Buy Associated Alcohols, says Ventura Securities, target price at 870--company plans major expansion

October 05: Even as a number of brewery and alcohol making companies' stocks have been going upwards in the markets of late, yet another major in this segment Associated Alcohols & Breweries Limited (AABL) has been given a stamp of buy by Ventura Securities in its recently published research report. The stock has been recommended for the investors by Ventura Securities with a target price of Rs 870 in the next 24 months against its current market price (CMP) of Rs 425 at the time of publication of the report. 

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Its 5-year revenue CAGR of 9.5%, net earnings CAGR of 32.3% and FCFF CAGR of 31.8% in spite of the pandemic, has been nothing but spectacular. The research report recommending buy for the stock also says, this coupled with its prudent capital allocation, has resulted in to the RoIC expanding to an enviable 41.2%. "We expect the momentum to gather further stream with revenues/net earnings/FCF growing at 18.8%/14.6%/19.1% CAGR over FY 21-24 while sustaining the high RoIC," says the Ventura report. 

AABL is all geared up to embark on an expansion driven growth that will enable acceleration in its earnings.  AABL is setting up a fungible capacity of 30 mn litres at its existing distillery complex and is expected to be operational by Q1-Q2FY23. In addition, the company is anticipating significant growth in IMFL brands along with partnership with USL.

AABL, in order to capitalize on the lucrative ethanol opportunity, has undertaken a capex of INR 110 crs to setup a fungible capacity of 30 mn litres at its existing distillery complex situated at Khodigram Barwaha. Anand Kumar Kedia, founder and promoter, AABL said, “The revenues from this vertical (ethanol + by-products) are expected to scale to INR 150 cr by FY24. This facility will ensure traction in revenue growth since the existing 45MLPA ENA capacity is working at 100% utilization.”

The alcohol and brewery major is also focusing to grow its IMFL proprietary brands and is expecting to win rights of franchising USL’s popular products in other states besides MP. The company’s proprietary brands include Central Province Whisky, Titanium Triple Distilled Vodka, James McGill Whisky, Jamaican Magic Rum, Super Man Series & Bombay Special Series. It manufactures and distributes its products in MP as well as the states of Delhi, Chhattisgarh, UP & Kerala. Kedia added, “The revenues from the IMFL portfolio (proprietary + USL brands) is expected to grow at a CAGR of 25.0% to INR 297.3 cr over FY21-24.”

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