Recommendation from Alcohol Sector

This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

SOM DISTILLERIES AND BREWERIES : REACHING NEW HIGHS

HERE IS WHY
✓ Shifting social attitudes boosting the alcohol beverage industry
✓ Innovation and new product launches triggering growth
✓ Well-positioned to capitalise on industry trends

I ndia’s alcoholic beverage industry is predicted to reach USD 64 billion over the next five years, according to a report by the International Spirits and Wines Association of India. The Indian beer market, which accounts for 8 per cent of the total consumption of pure alcohol in India, is expected to reach ₹781.2 billion by 2032. The alcohol beverage industry in India is experiencing remarkable growth due to factors such as the growing urban population, changing consumer preferences, shifting social attitudes, younger consumers, out-ofhome segment growth, tourism and hospitality expansion, as well as supply chain and distribution innovations.

Owing to this, our low-price recommendation for this issue is SOM Distilleries and Breweries Limited. The company is a leading Indian-made brewer, specialising in producing beer, blending, and bottling Indian made foreign liquor (IMFL). Its key brands include Hunter, Black Fort and Power Cool, with Woodpecker Wheat Beer being India’s first filtered wheat beer in FY 2020. It operates three manufacturing facilities in India, with a total production capacity of 35.2 million cases of beer and 3.9 million cases of IMFL. As of FY24, the company has two subsidiaries: Woodpecker Distilleries and Breweries and Som Distilleries and Breweries Odisha. In Q3FY25, on a consolidated basis, its revenue increased by 12.21 per cent YoY to ₹561.96 crore compared to ₹500.8 crore from the previous year’s same quarter. The net profit stood at ₹21.51 crore compared to ₹17.99 crore, a YoY increase of 19.58 per cent, while sequentially it increased by 15.05 per cent from ₹18.7 crore.

We are optimistic about the company’s growth trajectory, driven by several key factors. The timely completion of capex at the Odisha facility will significantly enhance production capabilities, while a substantial 37 per cent debt reduction over the past nine months demonstrates strong financial prudence and positive cash flow. Strategic expansion into high-potential markets like Uttar Pradesh, Rajasthan, Delhi, Jharkhand and North East India will broaden the company’s footprint and lead it to tap into new consumer bases.

Product innovation, particularly the successful launch of the premium Woodpecker brand in Karnataka and the continuous development of new beer variants, is a powerful growth engine. The management’s optimistic outlook for the upcoming summer season, coupled with effective strategies to mitigate challenges like regional alcohol bans, reinforces their confidence in the future performance of the company. Furthermore, the company’s focus on expanding the Black Fort brand to new states and maintaining healthy EBITDA margins through operational efficiencies and cost optimisation will contribute to sustained growth.

With a projected volume growth of at least 9 per cent in Q4, the company is wellpositioned to capitalise on industry trends and deliver strong results. At TTM, the shares of the company are trading at a PE ratio of 25.0 times, lower than the industry average of 29.9 times. It has a PEG ratio of 0.72 times, making it an attractive investment. Over the last three years, SOM Distilleries and Breweries has achieved compounded sales growth of 65 per cent and profit growth of 62 per cent. Considering the aforementioned factors as well as the changing lifestyle demands of the young generation, not to forget the approaching summer season that will boost the demand for beer, we recommend BUY.