| Price | Lot Size | Issue Date | Issue Size |
|---|---|---|---|
| ₹ 267 to ₹ 281 | 53 | 25th June, 2024 – 27th June, 2024 | ₹ 1,500.00 Cr |
Company Overview
Having established a market leadership position in the alcoholic beverages market in India, Allied Blenders and Distilleries Ltd. is one of the largest Indian Owned-India Made Foreign Liquor (IMFL) company offering a broad range of alcoholic beverages such as whisky, brandy, rum, vodka, and gin. The company is one of the four spirit companies in India that has a pan-India sales and distribution footprint and is also a leading exporter of IMFL. After entering into the mass premium whisky segment in 1988, its brand “Officer’s Choice Whisky” has been one of the top-selling whisky brands all over the globe. Over the years, the company has expanded and introduced its products in various categories and segments. As a result, the company had an estimated market share of 12% in the Indian whisky market as of March 2023. The company owns and operates its distillery from the state of Telangana, having an in-house distillation capacity of Extra Neutral Alcohol (ENA) of 600 lakh liters per annum. The company also has extensive bottling facilities across India, either operated by the company or contract bottling facilities on an exclusive and non-exclusive basis. In order to maintain the legacy of the brand and company, the company ensures the quality of its products by maintaining oversight and a quality control check at its manufacturing and bottling locations. In order to facilitate quality control, the company facilitates procurement of raw materials such as ENA and packing materials to its bottlers. Such internal practices combined with experienced management has enabled the company to capitalize on the growth opportunities in the Indian alcoholic beverages industry over the years.
Objects of the issue:
The net proceeds from the fresh issue will be used towards the following purposes:
- Prepayment or scheduled repayment of a portion of certain outstanding borrowings availed by the company and;
- General corporate purposes.
Investment Rationale:
Well-positioned to benefit from tailwinds in the Indian IMFL industry
India is one of the fastest-growing alcoholic beverage markets in the world. However, India’s per capita consumption is significantly lower than the global per capita consumption. The low per capita consumption coupled with positive demographic factor which adds more than 13 million people each year to the population eligible for drinking, makes India an attractive market for alcoholic beverages. Therefore, there exists significant potential for future growth in the alcoholic beverages market in India. IMFL, the largest segment of the Indian alco-beverage market, is expected to grow at a CAGR of 5.7% in volume terms between FY2023-28. Various other factors such as the growing number of people joining the workforce and dismantling of social barriers to alcohol consumption is set to drive the growth in the alcoholic beverage market in India. Hence, we believe that the company is well-positioned to reap the benefits emanating from sectoral tailwinds backed by an extensive portfolio of offerings across the mass premium segment.
Access to an extensive pan-India distribution network, with an ability to scale business
The Indian alco-beverage industry operates in a highly regulated environment with state-specific policies impacting industry volumes. Therefore, high inter-state duties compel Indian spirits producers to set up owned or engage third-party manufacturers in every state. Also, licenses are required to produce, bottle, store, distribute, and retail alco-beverage products. Due to these factors, distribution is also highly controlled, both at the wholesale and retail levels. All these factors serve as potential entry barriers for new players. Further, distribution of alco beverage products is highly controlled by state governments and the entry of new players in distribution is prohibitive due to high regulation across states and strong relations between current players and retail outlets which may include exclusive arrangements. The company’s extensive operations across India, presence in multiple states, and current capacity ensure that the company is able to effectively address these issues which has allowed it to garner a significant share of the mass premium market and a noticeable and growing market share for their premium products
Valuation
Over the years, India has been one of the fastest-growing alcoholic beverage markets in the world, with a consumption of pure alcohol estimated to be 3.2 liters per capita in 2023. The IMFL is the largest segment of the Indian alco-beverage market both in volume and value terms. With the Indian alco-beverage market crossing more than a billion cases per annum mark in FY23, a volume-based analysis shows that the alcohol beverage market in India is almost equally divided between country liquor, IMFL and beer with a small contribution from wines in FY23. Various factors such as lower per capita consumption of alcohol and positive demographic factor which adds more than 13 million people each year to the population eligible for drinking has made the country an attractive market for alcoholic beverages. Over the years, the IMFL segment has recorded sales of 38.5 crore cases in FY23, growing at around 8% YoY, and is expected to reach 145.1 crore cases in volume by FY28. With the figures substantiating industry growth, the company is set to benefit from such industry dynamics. By leveraging their strength in popular segments by carrying out branding, the company is set to tap into the growing demand of IMFL. On the financial front, revenues grew to Rs.71,057 million in FY 23 from Rs. 63,788 million in FY21 whereas EBITDA and PAT fell to Rs.1,850 million and Rs.16 million in FY23 from Rs.1,940 million and Rs.127 million in FY21, respectively. On the valuation front, the issue looks expensive on the price-to-earnings multiple front and ahead of its peer set. However, looking at the alcohol industry dynamics and company’s strong positioning in the IMFL landscape, we would advise high-risk investors to “Subscribe” to the issue for listing gains.
