Allied Blenders

By Geetanjali Kedia

about 5 months ago

IPO Size: Rs. 1,500 cr

Fresh Issue of Rs. 1,000 cr - to repay Rs. 720 cr of Rs. 798 cr gross debt
Offer for sale (OFS) Rs. 500 cr by the promoter (100% stake to drop to 81%)

Price band: Rs. 267-281 per share

M cap: Rs. 7,860 cr, implying 19% dilution

IPO Date: Tue 25^th Jun to Thu 27^th Jun 2024, Listing Tue 2^nd Jul 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

India’s 3^rd Largest Alcohol Company

Allied Blenders and Distillers is the largest Indian-owned Indian Made Foreign Liquor (IMFL) company and 3rd largest IMFL company in India, in volume terms, enjoying 8.2% volume market share. Four of its brands are Millionaire Brands (sold over a million 9-litre cases in one year) – the flagship Officer’s Choice, Sterling Reserve, Officer’s Choice Blue and ICONiQ.

Revenue yet to touch Pre-covid level

Company’s topline growth has been very slow. FY19 revenue was at Rs. 8,900 cr, whereas 9MFY24 revenue was at Rs. 5,911 cr. Annualising 9MFY24 revenue leads to Rs. 7,600 cr, much below pre-covid topline. Going by company’s historic growth, is unlikely to surpass pre-covid revenue even in FY25E. As against this, all listed peers (United Spirits, Radico Khaitan, Globus Spirits, Tilaknagar Industries) have far exceeded pre-covid revenue, and a few have more than doubled topline in last 5 years.

Dismal Margins

Besides slow topline growth, company’s margins also trail peers, by a significant amount. 9MFY24 PBT was at just Rs.19 cr, implying a paltry margin of 0.3%. Even post debt-repayment from fresh issue proceeds, FY25E PBT margin is expected to rise to barely 1.9%, implying RoE of only about 8.5%. Thus, even in near future, margins will not come closer to peers, all of which clocked 6-11% net margin in FY24.

Avoidable Interest Costs

Every year, company has been paying large sums as interest on delay in payment of statutory dues. These avoidable costs are quite high – Rs. 33 cr in FY23 and Rs. 31 cr in 9MFY24. Given FY23 PAT was at Rs. 4 cr, this highlights major flaws in company’s operations.

Expensively Priced

Interest cost savings due to debt repayment will increase PAT to about Rs. 120 cr in FY25E, from Rs. 4 cr in 9MFY24. This leads to FY25E EPS of about Rs. 4.3, translating to a PE multiple of 65x, which is seen very expensive for the poor historic growth, slim margin and single-digit RoE (despite being a consumer brand).

Even on peer comparison, pricing is ridiculously steep -

Market leader United Spirits, with 23% margin share, 11% net margin, 20+% RoE, is trading at a PE multiple of 60x
4^th ranking Radico Khaitan, having doubled topline from Rs. 2,063 cr in FY19 to Rs. 4,119 cr in FY24, is ruling at a PE of 84x
Globus Spirits’ topline has grown 2.5x in past 5 years, to Rs. 2,400 cr. Even with a 4% net margin, it is ruling at a PE of only 23x.
6^th ranking Tilaknagar Industries’ revenue has also doubled to Rs. 1,394 cr in FY24, from Rs. 661 cr in FY19, and company clocks 10% net margin, yet ruling at a PE of 35x.

Price of Rs. 117 per share of Oct 2022 is irrelevant, as it was to sole owner - promoter. This is anyway company’s 2^nd attempt at IPO, with the first filing done 2 years ago. Clearly taking advantage of the bull market!