Associated Alcohols & Breweries Ltd - 40.00 Rs
Incorporated in 1989, Associated Alcohols & Breweries Ltd (AABL) is one of the largest distilleries in India and the flagship company of the Associated Kedia Group having interests in liquor manufacturing and bottling. It is among the few companies in India to have a presence in every aspect of the value chain from potable alcohol, country liquor, Extra Neutral Alcohol (ENA), grain spirit (extra fine grade, triple distilled), rectified spirit, Indian Made Foreign Liquor (IMFL) to bottling scotch whisky. It has its own IMFL brands across entire range of whisky, rum, gin and vodka to cater Indian customers and even boasts of having strong portfolio of popular brands such as Red & White, James McGill & Bombay Special in Whisky, London Bridge in Gin and Jamaican Magic in Rum. Besides, AABL is a leader in Madhya Pradesh and sells country liquor in 10 districts through the Government and has sales of approx 2.5 million cases annually. Apart from marketing its own brands, AABL also manufactures and bottles IMFL and Scotch whisky for many Indian and international companies. Broadly, it derives 25% of revenue from country liquor, 25% from IMFL segment and balance 50% comes from bulk supply of ENA & grain spirit.
AABL has a sophisticated manufacturing facility at Khodigram in Indore-Madhya Pradesh, with a rare operational flexibility to manufacture alcohol through grain and molasses route thus providing insulation against raw material price or supply volatility. With record grain prices, most of the alcohol is produced from molasses. Presently, it has an installed production capacity of 42 million litres per annum. However plant is working at 70% capacity utilization as it made a production of 30 million litres for FY08. In addition, company has 10 bottling lines in two different sections equipped to pack around 1,00,000 cases per month. Remarkably, AABL is a sole supplier of triple distilled fine grade grain spirit to Diageo for Smirnoff Vodka in India. It is also the only liquor company in India bottling Glen Drummond single malt Scotch whisky for Mason & Summers, a leading liquor company. It also manufactures and bottles reputed international brands like HAIG Scotch Whisky, Captain Morgan Rum, Master Stroke Royal Classic Whisky etc. At the same time it is looking to market its own brand in the international market.
To capture domestic and international demand and increase its share, company has chalked out a huge greenfield expansion plan under a capex of Rs 50 cr to re-configure its production process to extract greater efficiency. Accordingly it is setting up a multi-pressure ENA plant to replace the older plant and increase the installed capacity to 65 million litres per annum. It also intends to put up a 2 MW bio-gas fuelled cogeneration captive power plant with a new 20 tons per hour boiler. Further a Reverse Osmosis water treatment plant with a 1,650 cubic mtr capacity per day is being set up and a plant to collect, pressurize and sell carbon dioxide is being considered. However all the above projects are estimated to complete by mid 2009.
Meanwhile, AABL has been able to improve its profit margin due to strict cost control. It has recorded 200 basis point increase in OPM to 8% in FY08 from 6% in FY07 and is further slated to register 10% OPM for FY09. Its sales increased by 50% to Rs 120 cr and PAT zoomed up 140% to Rs 5.60 cr for FY08 posting an EPS of Rs 8 on current equity of Rs 6.80 cr. However, company has allotted 35 lac warrants in June 2007 which is due to get converted by Dec 2008 @ 24 Rs per share and will dilute the equity by 50% to Rs 10 cr. So for FY09 on the back of better capacity utilization, AABL may clock a turnover of Rs 150 and PAT of Rs 7 cr which translates into EPS of Rs 7 on fully diluted equity of Rs 10 cr. At a fair valuation by 8x times, scrip can shoot up to Rs 60 within a year. But equity dilution is a concern as to fund its capex company is looking to raise Rs 30 cr by equity route which may further dilute the equity to Rs 15 cr.
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