ASSOCIATED ALCOHOLS & BREWERIES LTD ISIN… · ASSOCIATED ALCOHOLS & BREWERIES LTD Result Update (PARENT BASIS): Q4 FY18 CMP: 313.60 JUNE 8th, 2018 Overweight ISIN: INE073G01016 Index

Document code: FOTL_080620184_4 Copyright © 2016 Firstobject Technologies Ltd. All rights reserved

ASSOCIATED ALCOHOLS & BREWERIES LTDResult Update (PARENT BASIS): Q4 FY18

CMP: 313.60 JUNE 8th, 2018

Overweight ISIN:INE073G01016

Index DetailsSYNOPSIS

Established in 1989 Associated Alcohols &Breweries Ltd (AABL) is one of the largestdistilleries in India headed by the Kedias of TheAssociate Kedia Group.

The company has achieved a turnover of Rs. 778.05mn for the 4th quarter of the FY 2017-18 as againstRs. 657.89 mn in the corresponding quarter of theprevious year, an increase of 18.26%.

During the quarter, EBIDTA stood at Rs. 114.48 mnas against Rs. 104.41 mn in the correspondingperiod of the previous year, up by 9.65%.

PBT stood at Rs. 74.42 mn in Q4 FY18 against Rs.69.35 mn in the corresponding quarter of theprevious year.

During the quarter, net profit increased by 13.81%to Rs. 46.41 mn from Rs. 40.78 mn in thecorresponding quarter ending of previous year.

EPS of the company stood at Rs. 2.57 in Q4 FY18as against Rs. 2.26 in the corresponding quarter ofthe previous year.

The company has recommended a dividend of 10%i.e. Rs. 1.00/- per Equity Share of Face Value of Rs.10/- each for the year ended March 31, 2018.

During FY2017-18, the revenues of the companygrew 11.74% to Rs.3252.40 mn as compared to Rs.2910.67 mn in previous financial year.

In FY18, PAT of the company has increased by48.94% to Rs.251.89 mn from Rs.169.12 mn incorresponding period of the previous year.

Net sales and PAT of the company are expected togrow at a CAGR of 9% and 22% over 2017 to2020E, respectively.

Stock DataSector Breweries & DistilleriesBSE Code 507526Face Value 10.0052wk. High / Low (Rs.) 421.75/115.05Volume (2wk. Avg.) 68000Market Cap (Rs. in mn.) 5669.64

Annual Estimated Results(A*: Actual / E*: Estimated)Years(Rs in mn) FY18A FY19E FY20ENet Sales 3252.40 3636.18 4072.52EBITDA 545.70 609.76 676.32Net Profit 251.89 285.07 318.82EPS 13.93 15.77 17.63P/E 22.51 19.89 17.78

Shareholding Pattern (%)

As on Mar 2018 As on Dec 2017

Promoter 58.45 58.45

Public 41.55 41.55

Others -- --

1 Year Comparative Graph

ASSOCIATED ALCOHOLS & BREWERIES S&P BSE SENSEX

PEER GROUPS CMP MARKET CAP EPS(TTM) P/E (X)(TTM) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)Associated Alcohols & Breweries Ltd 313.60 5669.64 13.93 22.51 4.69 10.00Som Distilleries and Breweries Ltd 259.90 7153.10 9.17 28.34 4.45 15.00Globus Spirits Ltd 131.10 3775.60 2.42 54.17 0.99 0.00Pincon Spirit Ltd 14.75 704.90 10.35 1.43 0.48 7.50


QUARTERLY HIGHLIGHTS (PARENT BASIS)

Results updates- Q4 FY18,

(Rs in million) Mar-18 Mar-17 % Change

Revenue 778.05 657.89 18.26%

Net Profit 46.41 40.78 13.81%

EPS 2.57 2.26 13.81%

EBIDTA 114.48 104.41 9.65%

Revenue for the 4th quarter stood at Rs. 778.05 million from Rs. 657.89 million, when compared with the prior year

period, up by 18.26%. During the quarter, net profit was Rs. 46.41 million as compared to Rs. 40.78 million in the

corresponding quarter ending of previous year, rose by 13.81%. Reported earnings per share of the company stood at Rs.

2.57 in Q4 FY18 as against Rs. 2.26 in the corresponding quarter of the previous year. Profit before interest, depreciation

and tax stood at Rs. 114.48 million as against Rs. 104.41 million in the corresponding period of the previous year, up by

9.65%.

Break up of Expenditure

Break up ofExpenditure

Value in Rs. Million

Q4 FY18 Q4 FY17 %Change

Cost of MaterialConsumed 355.85 394.96 -10%

Purchase of Stock inTrade 0.45 5.61 -92%

Employee BenefitExpenses 59.72 55.85 7%

Depreciation &Amortization Expense 28.27 26.97 5%

Power &Fuel 74.58 53.77 39%

Other Expenses 188.62 119.53 58%


COMPANY PROFILE

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.

The company has got the facility to blend and bottle both India made foreign liquor and country liquor, the core and focus

has been mainly on country liquor segment. The company has added a premium range of IMFL brands to its portfolio.

Company has great relationship with Liquor Majors which buy almost 60% IMFL produced by AABL and the remaining

is used for direct supplies 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.


FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as of March 31, 2017 -2020E

FY17A FY18A FY19E FY20EASSETS1) Non-Current Assets

a) Property, Plant And Equipment 850.74 795.80 857.24 908.67b) Capital Work in Progress 48.18 227.06 329.24 423.40c) Intangible Assets 9.00 3.02 3.62 4.24d) Financial assets

i) Investments 23.47 26.76 29.70 31.78ii) Loans 8.74 11.92 13.70 14.66iii) Other Financial Assets 20.59 5.51 6.84 7.86

e) Other Non -Current Assets 64.73 78.06 92.11 106.85Sub Total - Non Current Assets 1025.46 1148.12 1332.44 1497.46

2) Current Assetsa) Inventories 285.59 380.74 456.88 527.70b) Financial Assets

i) Investments 0.00 0.00 0.00 0.00ii) Trade Receivables 175.24 188.92 209.70 248.96iii) Cash And Bank Equivalents 30.64 25.41 28.71 34.17iv) Other Balances with Banks 5.03 16.79 21.16 26.24v) Loans 110.36 206.73 264.61 309.59vi) Other Financial Assets 4.82 5.75 6.33 6.83

c) Other-Current Assets 55.07 48.74 54.10 57.35Sub Total - Current Assets 666.75 873.08 1041.50 1210.84

Total Assets (1+2) 1692.20 2021.20 2373.94 2708.30EQUITY AND LIABILITIES1) EQUITY

a) Equity Share Capital 180.79 180.79 180.79 180.79b) Other Equity 788.76 1026.90 1311.97 1630.79

Total Equity 969.55 1207.69 1492.76 1811.582) Non Current Liabilities

a) Financial Liabilitiesi) Borrowings 81.65 32.60 24.78 22.05ii) Deferred Tax Liabilities (Net) 95.45 79.41 66.71 62.70

b) Non -Current Tax Liabilities 0.76 0.76 0.80 0.82Sub Total - Non Current liabilities 177.87 112.78 92.29 85.57

3) Current Liabilitiesa) Financial Liabilities

i) Borrowings 162.22 112.37 98.89 109.77ii) Trade Payables 167.91 195.75 217.28 230.32iii) Other Financial Liabilities 129.07 236.16 283.39 257.88

b) Other Current Liabilities 38.17 76.17 91.41 104.20c) Short-Term Provisions 8.22 7.68 7.91 8.15d) Current Tax Liabilities (Net) 39.21 72.60 90.02 100.82Sub Total - Current Liabilities 544.79 700.73 788.89 811.14

Total Equity And Liabilities (1+2+3) 1692.20 2021.20 2373.94 2708.30


Annual Profit & Loss Statement for the period of 2017 to 2020E

Value(Rs.in.mn) FY17A FY18A FY19E FY20E

Description 12m 12m 12m 12mNet Sales 2910.67 3252.40 3636.18 4072.52

Other Income 26.39 30.75 35.97 41.01

Total Income 2937.06 3283.14 3672.15 4113.53

Expenditure -2514.56 -2737.45 -3062.39 -3437.21

Operating Profit 422.50 545.70 609.76 676.32

Interest -41.02 -38.29 -42.12 -44.64

Gross profit 381.47 507.41 567.64 631.68

Depreciation -109.47 -113.17 -122.22 -130.78

Profit Before Tax 272.00 394.24 445.42 500.90

Tax -102.88 -142.35 -160.35 -182.08

Net Profit 169.12 251.89 285.07 318.82

Equity capital 180.79 180.79 180.79 180.79

Reserves 788.76 1026.90 1311.97 1630.79

Face value 10.00 10.00 10.00 10.00

EPS 9.35 13.93 15.77 17.63

Quarterly Profit & Loss Statement for the period of 30th Sep, 2017 to 30th Jun, 2018E

Value(Rs.in.mn) 30-Sep-17 31-Dec-17 31-Mar-18 30-Jun-18E

Description 3m 3m 3m 3mNet sales 644.45 967.30 778.05 949.22

Other income 19.04 2.59 5.62 5.90

Total Income 663.49 969.89 783.66 955.11

Expenditure -562.57 -787.92 -669.18 -787.85

Operating profit 100.92 181.97 114.48 167.26

Interest -12.33 -6.14 -11.80 -12.62

Gross profit 88.59 175.84 102.69 154.64

Depreciation -28.13 -29.29 -28.27 -28.97

Profit Before Tax 60.46 146.55 74.42 125.67

Tax -24.29 -51.05 -28.01 -43.54

Net Profit 36.16 95.50 46.41 82.12

Equity capital 180.79 180.79 180.79 180.79

Face value 10.00 10.00 10.00 10.00

EPS 2.00 5.28 2.57 4.54


Ratio Analysis

Particulars FY17A FY18A FY19E FY20E

EPS (Rs.) 9.35 13.93 15.77 17.63

EBITDA Margin (%) 14.52% 16.78% 16.77% 16.61%

PBT Margin (%) 9.34% 12.12% 12.25% 12.30%

PAT Margin (%) 5.81% 7.74% 7.84% 7.83%

P/E Ratio (x) 33.52 22.51 19.89 17.78

ROE (%) 17.44% 20.86% 19.10% 17.60%

ROCE (%) 25.80% 31.98% 30.16% 28.07%

Debt Equity Ratio 0.25 0.12 0.08 0.07

EV/EBITDA (x) 13.91 10.58 9.42 8.49

Book Value (Rs.) 53.63 66.80 82.57 100.20

P/BV 5.85 4.69 3.80 3.13

Charts


OUTLOOK AND CONCLUSION

At the current market price of Rs. 313.60, the stock P/E ratio is at 19.89 x FY19E and 17.78 x FY20E, respectively.

Earning per share (EPS) of the company for the earnings for FY19E and FY20E is seen at Rs. 15.77 and Rs. 17.63

respectively.

Net sales and PAT of the company are expected to grow at a CAGR of 9% and 22% over 2017 to 2020E, respectively.

On the basis of EV/EBITDA, the stock trades at 9.42 x for FY19E and 8.49 x for FY20E.

Price to Book Value of the stock is expected to be at 3.80 x and 3.13 x for FY19E and FY20E respectively.

Hence, we say that, we are Overweight in this particular scrip for Medium to Long term investment.

INDUSTRY OVERVIEW

GLOBAL BEVERAGE MARKET

The global beverage market looks good with opportunities for alcoholic and non-alcoholic beverages. The global

beverage industry is expected to reach an estimated US$1.9 trillion by 2021 and is forecast to grow at a CAGR of 3.0%

from 2016 to 2021. Within global beverage industry, beer is expected to remain the largest segment by value. Acceptance

of alcohol consumption by consumers, population base of the younger generation, and increasing per capita income are

the major driving forces that spur growth for this segment over the forecast period.

GLOBAL ALCOHOLIC BEVERAGE MARKET

Technavio’s market research analysts have estimated the global alcoholic drinks market to grow steadily at a CAGR of

above 2% by 2020. The growing demand for premium alcoholic beverages is considered to be one of the primary drivers

for this market. Due to the increase in disposable income of customers, alcohol use is being considered to be more of a


status symbol and the association of premium labels with quality as well as taste has led to premium brands being high on

demand compared to economical drinks.

Beer dominated the alcoholic drinks market and accounted for approximately 75% of the market share in the same year.

Factors such as improvement in the quality, improvised marketing and advertising activities will drive this market

segment’s growth during the forecast period. Westernisation, increase in the young population, and the demand for craft

beer are also expected to drive the growth of this segment in the next four years.

Efforts by alcoholic beverage manufacturers for strengthening distribution channels and extension of purchase channels

such as online stores, and convenience stores is also contributing substantially to the growth of the global alcoholic

beverages market. However, a high degree of competition among major players to obtain the maximum market share is

one of the major impediments to the growth of this market. This also restricts the entry of new players and their chances

of sustenance if any in the highly competitive alcoholic beverages market.

Other than this, increasing prices of raw materials, availability of non-alcoholic beverages, and stringent licensing

requirements for the manufacture of alcoholic beverages are other factors restraining the growth of this market.

ALCOHOL BEVERAGE MARKET IN INDIA

India is the biggest manufacturer of alcoholic beverages in the world. Alcoholic beverages market matured in India over

the years but still it is highly confined to limited varieties. There are around 10 million retail outlets and around 500,000

bars and pubs in the country. In past 5 years the alcoholic beverages market witnessed a growth of 18.22% from 2010 to

2017.

India is the third largest liquor market in the world, with an overall retail market size of US$35 billion per annum. With

the minimum drinking age varying from 18 to 25 across states, India had approximately 485 million people of legal

drinking age in 2013. This is more than the population of the United States and Mexico combined. Another 150 million

are predicted to join this group by 2018.

According to a WHO report, nearly 30% of the Indian population consumes alcohol. The alcohol industry leaders have

recognised that women and the young population are the key market segments and hence their marketing campaigns are

specially focused on this segment. To attract this segment companies are launching new product categories such as

flavored drinks and pre-mixed cocktails. Alcohol is becoming easily accessible thanks to availability of beer and wine at

certain shopping malls and supermarkets.

INDIAN MADE FOREIGN LIQUOR

The Indian Made Foreign Liquor (IMFL) is the largest segment in the Indian alcoholic beverage industry. This market has

been further bifurcated into Whisky, Rum, Brandy, Vodka and Gin. This industry has grown at an overall steady pace

triggered by increasing population and disposable income, and also the fact that it is increasingly gaining social

acceptance.

The Indian Made Foreign Liquor (IMFL) segment was estimated to reach a market valuation in excess of H1,400 billion

by FY2016-2017 end. This segment is estimated to be valued at more than H3,000 billion by 2026, expanding at aCAGR


of 5.2% over the forecast period Indians have preference for brown spirits in the IMFL segment (which is 95% by

volume) over white spirits (which is 5% by volume). Brown spirits are categorised as whisky, rum, brandy and white

spirits include gin, vodka, white rum.

Whisky is the most popular drink, accounting for 57% of the IMFL Market. Whisky consumption is reportedly expected

to grow 8-8.5 %annually. The overall IMFL market is increasing at the rate of 9-10% annually. In India's 310 million

cases strong spirits market, whisky sales overwhelmingly dominate with 175-million cases, accounting for 57% of the

market. While the whisky market reported 6.7% growth in the last five years. Rum the second largest spirits category with

23 million in sales volume reported only a 1.3% growth in the same period.

The market has undergone several positive changes in the past 5 years and has strongly positioned itself relative to other

segments with several economies of scale. One notable factor in the IMFL segment is the tremendous growth in the vodka

market. It is the fastest growing among all types of liquors.The growth drivers for white spirits include increasing

consumption of white spirits among women and popularity of white spirits over brown spirits amongst the younger

drinking population.

Moreover, the per capita consumption of IMFL in India is 0.82 litres per annum which is very low as compared to the

global average of 4.63 litres per annum, but the demand is growing since alcohol consumption is now socially accepted in

India and also because of increase in disposable income of the citizens.

INDIAN MADE INDIAN LIQUOR

It is produced in local licensed distilleries and is made of cheap raw material, primarily rectified spirits of grains or

molasses. As the production cost for country liquor is low, the excise duties are also lower than they are for other liquor.

The idea behind country liquor was to provide cheap alcohol and thus check the illicit trade of alcohol. However, illicit

production of country liquor is still fairly common in India. Some alcoholic drinks that are low in alcohol content are also

made in homes in some tribal areas.

Indian Made Indian Liquor (IMIL) is an attractive consumer play into India’s large and growing bottom of pyramid

consumers. Already at a substantial ~230 million cases (US$4.6billionin 2014), it is expected to reach 352million cases

(US$8.4billion ) in next five years driven by positive demographics, improving consumer loyalty with branding and

upward shift from illicit liquor with conducive regulations . IMIL has long been the liquor of choice for the price

sensitive, lower income group (~40% of India’s population excluding below poverty line). It is being further driven by

positive demographics – a young and growing population as well as upward shift from illicit liquor and toddy with

increasing affluence.

At the same time, IMIL is losing its hold in the total alcoholic beverages market in India. The segment is continuously

witnessing a decline as number of consumers have started switching to premium and better-quality liquor in the IMFL

segment with the rise in their propensity to spend and increased hygiene risk in the consumption of country liquor.

Country Liquor is estimated to lose its market share in the long run to other segments.


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The following analysts hereby state that their views about the companies and sectors are on best effort basis to the best oftheir knowledge. Unless otherwise stated, the individuals listed on the cover page of this report are research analysts. Theanalyst qualifications, sectors covered and their exposure if any are tabulated hereunder:

Name of the Analyst Qualifications SectorsCovered

Exposure/Interest tocompany/sector UnderCoverage in the CurrentReport

Dr.C.V.S.L. Kameswari M.Sc, PGDCA,M.B.A,Ph.D (Finance)

Pharma &Diversified

No Interest/ Exposure

U. Janaki Rao M.B.A CapitalGoods


B. Anil Kumar M.B.A Auto, IT &FMCG


M.Vijay M.B.A Diversified No Interest/ ExposureV. Harini Priya M.B.A Diversified No Interest/ ExposureMD. Naveed M.B.A Diversified No Interest/ ExposureA. Bhikshapathi M.B.A Diversified No Interest/ Exposure

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Documents

ASSOCIATED ALCOHOLS & BREWERIES LTD ISIN… · ASSOCIATED ALCOHOLS & BREWERIES LTD Result Update (PARENT BASIS): Q4 FY18 CMP: 313.60 JUNE 8th, 2018 Overweight ISIN: INE073G01016 Index