Hi guys,
Long time since I have discussed about this company
Let’s have a look at what is happening and how can we expect things going forward, Please note I am mostly discussing beer in the entire post
What is the capacity now and revenue generating potential?
New capacity addition of 6 million cases in KA would be online by March 2024. It can generate revenue of 270cr at 90% utilisation
So all in all after this capex with 85% utilisation company can do 1600cr of revenue in FY25 about 30%++ growth from 1200cr (now current run rate includes IMFL but 1600cr is pure beer)
What are the growth triggers going forward??
- They have hardly operated in 4 to 5 states which are MP,KA,OR and Delhi. Delhi was about 10% of their revenue in 2019, then there was a problem there (ghotala) and now about 5%. So major sales only form these 4 states
- Now before entering a new state they do seeding of their product for about 8 to 12 months (read from some old call so this is from memory) and once their brand gets accepted they start scaling up.
Lets see the events which took place last year
- Permission received to supply beer and IMFL in rajasthan
- Secured official approval from the Karnataka Excise Department for the distribution of premium beer brands (Hunter, Blackfort and Woodpecker) in the state of Tamil Nadu
- Strategic contract manufacturing for thier brands in Punjab to the Canteen Stores Department (CSD) for the Northern region of the country
- Strategic contract manufacturing in Jammu and Kashmir for the production of IMFL, to the Canteen Stores Department (CSD)
- Strategic tie up with Carlsberg for the Odisha Plant, leading to better capacity utilization
- Their beer brands have received permissions for supply to the state of Chhattisgarh
- Company has also entered Jharkhand and expanded market presence in Delhi and Uttar Pradesh (delhi is about 5% of sales and UP 3%), it is also set to cater to markets of Kerala and Pondicherry (this will happen for current KA capex)
Market size
Then we have Kerala, Tamil nadu , Punjab, Jharkhand and Puducherry which they have entered.
So it is plain and simple they are going PAN india, entering into contract manufacturing for IMFL where they have poor utilisation and if you see whichever market they enter they become the 2nd largest player with about 20% market share. (Detailed expansion on this)
i) 2018 opened factory in OR, remove 2yrs of covid, in 3-4 yrs they have scaled to 18% market share as on june 2023
ii)2019 opened factory in KA, remove 2yrs of covid, in 2-3yrs they scaled to 20% from 3% as on may 2023
iii) In delhi without factory have about 11% market share
iv) Pan india market share from 2% in Q1FY23 to about 5.5-6% in Q3FY24 (need to verify this somehow but with the kind of growth they had look realistic)
- So current run rate is 2cr cases per annum and with the markets they are entering and taking 20% share we can have a clear clarity on what they can do over next 2-3yrs (Please note now to penetrate in a market they will take less time and they have the credibility and trade partners would want to deal with them
4.The biggest trigger for growth would be when they acquire or do a greenfield in any other state, we know when they open a factory that is the time they start dominating in a particular state
OPINION – I think this year by august – september we should get some clarity on this capacity expansion, this would be one of the major triggers for re rating in my opinion and this is definitely going to happen.
Guidance, valuation and Peer comparison
This year I see them closing at 1200cr and with KA capacity and all this tie up I see 1600 cr in FY25
Management has guided for 2000 cr by FY26 this is very much achievable though slightly conservative in my view, so for the market size table above if they take 20% market share of 9.5cr cases that is almost 2cr cases and current run rate in 2cr cases + IMFL should do good and some states are not added as well + every year there is 3-5% of price hike. Looks very much achievable. Lets see
Comparison with UB
They are clearly better in each parameter, so why is there a discount? My understanding is they are not very big still and they are not a pan india brand + corporate governance issue. At 2000 cr sales they will be 30% of UB size in terms of scales and by FY26 they might even do better this depends on the factory which they would set up
Recent stake bought in subsidiary
- My view here is you pay somewhere you recover some where, this was definitely a bad move but we should not see this even in isolation
What did they mean here?
i) Back in 2019 promoter issued them warrants for 13 lakh share at a price of 275 when the market price was 100, almost 23cr extra investment here
ii) In december 2022 they proposed to issue them 65 lakh warrants at 142 but they cancelled it stating less funds is required and we will do rights as we want shareholders to benefit , now that time this would seem like a joke
Now they have issued themselves 55 lakh shares at 275 rs, I am sure when the business back in December 2022 was about to do very good the promoter definitely understood this and could have taken stake back then, just more money was not required does not make sense, they had the opportunity to buy it at huge discount.
Now they are doing at 130rs premium almost 71cr extra
iii) We also need to judge corporate governance based on the standard of the industry, beer is an industry where a huge amount of dealing is done in cash.
My point is they have not done good but they are not complete chor
Even if you see the stake in subsidiary cannot be sold, it is like a lifelong stake and they needed money for 55cr hassan expansion. So again we should not see this event in isolation. Like we can reverse this question and ask what would we pay for a stake in the subsidiary where we won’t be able to sell the stake in open market?
IT raid
This was purely political in my view, I mean the company says in the last 18-25 yrs this has never happened . They used to pay 40% taxes before 2019 and it is a nature of the IT department to go behind where there is exponential growth, which they had.
What happens in this company in worst case scenario, i think we can still make 40%-50% kind of returns in 2yrs, pretty decent for a worst case imo
@Sanjeev_Bansal @rajpanda Sir plz share your view on it
ayush sir not able to tag you, you are also tracking this business from a long time, I would be glad if your could share your view on it
One last point promoter is buying his business left right and center, he is playing the long term game, I think he can see his business become a second largest brand in the countary in coming yrs, I think a B2C business in a industry growing at 9% which cannot be replaced by AI, available at 10times in 2yrs forward, seems to be a good opportunity
DIsc- invested, buying , can be wrong and will exit if I see some more red flags
I also request everybody if somebody can help me meet the promoter, have some wonderful questions, should benefit all of us, DM me , we can collobrate
thankyou
| Subscribe To Our Free Newsletter |
