being dominated by King Fisher. Hence, to get better valuation the Mount Shivalik group is considering to restructure and consolidate its brewery business and may even merge its unlisted entity i.e. MSBL with the listed one i.e. MSIL. Once the decision is finalized and official announcement is made, the share price of the company will shoot up vertically.

Besides, as per unconfirmed reports a leading domestic major is also interested to acquire the company and has carried out the due diligence. Ironically the management is ready to shell out if they get their desired price. Considering this, lot of speculative interest has build up in the scrip as it has appreciated more than 50% in last few months. Fundamentally, MSIL reported excellent nos for H1FY08. Sales shot up 65% to 56.50 cr whereas PAT almost trebled to 5.20 cr. However on a conservative basis it may clock a turnover of 100 cr and NP of 6 cr for FY08. This works out to an EPS of Rs 10 on equity of 6.05 cr. For FY09 company has the potential to post an EPS of Rs 13 Rs. Thus, the company is currently discounted by merely 7x ~ 8x times against its expected FY09 earnings and is available reasonably cheap at an EV of 68 cr. Investors are recommended to accumulate at declines with a price target of 160~170 Rs in 15 months. And in case the merger of MSBL with itself fructifies or some MNC / domestic major stuck a deal to acquire the company, the scrip will be re-rated and may zoom past 200 Rs in no time.

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