Hello Sir,
Hope you are doing well.
Everyone is looking for good investment opportunities that can turn out to be multibaggers.
I was recently looking at Associated Alcohols & Breweries. The company has its proprietary brands in the IMFL segment and is also the contract manufacturer of very renowned brands like – Black Dog, VAT 69, Smirn Off, etc.
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Coming back to Associated Alcohols, the company is looking to continuously introduce new and premium IMFL products and at the same time expand into newer markets like Maharashtra, Goa and Karnataka.
Below, we have shared our notes from the Q2 FY 25 con-call of the company to understand the outlook for the business.
Associated Alcohols & Breweries – Notes from Q2 FY 25 concall
– Introduction
- In Q2 FY25, net revenue increased by 50% to INR 255 crores, compared to INR 170 crores in the same period last year
- The company maintained a 40% gross margin, despite rising input costs
- Associated Alcohols & Breweries Limited reported significant progress in Q2 FY25, especially regarding its strategic focus on premiumization
- The company’s premium products, including Hillfort and the handcrafted gin, Nicobar, are contributing to both volume and revenue growth
- The company plans to enter new markets in the coming quarter, with products expected to become available in Maharashtra, Goa and Karnataka
– Ethanol Plant
- The current utilization rate of the company’s ethanol plant is 100%
- Peak revenue potential for the plant is estimated at around INR 300 crores
- The price of ethanol remains the same as last year, at INR 71.8
- The company is targeting long-term EBITDA margins of around 7% to 8% for its ethanol business. It was low in this quarter due to the sudden increase in raw material prices
– Market expansion and Product launches
- The company’s primary revenue comes from Madhya Pradesh and Kerala. This is followed by Delhi and Chhattisgarh, which are currently in a growth phase
- The company expects to achieve double-digit growth, primarily driven by new premium products, like the ready-to-drink product planned for launch this quarter, and a tequila product planned for launch in Q4
- The company’s expansion into Maharashtra, Goa and Karnataka is also expected to contribute to double-digit growth
- Regarding expansion into other states, the company has adopted a strategy of: Manufacturing via a third party in Goa, similar to its approach in Kerala, to cater to the markets in Pondicherry, Maharashtra and Goa
- The company plans to begin generating revenue from Maharashtra in Q3, and from Goa and Karnataka by the end of Q3 or in Q4
- The company plans to enter the Maharashtra, Goa and Karnataka markets with its premium product range only
– IMFL target
- The company’s current IMFL segment contributes around 23% of revenue, including both proprietary and licensed products
- The company is targeting for its IMFL segment to account for 50% of its turnover
- The company forecasts 15% to 20% growth for the IMFL proprietary segment, and 10% to 12% growth for the premium and super premium segments
- Current EBITDA margins are around 16% for IMFL proprietary products and 14% for IMFL licensed brands.
– Margin pressure
- The company’s operating margins have declined substantially over the last three years, primarily due to increases in raw material and packing material costs
- The price of raw materials has increased by more than 50% in the last three years
- Grain prices have increased from INR 12,000 to INR 14,000 to INR 25,000
- The price of glass and other packaging materials has also increased after COVID-19 and the war in Ukraine.
- There was also an increase in advertising and sales promotion costs, due to the opening up of new states and retail activities in Delhi and Chhattisgarh
– Guidance
- The company expects double-digit volume growth of around 15% in its proprietary brands for FY25
- The company is targeting overall revenue growth of 15% to 20% year-on-year, translating to an average CAGR of 15% over the next three years
- The company aims to achieve EBITDA margins of 11% to 13% in FY25, driven by the growth of the IMFL segment and price increases
- The management expects EBITDA margins to revert to the historical level of 15% to 16% by FY26, assuming raw material prices remain under control
(End)
Disclaimer: This is not a recommendation to buy/sell any of the stocks mentioned above. The securities quoted are for illustration only and are not recommendatory.
Best Regards,
Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.
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