Striving for double digit volume growth and margin expansion
• About the stock: Allied Blenders & Distillers (ABDL), incorporated in 1988, is third largest IMFL company in terms of sales volumes between FY14-22. It has 17 IMFL brands in the portfolio; 4 out of it are Millionaire brands. Premiumisation is core of the long-term growth strategy. Prestige & Above (P&A) brands contribution increased to 37.2% in FY24 vs. 25% in FY18.
• EBIDTA margins improved to 11.3% in 9MFY25 from 7.1% in 9MFY24 (& 5.9% in FY23), driven by improved mix and operating efficiencies.
Investment Rationale:
• ICONiQ whiskey crosses sales of 5mn cases; other new launches scaling up well: ICONiQ white whiskey surpassed sales of 5mn cases in FY25 vs. 2.3mn cases achieved in FY24, growing at 2x on back of strong traction. Management expects the brand to maintain the strong growth with expanding the reach of the brand in new states. Another brand which is gaining good traction is Shristi Select Collection Whiskey due to its distinctive price point of Rs1000 per bottle. The brand is seeing strong traction due to upgradation of consumers from mass premium brands priced at Rs550-650 per bottle. The company is likely to add couple of new brands in the next fiscal year.
• Targets revenues to grow by low teens over FY24-27E: Management targets revenues to grow by low teens over FY24-27E driven by low double digit volume growth. Steady growth in the established brands, strong traction to premium portfolio and widening portfolio in the non-whiskey segment will help to drive double digit volume growth in the coming years. Prestige & Above segment will grow in low teens while mass premium to grow in mid-single digit.
• Premiumisation and backward integration to drive margin expansion: Management expects gross margins to improve by 200-300bps to 44-45% by FY28 on back of premiumisation and planned capex improving backward integration capabilities in the coming years. Increase in gross margins and operating efficiencies will help EBIDTA margins to cross 15% by FY28.
Rating and Target Price
• We have increased our earnings estimates for FY25E/FY26E/FY27E by ~3% each to factor in the better-than-expected sales volume of ICONiQ brand. Management’s outlook of low teens revenue growth and consistent margin improvement provides further scope of earnings upgrade.
• Valuations look attractive post recent correction. We recommend Buy with a PT of Rs495.
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