The way consumer business is growing in West Bengal is definitely a concern. But you should note that all their plants are running at close to 90 % utilization barring samalkha. As per previous concalls their new plants have a payback period of 2 to 3 years. So when manufacturing alone can give you good ROCE why not expand into new geographies. The share of consumer business has gone down because the revenue from manufacturing segment has increased a lot over the last year. The topline has improved by more than 50 % on a YoY basis. I do agree that greater share of manufacturing means greater cyclicality as we see now. But had they not done the expansion we would have seen a much lower EBITDA.
Secondly, a share of 20 % for IMFL in overall consumer business is something I would love to see. But what needs to be understood is whether this IMFL mean both value plus and prestige segment. Then, how much of these are sales from Rajasthan. Rajasthan is a very established market. They already have a very good share in value plus segment there. In Rajasthan they have everything in place be it marketing, distribution etc. That wont be the same for other states. Its the volume growth of IMFL in other states that I would look for.
Now that the company has started expending cash on launch of prestige liquor, what we need to understand is how difficult it is to build a prestige brand and will company have WB like issues in Jharkand, Orissa or Uttar Pradesh once they expand there?
One thing that I liked about them is they launched a Gin early on. I read somewhere that it was radico’s foray into vodka when no one else was really interested was one of the game changers for them.
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