For Private Circulation only For Private Circulation only Indian Alcoholic Beverages Industry Sector Report 14 th January 2011 Indian Alcoholic Beverages Industry Sector Report 14 th January 2011 We initiate coverage on the Indian alcoholic beverages sector with a positive long-term view on growth prospects and the potential for margin expansion driven by softening input cost and premiumization of product portfolio. We expect topline growth in both the beer and spirits segments to grow at a CAGR of 10-15% over next five years mainly driven by volume growth. Operating margins is also expected to expand by 100–300 bps during this period due to stable input costs and strong volume growth. Moreover, corporate balance sheets have been de-leveraged by raising fresh equity and tighter control over working capital, have increased free cash flows (FCF), thus increasing return ratios. However, valuations for the sector, particularly larger branded IMFL (Indian made foreign liquor) players, is rich compared to overall FMCG sector and even comparable global peers. This high valuation is however sustainable due to high earnings growth driven by volume and high entry barriers. In the branded IMFL space, we like ‘United Spirits’ due to its’s brand strength (20 millionaire brand), dominant position with over 50% market share in branded liquor and global presence in premium scotch Recommendation Snapshot Company CMP (Rs.) Target (Rs.) Rating United Spirits 1375 1712 BUY United Breweries 483 350 SELL Radico Khaitan 152 200 BUY Tilaknagar Industries 81 140 BUY Globus Spirit 159.5 245 BUY whisky (fastest growing segment). We also like ‘Radico Khaitan’ in the branded IMFL space but it is trading at rich valuation and its FCCB conversion, due July 2011, will dilute the equity by ~7%, thereby reducing overall return. Compared to Radico Khaitan, we prefer ‘Tilaknagar Industries’ due to its recent capacity addition, above industry volume growth, de- leveraging of balance sheet and favourable valuation compared to branded IMFL players. Any re-rating of the stock can make it a multi- bagger. As a pure play on Indian liquor industry, we like ‘Globus Spirit’ due to its 360 0 business model – sale of spirit, country liquor, branded IMFL and contract manufacturing for established brands. In the beer segment, United Breweries clearly enjoys an enviable position both in terms of brand recognition and market share. With the merger of its subsidiary and Heineken directly taking stake in the company, it is well positioned to take advantage of the volume growth and increase its market share. However, due to steep valuations, we recommend SELL on the stock. Stock Performance Company 3-mth 6-mth 1 Yr United Spirits -11.8% 12.7% 7.7% United Breweries 12.7% 115.0% 188% Radico Khaitan -11.8% 12.7% 7.7% Tilaknagar Industries 8.8% 69.7% 157% Globus Spirits 2.1% 2.0% 76.5%
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For Private Circulation only
For Private Circulation only
Indian Alcoholic Beverages Industry Sector Report 14th January 2011Indian Alcoholic Beverages Industry Sector Report 14th January 2011
We initiate coverage on the Indian alcoholic beverages sector with a
positive long-term view on growth prospects and the potential for
margin expansion driven by softening input cost and premiumization of
product portfolio. We expect topline growth in both the beer and
spirits segments to grow at a CAGR of 10-15% over next five years
mainly driven by volume growth. Operating margins is also expected to
expand by 100–300 bps during this period due to stable input costs and
strong volume growth.
Moreover, corporate balance sheets have been de-leveraged by raising
fresh equity and tighter control over working capital, have increased
molecule is split open with application of heat in
order to ease the effect of the enzymes on the
starch molecules)
PROCESS FLOW CHART- GRAIN BASIS
8
Rectified Spirit
(Strength 94-95% v/v)
Redistilled in Extra Neutral
Alcohol Plant (Total
Deoxidize Copper Plant)
Reduced with
Dematerialized
Water
ENA (Extra Neutral
Alcohol) – 95 to
96% v/v
Denatured with
Denaturant
Reduced with
D.M.Water
Blending with
Color & Essences
for C&L
Denatured Spirit/
Special Denatured
Spirit (Not for
Human
Consumption)
Blending with
Color & Essence/
Malt Spirit ETC (for
IMFL)
Bottling (Procedure)
Empty Bottle
Washing/ Rinsing
Washing/ Rinsing
Filterisation
(Liquor)
Labeling
Packing
(Finished Goods)
Bottle Filling
SealingFLOW CHART OF FINISHING GOODS
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Companies
10
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For Private Circulation only United Spirits Ltd (USL) Initiating Coverage 14th January 2011 United Spirits Ltd (USL) Initiating Coverage 14th January 2011
CMP Rs. 1375.0
Recommendation BUY
Date 14-01-2011
Target Rs.1712.0
Company Information
BSE Code 532432
NSE Code MCDOWELL-N
Bloomberg Code UNSP IN
Market Cap (Rs. Crs) 18419.0
Free Float 70.84%
52-wk Hi/Lo (Rs) 1683 / 1057
Avg. daily volume (1 year NSE+BSE)
328,000
Volume to keep pace with industry growth –
Between FY08-FY10, USL’s volume grew at a CAGR of 16% compared to
industry growth of 11.5% (Source: HNG Presentation) supported by high
selling & distribution expense which averaged 16% of the net sales.
Going forward, we expect volume to grow at a CAGR of 12% between
FY10-FY12E.
Stabilizing spirit prices to help maintainEBIDTA margin – Being the largest player in the IMFL segment
with ~55% market share in branded IMFL segment (Source: Company),
USL is one of the biggest beneficiary of the fall in molasses prices and
thereby stabilizing spirit prices. USL has already experienced fall in spirit
cost by 12% to Rs.135/case in Q2FY11 from Rs.153/case in Q4FY10. We
expect spirit price to stabilize at current level.
While we do not expect further fall in molasses prices, it should help USL
to maintain EBIDTA margin in the range of ~19%, up from 16% in FY10.
W&M to benefit from premiumization trend inglobal Scotch market – Globally there has been clear
premiumization trend in Scotch with premium scotch segments growing
Face Value Rs. 10/-
Latest Shareholding Pattern
Promoters 29.16%
FII 48.94%
Financial Institutions & Banks
0.0%
Mutual Fund 4.37%
Non Institution 15.98%
premiumization trend in Scotch with premium scotch segments growing
at a faster pace than standard/value scotch segment.
Single Malt whisky segment has grown significantly higher than blended
scotch whisky with a volume CAGR of about 6% compared to 2% volume
growth for global scotch whisky (Source: Company). This increase has
come from preference for higher vintage scotch and single malt whiskies
in developed countries and sustained growth in large emerging markets
of China, India, Russia, Brazil, and South Korea over the last decade.
To support branded business requirement, USL has increased malt
capacity by 4 mn liters to 44 mn liters by reopening W&M’s Tamnavulin
malt distillery.
W&M would benefit from this trend as W&M’s average branded
business realization for relevant vintage is 4 to 4.5 times that of bulk
business. During Q1FY11, W&M launched premium variants in Dalmore
(Gran Reserva, King Alexander, 40 & 50 Years Old variants), Jura and
W&M.
(in Rs. Cr) FY10 FY11E FY12E
Revenue 4,928.9 6,224.1 6,957.5
EBIDTA 827.4 1,161.0 1,300.0
EBIDTA % 16.8% 18.7% 18.7%
PAT 306.0 472.3 559.2
EPS (Rs.) 24.4 37.6 44.5
PE(x) 58.9 38.2 32.2
EV/EBIDTA(x) 26.0 19.1 17.1
EV/Sales(x) 4.4 3.6 3.2
P/BV(x) 3.8 3.4 3.1
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Focus on the branded business - Post
acquisition, W&M has enhanced its focus on the branded
business by strengthening its distribution channel:
�Completed transition to own setup in UK, revamped import
& distribution in US.
�Established new importer/distributor tie ups in
China, Taiwan, South Korea, Middle East and South Africa.
�Enhanced coverage of Duty Free channel from 5 to 30 key
locations.
�Increased distribution of scotch brands in India by 40%.
Above steps has led to improved contribution of branded
business from 44% to 50% of sales since acquisition.
Increased focus has meant that 80% of contribution now
comes from 17 brands/market combination compared to 31
earlier.
SOTP valuation (in Rs. Cr)USL (Standalone)FY12E EBIDTA 1,300
For Private Circulation only United Breweries Ltd (UBL) Initiating Coverage 14th January 2011 United Breweries Ltd (UBL) Initiating Coverage 14th January 2011
CMP Rs. 483.0
Recommendation SELL
Date 14-01-2011
Target Rs.350
Company Information
BSE Code 532478
NSE Code UBL
Bloomberg Code UBBL IN
Market Cap (Rs. Crs) 12,644.1
Free Float 25.02%
52-wk Hi/Lo (Rs) 536 / 144
Avg. daily volume (1 year NSE+BSE)
379,000
Volume growing ahead of industry – UBL reported
~28% volume growth during 1HFY11 compared to 24% industry volume
growth. Driven by volume growth, we expect UBL’s revenue to grow at a
CAGR of 20% during FY10-FY12E.
Volume Market share to increase to ~57% by FY12E –
Due to UBL’s beer volume outgrowing the beer industry, we expect
UBL’s volume market share to increase to 57% from current level of
~50%.
Operating margin to expand 578 bps by FY12E –
Due to robust volume growth and stable input cost, we expect UBL’s
operating margin to expand by 578 bps to 15.78% by FY12E. This
expansion in margin is despite factoring 200 bps increase in sales and
distribution expenditure.
Change in distribution policy in Maharashtraoffer hope for beer industry – In Maharashtra, spirit
license issued were capped for over two decades. Recently, the local
Government has relaxed the policy to some extent, wherein they have
issued certain license at very nominal cost for serving beer only. This
change in policy has greatly helped UBL’s volume growth in Q2FY11.
Outlook & Valuation – Outlook for UBL remain positive drivenFace Value Rs. 10/-
Latest Shareholding Pattern
Promoters 74.98%
FII 14.39%
Financial Institutions & Banks
0.0%
Mutual Fund 0.86%
Non Institution 9.05%
Outlook & Valuation – Outlook for UBL remain positive driven
by robust volume growth and margin expansion and we expect its
revenue, EBIDTA and net profit to grow at a CAGR of 20%, 37% and 76%
respectively between FY10-FY12E.
However, on valuation front, it is trading at upper end of its forward
EV/EBIDTA multiple of ~30x. We believe that most of the positives have
already been factored and UBL is trading at huge premium to Indian
IMFL sector and even global competitors.
We recommend SELL on the stock with price target of Rs.350 (20x FY12E
EV/EBIDTA).
About United Breweries Ltd - With over 50% market share, UBL is
the undisputed leader of the Indian beer industry, with over 5 decades of
market leadership. It sold 101 Mn cases during FY 2010. Kingfisher is the
ubiquitous Indian beer, available as Kingfisher Premium, Strong, Blue,
Red and Ultra. UBL is uniquely positioned with manufacturing facilities in
all key markets ensuring freshness of beer and leveraging India’s
interstate tariff difference to economic advantage.
UBL – Heineken Deal - Heineken holds 37.5% stake in UBL and has a
shareholder’s agreement with UBL based on which Heineken will be
active in India solely through UBL. Heineken will be produced in India by
UBL. UBL will now have an access to Heineken’s distribution and
manufacturing facilities in the international markets, which UBL is
currently catering through exports.
(in Rs. Cr) FY10 FY11E FY12E
Revenue 2,275.5 2,795.0 3,280.5
EBIDTA 310.0 397.8 583.4
EBIDTA % 13.6% 14.2% 17.8%
PAT 89.64 143.33 279.06
EPS (Rs.) 3.7 6.0 11.6
PE (x) 132.3 82.7 42.5
EV/EBIDTA(x) 53.2 41.0 28.1
EV/Sales(x) 7.2 5.8 5.0
P/BV(x) 10.5 9.3 7.8
15
Consolidated Profit & Loss Statement (in Rs.
Cr)
Particulars FY09 FY10 FY11E FY12E
Net Sales 1929.5 2275.5 2795.0 3280.5
Oth Op Inc 0.0 0.0 0.0 164.0
Total Income 1929.5 2275.5 2795.0 3444.5
Expenditure 1716.3 2048.7 2453.1 2926.7
Operating
Profit213.1 226.8 341.9 517.8
OPM (%) 11.0% 10.0% 12.2% 15.8%
Oth Inc 53.6 83.2 55.9 65.6
EBIDTA 266.7 310.0 397.8 583.4
Depreciation 89.6 104.0 94.9 93.5
Interest 91.5 59.1 52.5 60.5
PBT 85.6 146.9 250.3 429.3
Tax 40.0 57.2 107.0 150.3
PAT 45.6 89.6 143.3 279.1
Per Share Data (Rs.)
Particulars FY09 FY10 FY11E FY12E
Consolidated Balance Sheet (in Rs. Cr)
Particulars FY09 FY10 FY11E FY12E
Share Capital 317.6 317.6 317.6 317.6
Reserves & Surplus 744.8 815.7 952.9 1206.6
Secured Loans 567.2 598.4 420.3 514.6
Unsecured Loans 197.7 197.7 197.7 197.7
Total debt 764.9 796.2 618.0 712.3
Total Liabilities 1828.4 1930.6 1888.6 2236.5
Net Fixed Asset 971.2 1054.9 1039.4 965.8
Capital WIP 97.2 60.4 20.0 30.0
Investments 90.0 49.0 49.0 49.0
Current Assets
Debtors 500.6 669.5 559.0 984.2
Inventory 178.9 220.4 263.8 315.2
Cash & Bank 51.1 92.7 15.5 17.1
Loan & Advances 274.0 277.2 272.2 267.2
Total Current Assets 1004.5 1259.7 1131.7 1603.2
Less: Current Liabilities 316.6 480.8 316.6 378.2
Less: Provisions 18.5 25.7 7.4 7.4
Net Current Assets 669.4 753.2 807.6 1217.5
Deferred Tax Assets -17.6 -23.6 -43.0 -43.0
Consolidated Cash Flow Statement (in Rs. Cr)
Particulars FY09 FY10 FY11E FY12E
PAT (adj.for Dividend &
Def tax)45.6 87.3 137.3 253.7
Depreciation 89.6 104.0 94.9 93.5
CF from operation 135.2 191.4 232.2 347.2
Change in WC -371.6 -78.5 -72.2 471.5
Net CF from operation -236.4 112.9 140.0 -62.6
CF from Investments -227.1 -78.1 -39.0 -30.0
CF from Financing 493.7 6.7 -178.2 94.3
Net CF 30.2 41.5 -77.2 1.6
Op Cash bal 20.9 51.1 92.6 15.5
Cl Cash bal 51.1 92.6 15.5 17.1
Particulars FY09 FY10 FY11E FY12E
EPS 1.9 3.7 6.0 11.6
Cash EPS 5.6 8.1 9.9 15.5
Book Value 44.3 47.2 52.7 63.0
DPS 0.3 0.4 1.1 1.1
Profitability Ratios
EBIDTA
Margin13.8% 13.6% 14.2% 17.8%
EBIT Margin 9.2% 9.1% 10.8% 14.9%
PAT Margin 2.4% 3.9% 5.1% 8.5%
Effective tax
rate46.7% 39.0% 42.7% 35.0%
Valuation Ratios
P/E (x) 260.0 132.3 82.7 42.5
EV/EBIDTA(x) 61.7 53.2 41.0 28.1
EV/Sales(x) 8.5 7.2 5.8 5.0
P/BV(x) 11.2 10.5 9.3 7.8
Liquidity & Return Ratios
D/E(x) 0.72 0.70 0.49 0.47
ROE 4.3% 7.9% 11.3% 18.5%
ROCE 7.0% 6.7% 13.2% 19.1%
Asset T/O(x) 1.7 1.7 1.9 2.1
Deferred Tax Assets -17.6 -23.6 -43.0 -43.0
Total Assets 1828.4 1930.6 1888.6 2236.5
Source: Company, VCK Research
16
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Radico Khaitan Ltd (RKL) Initiating Coverage 14th January 2011Radico Khaitan Ltd (RKL) Initiating Coverage 14th January 2011
CMP Rs. 152
Recommendation BUY
Date 14-01-2011
Target Rs.200
Company Information
BSE Code 532497
NSE Code RADICO
Bloomberg Code RDCK IN
Market Cap (Rs. Crs) 2098.5
Free Float 62.26%
52-wk Hi/Lo (Rs) 185 / 108
Avg. daily volume (1 year NSE+BSE)
339,000
Volume growth back on track – After witnessing stagnant
volume growth in IMFL segment between FY08-FY09, RKL registered
strong volume growth of 13.6% in FY10 on back of strong performance
by whisky (Magic Moments & Whytehall) and Old Admiral Brandy.
12
.8
12
.9 14
.6 16
.7
19
.2
FY08 FY09 FY10 FY11E FY12E
IMFL (Mn cases)
Going ahead, we expect RKL to maintain its volume growth with
Source: Company, VCK Research
Face Value Rs. 2/-
Latest Shareholding Pattern
Promoters 37.74%
FII 28.9%
Financial Institutions & Banks
0.0%
Mutual Fund 15.07%
Non Institution 18.18%
(in Rs. cr) FY10 FY11E FY12E
Revenue 835.6 945.0 1061.5
EBIDTA 150.1 161.4 187.1
EBIDTA % 41.1% 37.7% 39.7%
PAT 41.54 71.21 111.72
EPS (Rs.) 3.2 5.4 6.2
PE(x) 49.7 29.0 19.8
EV/EBIDTA(x) 16.7 15.9 14.5
EV/Sales(x) 3.0 2.7 2.6
P/BV(x) 3.5 3.1 2.4
Going ahead, we expect RKL to maintain its volume growth with
aggressive marketing and new launches (After Dark whisky) and register
14.7% volume growth between FY10-12E.
Higher contribution from mainline brands toimprove operating margin by 190 bps by FY12E –
RKL has been consistently increasing its contribution from premium
sales has increase to 14% in FY10 from 8% in FY08. By
FY12E, contribution from Magic Moments & Morpheus brands is
expected to reach 22% of the branded sale. Contribution from branded
sales is also expected to grow steadily to 74% by FY12E from 73% in
FY10.
8%
11
%
14
%
19
%
22
%
FY08 FY09 FY10 FY11E FY12E
Topline Contribution from premium brands
Source: Company, VCK Research
17
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For Private Circulation only
Deleveraging balance sheet resulted in interest costsaving - Given the high growth witnessed by RKL till FY07, the launch of Magic
Moments, investments in JV with Diageo and grain based distillery, etc required
hefty investments on RKL’s part in FY07. With business growing at 15%+ and RKL
extending its presence in new states, the company had to increase capacity at its
contract bottling facilities. This meant a steep rise in capital employed in the
business with working capital (net of cash) reaching 318 days and debt/equity
ratio at 2.6 times (including FCCB of 2.2 bn) in FY07.
In March 2010, RKL paid ~Rs.1.6 bn debt from proceeds of Rs.3.42 bn from QIP.
As a result, its interest obligation for FY11E is expected to be down by 67% to
Rs.24.3 crore from Rs.74.5 crore in FY10 resulting in savings of Rs.50.2 crore.
20.0
30.0
40.0
50.0
60.0
70.0
80.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
Rs. Cr
0.0
10.0
20.0
0.0
100.0
200.0
FY08 FY09 FY10 FY11E FY12E
Debt Int Payment (RHS)
Return ratios to improve significantly – After
deleveraging of balance sheet, RKL’s return ratios is expected to improve
significantly from current levels. Its ROCE and ROE is expected to increase to
15% and 12% in FY12E from 12% and 7% in FY10.
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
FY09 FY10 FY11E FY12E
ROE ROCE
Source: Company, VCK Research
Source: Company, VCK Research
18
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Outlook & Valuation – After a hiatus of two years, RKL is back with
vengeance on brand launches, riding high on the success of Magic Moments (sales of
1m+ cases a year within three years of launch). RKL launched Morpheus brandy in May
2009 in premium category (southern brandy consuming states of
Tamilnadu, Andhra, Kerala, Pondicherry & Karnataka) and was highest priced brandy
launched by any Indian company.
As part of the brand launch, RKL has test launched two brands (June 2010) – After Dark
and Eagle’s Dare in select markets (Haryana, Punjab, Delhi). Packaging for both the
brands is attractive with special bottle printing technology giving them a premium look
and feel. They would be taken pan India over the next 12months and performance of
these brands will be a critical to RKL’s overall growth.
The whisky would be priced at Rs.400-450/bottle - a price point in between the two
popular segments of Royal Stag (Rs320/bottle) and Blender's Pride, Signature (at
Rs550/bottle). Management expects to spend US$4mn on this launch and breakeven is
expected at sales of 350,000 cases. Despite the extra spend, management would keep
A&P/Sales ratio at ~8% of sales. This appears achievable but upside from this launch is
not part of our numbers yet.
Driven by strong volume growth of 14.7% between FY10-12E and stable input
prices, RKL is expected to report a CAGR of 12.7% and 63.6% in net sales and net profit
respectively between FY10-FY12E.
However, on the valuation front the stock is richly priced at ~15x FY12E EV/EBIDTAHowever, on the valuation front the stock is richly priced at ~15x FY12E EV/EBIDTA
compared to Indian IMFL space. However, the stock has always traded at premium to
IMFL industry. We recommend BUY on the stock with price target of Rs.200 (18x FY12E
EV/EBIDTA).
About Radico Khaitan Ltd
Radico Khaitan is one of the largest spirits companies in India. The Company has four
million case brands - 8 PM Whisky, Magic Moments Vodka, Contessa Rum and Old
Admiral Brandy.
Radico Khaitan was originally established in 1943 and was formerly known as Rampur
Distillery. The Company currently has 32 bottling units of which 5 are owned and rest is
contract bottling units. The Company has two distilleries – one in Uttar Pradesh with a
capacity of 104 million litres per annum and another in Maharashtra with a capacity of 36
million litres per annum.
Radico Khaitan acquired Whytehall Whisky from Bacardi Martini India in 2004 and
Brihans range of brands from Brihans, Maharashtra in 2005, to strengthen its brand
portfolio.
Radico Khaitan has a strong and dedicated sales and distribution team, covering 95% of
bars, clubs and retail outlets in the country. The Company currently sells to over 400
wholesalers, who in turn sell to over 36K retail outlets and over 5K on premise outlets.
19
Balance Sheet (in Rs. Cr)
Particulars FY09 FY10 FY11E FY12E
Share Capital 20.5 26.4 26.4 28.3
Reserves & Surplus 210.1 566.2 641.0 886.9
Secured Loans 400.3 244.9 193.0 170.0
Unsecured Loans 300.1 202.5 306.8 334.2
Total debt 700.4 447.4 499.8 504.2
Total Liabilities 934.0 1042.6 1169.8 1278.8
Net Fixed Asset 400.7 413.9 451.8 446.5
Capital WIP 77.0 53.0 10.0 10.0
Investments 52.6 89.4 67.4 67.4
Current Assets
Debtors 170.0 235.6 283.5 318.5
Inventory 108.4 123.0 210.8 234.4
Cash & Bank 42.0 33.2 147.7 165.9
Loan & Advances 235.7 272.8 272.7 282.6
Total Current Assets 556.2 664.6 914.7 1009.1
Less: Current Liabilities 86.6 97.6 164.0 182.3
Less: Provisions 49.3 47.9 54.2 10.8
Net Current Assets 420.3 519.1 696.5 816.0 Per Share Data (Rs.)
Profit & Loss Statement (in Rs. Cr)
Particulars FY09 FY10 FY11E FY12E
Net Sales 696.0 835.6 945.0 1061.5
Oth Op Inc 0.0 0.0 20.2 21.2
Total Income 696.0 835.6 965.2 1082.7
Expenditure 647.9 704.6 804.5 896.2
Operating Profit 48.11 130.9 160.8 186.5
OPM (%) 6.9% 15.7% 17.0% 17.6%
Oth Inc 43.2 19.2 0.6 0.6
EBIDTA 91.27 150.1 161.4 187.1
Depreciation 23.1 25.6 25.9 15.1
Interest 55.8 74.5 24.3 21.3
PBT 12.37 49.94 111.16 150.76
Tax 5.83 8.40 39.95 39.05
PAT 6.5 41.5 71.2 111.7
Net Current Assets 420.3 519.1 696.5 816.0
Deferred Tax Assets /
Liabilities-36.7 -45.1 -56.0 -56.0
Total Assets 934.0 1042.6 1169.8 1278.8
Cash Flow Statement (in Rs. Cr)
Particulars FY09 FY10 FY11E FY12E
PAT (adj. for dividend &
Def. Tax)6.5 37.9 74.8 102.7
Depreciation 23.1 25.6 25.9 15.1
CF from operation 29.7 63.5 100.7 117.8
Change in WC -68.9 -88.1 -50.6 -95.9
Net CF from operation -39.2 -24.6 50.1 21.9
CF from Investments -118.1 -74.9 12.0 -10.0
CF from Financing 116.1 90.8 52.4 6.3
Net CF -41.2 -8.7 114.5 18.2
Op Cash bal 83.2 42.0 33.2 147.7
Cl Cash bal 42.0 33.2 147.7 165.9
Per Share Data (Rs.)
Particulars FY09 FY10 FY11E FY12E
EPS 0.6 3.2 5.4 6.2
Cash EPS 2.9 5.1 7.4 7.1
Book Value 22.5 45.0 50.6 51.3
DPS 0.3 0.6 0.6 0.6
Profitability Ratio
EBIDTA Margin 13.1% 18.0% 17.1% 17.6%
EBIT Margin 9.8% 14.9% 14.3% 16.2%
PAT Margin 0.9% 5.0% 7.5% 10.5%
Effective tax rate 47.1% 16.8% 35.9% 25.9%
Valuation Ratios
P/E(x) 247.7 50.1 29.3 19.8
EV/EBIDTA(X) 25.4 16.9 16.0 15.2
EV/Sales(X) 3.3 3.0 2.7 2.7
P/BV(X) 7.0 3.5 3.1 2.5
Liquidity & Return ratios
D/E(X) 3.0 0.8 0.7 0.6
ROE 2.8% 7.0% 10.7% 12.0%
ROCE 7.6% 12.3% 13.3% 15.4%
Asset T/O(X) 1.5 1.6 1.6 1.7
Source: Company, VCK Research
20
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For Private Circulation only Tilaknagar Industries Ltd (TIL) Initiating Coverage 14th January 2011 Tilaknagar Industries Ltd (TIL) Initiating Coverage 14th January 2011
CMP Rs. 81.0
Recommendation BUY
Date 14-01-2011
Target Rs.140
Company Information
BSE Code 507205
NSE Code TI
Bloomberg Code TLNGR IN
Market Cap (Rs. Crs) 1022.2
Free Float 39.85%
52-wk Hi/Lo (Rs) 148 / 31
Avg. daily volume (1 year NSE+BSE)
420,000
Volume driven growth; capacity quadrupled to200 KLPD – TIL has the distinction of achieving CAGR of 100% over
four years to achieve volume of 8 million cases (MCA) in FY10 from 1
MCA in FY06. To maintain the same pace in volume, TIL has quadrupled
its distillery capacity to 200 KLPD in FY11 from 50 KLPD in FY09 at an
investment of Rs.200 crore. We expect TIL’s revenue to report a CAGR
42% to Rs.778 crore between FY10-FY12E.
EBIDTAmargin to expand by 639 bps by FY12E –
In FY12E, we expect EBIDTA margin to expand by 639 bps to 28.25% on
back of increased premiumization and saving from captive distillery
capacity. This increase in EBIDTA margin is despite factoring 200 bps
increase in distribution cost.
Judicious mix of molasses plus grain baseddistillery – In FY09, TIL has just got 50 KLPD molasses based
distillery in Maharashtra. Due to this, it was totally at the mercy of
volatility in sugarcane production which was a cyclical crop. In FY10, TIL
added another 50 KLPD molasses based capacity at the existing site at
the capital cost of Rs.70 crore.
Face Value Rs. 10/-
Latest Shareholding Pattern
Promoters 61.15%
FII 11.75%
Financial Institutions & Banks
0.0%
Mutual Fund 2.59%
Non Institution 25.47%
To avoid its dependence on molasses, TIL added 100 KLPD grain based
distillery at a capital cost of Rs.100 crore. This increase in grain based
capacity will insulate the company from the volatility of molasses price
and will also help in increasing revenue from premium segment.
De-leveraging balance sheet – In November 2010, TIL
raised Rs.135 crore through QIB by issuing 1.42 crore shares at
Rs.95/share. The company expects to use Rs.60-70 crore towards debt
repayment. Also, with commercial production of its own distillery, we
expect its working capital requirement (net of cash) to come down to
179 days in FY12E from 223 days in FY10. Also, its Debt equity ratio is
expected to come down to 0.92x in FY12E from 2.24x in FY10.
Outlook & Valuation – With strong earning visibility post
capacity expansion and addressing balance sheet concern through QIP
issue, we expect TIL’s revenue, EBIDTA and profit to grow at a CAGR of
42%, 61% and 64% respectively between FY10-FY12E.
On valuation front, the stock is attractively priced at PE multiple of 12x
its FY12E earnings and 7x FY12E EV/EBIDTA. We recommend BUY on the
stock with price target of Rs.140 at which the stock will trade at 19x
FY12E earnings and 10x FY12E EV/EBIDTA.
(in Rs. Cr) FY10 FY11E FY12E
Revenue 386.2 487.8 777.9
EBIDTA 84.6 127.0 219.7
EBIDTA % 21.9% 26.0% 28.2%
PAT 34.9 40.5 93.8
EPS (Rs.) 10.8 3.2 7.4
PE(x) 8.1 23.2 10.3
EV/EBIDTA(x) 8.7 10.7 6.2
EV/Sales(x) 1.9 2.8 1.8
P/BV(x) 1.4 2.6 2.2
21
For Private Circulation only
For Private Circulation only
About Tilaknagar Industries
Tilaknagar Distilleries & Industries Ltd. was promoted as a 100 per cent
subsidiary of The Maharashtra Sugar Mills Ltd. The year 1973 saw TIL
diversifying into the businesses of Industrial Alcohol, Indian Made
Foreign Liquor (IMFL) and Sugar Cubes. Both Maharashtra Sugar Mills
Ltd. and Tilaknagar Distilleries & Industries Ltd have been merged to
form Tilaknagar Industries Ltd. with effect from August 6, 1993. Since
then TIL has been engaged in the business of manufacture and
distribution of spirit and Indian Made Foreign Liquor (IMFL).
A key player in the South, TI’s flagship brand Mansion House Brandy
leads the markets in the premium brandy segment across various
markets. With a market share of 56% in Andhra Pradesh, 78% in
Kerala, 97% in Karnataka, 42% in Tamil Nadu, 78% in Puducherry, and
almost 100% in Goa, Mansion House Brandy enjoys clear leadership
position.
It has got 2 million case brands - Mansion House Brandy and Madira XXX
Rock Rum. Overall it has ~4% market share and its market share in
brandy is 14.1%.
TIL achieved a major breakthrough with the acquisition of seven brands
from Alcobrew Distilleries India Pvt. Ltd. to gain traction in the Canteen
Stores Department (CSD) markets. The brands acquired comprise White
House, White House Premium Whisky, Black Colt, Bachelor Deluxe FineHouse, White House Premium Whisky, Black Colt, Bachelor Deluxe Fine
Whisky, Negro He-Mans XXX Rum and Golden Chariot.
22
Consolidated Balance Sheet (in Rs. Cr)
Particulars FY09 FY10 FY11E FY12E
Share Capital 14.0 32.3 111.1 111.1
Reserves & Surplus 121.5 170.1 257.1 328.5
Secured Loans 116.8 272.1 242.0 212.0
Unsecured Loans 8.4 181.4 140.5 177.9
Total debt 125.1 453.5 382.5 389.9
Total Liabilities 267.7 656.2 751.5 830.3
Net Fixed Asset 140.7 210.9 360.6 365.8
Capital WIP 39.1 163.7 20.0 20.0
Investments 0.0 0.3 0.3 0.3
Current Assets
Debtors 65.4 82.0 122.0 194.5
Inventory 59.2 84.3 97.6 155.6
Cash & Bank 4.8 26.6 101.1 99.9
Loan & Advances 62.3 215.3 200.0 200.0
Total Current Assets 191.7 408.2 520.6 649.9
Less: Current Liabilities 79.7 88.7 101.1 156.8
Less: Provisions 17.7 26.0 37.5 37.5
Consolidated Profit & Loss Statement
(in Rs. Cr)
Particulars FY09 FY10 FY11E FY12E
Net Sales 249.2 386.2 487.8 777.9
Oth Op Inc 0.0 0.0 0.0 15.6
Total Income 249.2 386.2 487.8 793.4
Expenditure 206.5 306.2 362.0 573.7
Operating Profit 42.7 80.0 125.8 219.7
OPM (%) 17.1% 20.7% 25.8% 28.2%
Oth Inc 2.9 4.6 1.2 0.0
EBIDTA 45.6 84.6 127.0 219.7
Depreciation 3.28 7.13 13.44 14.80
Interest 10.71 23.58 50.33 58.48
PBT 31.60 53.85 63.22 146.43
Tax 11.83 18.96 21.25 51.25
PAT 19.77 34.89 41.97 95.18
Per Share Data (Rs.)Net Current Assets 89.4 266.9 281.0 355.8
For Private Circulation only Globus Spirits Ltd (GSL) Initiating Coverage 14th January 2011 Globus Spirits Ltd (GSL) Initiating Coverage 14th January 2011
CMP Rs. 159.5
Recommendation BUY
Date 14-01-2011
Target Rs.245.0
Company Information
BSE Code 533104
NSE Code GLOBUSSPR
Bloomberg Code GBSL IN
Market Cap (Rs. Crs) 344.9
Free Float 40.19%
52-wk Hi/Lo (Rs) 197 / 85
Avg. daily volume (1 year NSE+BSE)
245,000
Revenue to grow at a CAGR of 32% between FY10-FY12E –Backed by volume growth due to capacity expansion, Revenue is
expected to increase at a CAGR of 32% between FY10-FY12E from Rs.262
crore to Rs.460 crore.
Increase in volume of IMFL (Franchise) to take care ofincreased capacity – GSL is increasing its distillery capacity from 29
mn liters to 70 mn liters in FY11. Its current requirement is ~43 mn liters,
which it is fulfilling by buying alcohol from outside. After commissioning
of full capacity, it can captively meet its spirit requirement for IMFL
(Franchise) business.
Currently it is manufacturing and bottling 0.8 mn cases p.a. for ABD
Industries (Officers’ Choice whisky and Class Vodka) in Rajasthan. In
addition, it also has bagged contract to manufacture and bottle 1.8 mn
cases for Jagatjit Industries (Aristocrat and Bonnie Scott whisky) in
Haryana. Together, this will consume ~12 mn liters of bulk alcohol in
FY12 compared to ~3 mn liters in FY11E.
GSL is currently selling bulk alcohol to elite clients like United Spirits and
ABD India and has excellent relations with them. It should not be any
problem for the company to sell additional bulk alcohol to its existing
Face Value Rs. 10/-
Latest Shareholding Pattern
Promoters 59.8%
FII 5.59%
Financial Institutions & Banks
0.0%
Mutual Fund 11.72%
Non Institution 22.87%
problem for the company to sell additional bulk alcohol to its existing
clients.
Operating Margin to expand by 93 bps in FY12 despite ~3fold increase in selling and distribution expense –Operating margin is expected to expand by 93 bps to 14.7% in FY12E
despite ~3 fold increase in selling and distribution expense from Rs.13
crore to Rs.35 crore.
This increase is possible due to better product mix (in revenue terms) in
favour of IMFL (Franchise), which enjoys ~15% margin and reduction in
revenue contribution from bulk alcohol, which enjoys lower margin at
10%.
Debt free company with high return ratios – GSL is virtually a
debt free company with long term D/E ratios of just 0.3, 0.5 and 0.3 for
FY10, FY11E and FY12E respectively. Its return ratios, ROCE and ROE, is
also above industry average at 22.2% and 19.3% respectively.
Going forward, while return ratios will go down in FY11E due to high
working capital and depreciation, it should recover from FY12E as the
company gets full benefit of capital expenditure.
(in Rs. Cr) FY10 FY11E FY12E
Revenue 261.7 326.3 460.3
EBIDTA 51.7 45.6 67.0
EBIDTA % 19.7% 14.0% 14.6%
PAT 28.92 34.84 40.15
EPS (Rs.) 14.6 17.6 20.3
PE (x) 11.7 9.7 8.4
EV/EBIDTA(x) 6.8 8.2 5.8
EV/Sales(x) 1.3 1.1 0.8
P/BV(x) 2.0 1.7 1.5
24
For Private Circulation only
For Private Circulation only
Not factored in any revenue from pan-India product launch and CSD (Canteen Stores Department)sales – In July 2010, GSL launched ‘County Club’ whisky in regular category (price range Rs.150-200/case) and has met with
good success despite its launch in seven states. During 1HFY11, it has sold 50,000 cases compared to total IMFL (Own) sales of
10
20
30
40
50
60
70
0
50
100
150
200
250
300
350
400
450
500
FY07 FY08 FY09 FY10 FY11E FY12E
Revenue Op Profit (RHS)2
8.8
28
.8
70
70
30
.2
37
.8
46
.8
61
.4
105%
131%
67%88%
0%
20%
40%
60%
80%
100%
120%
140%
0
10
20
30
40
50
60
70
80
FY09 FY10 FY11 FY12
Bulk Alcohol Capacity (mn Lit) Bulk Alcohol Sold (mn Lit)
capacity Utilization (%)
In Rs. Cr)
Source: VCK ResearchSource: VCK Research
good success despite its launch in seven states. During 1HFY11, it has sold 50,000 cases compared to total IMFL (Own) sales of
1.87 lakh cases during 1HFY11.
In FY12E, GSL plans to launch a pan India product with higher marketing spend and also plans to take ‘County Club’ to other
states. GSL’s ‘Hannibal’ rum has sold ~80,000 cases in FY10 & FY11E and is eligible for CSD sales. The company is in process to get
it registered with CSD in FY12E.
While we have factored increased marketing spend for new product launch, we have not factored any additional sales from these
launches and CSD sales.
Merger of Associated Distilleries Limited (ADL) will be EPS accretive - ADL is an unlisted company and is
engaged in the business of manufacture, marketing and sale of industrial alcohol comprising rectified spirit, extra neutral alcohol
and country liquor. ADL has distillation capacity of 40,000 liters per day (LPD), (14.4 mn liters p.a.) and bottling capacity of around
4 lakh cases per month. The company also has IMFL bottling franchise tie-up with Allied Distillers and Blenders (ADB) for whom
GSL make Officer’s Choice Whisky and is currently manufacturing 75,000 cases per month. It has a market share (country
liquor) of 10% in Haryana and 8.9% in Delhi and EBIDTA margin of 16% for FY10.
The topline of ADL on trailing basis is ~Rs.80 crore, EBITDA of Rs.11 crore and PAT of Rs.7 crore. The board has approved swap
ratio of 1:6 for the merger of the ADL into GSL. i.e., for every one equity share of ADL of Rs.10 fully paid up, 6 equity shares of
Rs.10 each fully paid up will be issued. GSL will issue additional 3.24 million shares which will take the post dilution equity share
capital of GSL to 22.99 million shares of face value Rs. 10 each. This will translate into dilution of ~16% (from equity of Rs.19.76
crore to Rs.22.99 crore).
However, despite this dilution, the deal will be EPS accretive to the extent of ~10% for FY11E.
Even on the valuation front, at Rs.160/share for GSL, the deal values ADL, with installed capacity of 14.4 mn BL (bulk liter), at
Rs.50 crore. This is in line with GSL’s recent capacity expansion of 20 mn BL (bulk liter) for 80 crore.
25
For Private Circulation only
For Private Circulation only Outlook & Valuation – GSL’s topline, EBIDTA (excl.
other income) and profit has reported a CAGR of 32%, 44%
and 53% respectively between FY06-FY10. This growth has
been achieved on back of continuous capacity expansion as
its gross block has also registered a CAGR of 34% during the
same period.
Globus is currently expanding its alcohol manufacturing