Associated Alcohols & Breweries Ltd - Multibagger Pick

The Ace Investor

Associated Alcohols & Breweries Ltd

  Listed on BSE: (CODE: 507526 SCRIP NAME: ASALCBR)
Currently trading around 180 with a market cap of around 180 crores.

Promoters hold 58.45% stake.
It has a Debt of around 45 crores.

Total Reserves are around 59 crores.

Established in 1989 Associated Alcohols & Breweries Ltd (AABL) is one of the largest distilleries in India headed by the Kedias of of The Associate Kedia Group.

The company has presence in every aspect of value chain: All varieties of portable alcohols, Country liquor, High quality rectified spirits, Extra Neutral Alcohol, Extra fine triple distilled grain spirit, IMFL in whisky brandy rum gin vodka categories, Bottling scotch whisky for international brands.

Company has great relationship with Liquor Majors which buy almost 60% IMFL produced by AABL and the remaining is used for direct supplies to to branded suppliers across the country, apart from manufacturing its owned brands.

AABL has someone of the top selling brands under its kitty, Top AABL licensed brands are: Blackdog, Smirnoff Vodka, Captain Morgan Rum, HAIG Scotch, Glen Drummond, Royal Crown.

Many of these brands are owned by United Spirits Ltd.

AABL apart from licensed brands also started a range of owned brands like: Mc Gill Whisky, Jamaican Magic Rum, Bombay Special, London Bridge gin, Red & White Whisky.

The company has its facility in Indore.

AABL has chalked out a huge greenfield expansion plan to capture domestic and international demand and serve all the segments of alcohol ranging from country liquors to IMFL. This plan includes setting up a multi-pressure ENA plant, a collector plant, a Reverse Osmosis Water Treatment Plant and a 2 MW power plant.

AABL is setting up a multi pressure ENA plant. This plant will completely replace the older plant and increase our production capacity from the present 42 MLPA to 65 MLPA. The multi-pressure ENA plant cuts down the stages in the manufacture and thus improves process efficiency.

Coming to the financials, AABL has shown great growth :-

As you can see the company has grown at a RAPID pace in five years from 90 crores topline it has come to almost 300 crores and H1-FY16 has been flat which means that the topline bump up was sustainable and now company is going to report results tomorrow which i expect to be good. United Spirits one of AABL's major client has reported good revenue bump up in Dec qtr.

The company also paid dividend for the first time in last many years in FY16.

The management has also approved 1:1 Bonus, final call on Bonus will be taken at the EGM on 22nd February 2016.

For full year 2016 it can be expected that last two quarters should be good, Means EPS of 15+ should be on the cards. 

Liquor sector is really hot right now, United Spirits which is also major client of AABL is trading at astronomical valuations because the brand ownership it has, It is often said that United Spirits after dust of previous management settles can be a significant Multibagger in next few years... All that said about future, AABL is already making money from the brands of USL.

Our earlier pick in liquor sector was Pincon Spirits Ltd which was given at 115 and it has now touched 150+ after bonus of 1:1 meaning it gained almost 160% after catching our attention. GM Breweries is another great story in this sector, Which went from Rag of 100 to Rich of 1000+ in just 1 year.

Irrespective of stock market conditions, In India the consumption theme is one of the best investment themes. One major hype has been Liquor Ban here and there but in reality, Major tax revenue for both central and state governments are from Liquor and Tobacco sector and no one in the world kills the goose that lays the golden eggs.

Promoters hold 58.45% stake, Some 5 Marwadi guys hold 2.22% stake together, Interestingly the regd. office of AABL has been in Kolkata and two Kolkata financial market entities Garnet Tradelink and Attic Dealcom both having same directors hold another 20% almost.

That means almost 80.67% equity out of total 9039600 shares are with promoters and other Marwardis means only approx 17 lakh shares might be left with small shareholders.

I feel Associated Alcohols & Breweries Ltd (AABL) is one multibagger opportunity in the market, with such great growth and wonderful positioning in the value chain it should be trading at really premium valuations on its EPS of 15, assuming 35 times valuations to its EPS would give stock price of 525+.

Key trigger for re-rating could be the 1:1 bonus which will drive liquidity in the stock that can improve the valuations.

At cmp of around 180, The stock is trading at a P/E of only around 12. 

Apart from the fundamentals, Technically too AABL is looking very bullish. AABL is close to breakout of Cup and Handle pattern on daily charts and a key thing to note is that the stock is having a Higher High and Higher Low trend which is really mid-term long-term bullish.

The market has been crashing nowadays and it looks like we are pretty much near the bottom now since if Nifty has to fall further the High Weightage biggies have to crash significantly but that does not look on the cards. Why we chose liquor sector right now is because, This sector is almost recession proof and as they say People Drink in Joy and also in Sorrow.

Note: The above is not a research report but information as available on public domain and it should not be treated as a research report.

Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”

Disclosure: It is safe to assume that i might have Associated Alcohols & Breweries Ltd in my portfolio and hence my point of view can be biased. Readers should consult their financial advisory before any investments.

:Links:

AABL website

AABL Screener

AABL latest Annual Report