Recommendation from Beverage company

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

SOM DISTILLERIES AND BREWERIES: ON A HIGH!

HERE IS WHY
✓Amazing turnaround post-pandemic
✓Best ever numbers for quarter ending June 2022
✓Robust growth in volumes and revenue

The pandemic was a black swan event that created disruption for almost all organisations, and that included the breweries too. The lockdowns brought businesses to a standstill and this was eventually reflected in their finances with many companies posting huge losses in the last financial year. Nonetheless, two years down the line the situation has improved a lot and most companies are witnessing better demand. One such company that is posting its best ever numbers is Som Distilleries and Breweries (SDB).

SDB is engaged in the manufacture and sale of beer and Indian-made foreign liquor (IMFL). The company’s product portfolio consists of various options across the beer, rum, brandy, vodka and whisky categories. Its flagship brands include Hunter, Black Fort, Power Cool and Woodpecker in the beer segment and Milestone 100 whisky and White Fox vodka in the IMFL segment. The Hunter and Woodpecker brands are supplied as draught beer to various hotels in Madhya Pradesh and Chhattisgarh. It has a total installed capacity of approximately 22.8 million cases per annum of beer and 3.3 million cases per annum of IMFL. The company’s capacity is spread across three facilities located in Bhopal, Hassan and Barpada.

For the quarter ending June 2022, the company recorded many best-ever achievements in its history. It was the best ever quarter in volumes, revenue, EBITDA and PAT. The company recently completed its expansion plans and this was the first season quarter that it operated without any restrictions. For Q1FY23, SDB recorded beer volumes of 47.3 lakh cases, resulting in total income of ₹256 crore. It was also the best ever volume sales for Hunter and Power Cool brands. Hunter recorded a volume of 20 lakh cases, Black Fort and Power Cool recorded 7.2 lakh and 19.4 lakh cases, respectively, during the quarter. 

The realisation for the quarter was ₹506 per case compared to ₹462 in FY 2022 primarily driven by higher mix of Hunter in the total volumes and the price hikes which the company has taken across brands. IMFL volumes during the quarter were 1.9 lakh cases, an increase of over 160 per cent compared to the same period last year. The IMFL realisation for the quarter was ₹791 compared to ₹775. The EBITDA of the company came in at ₹35.9 crore with operating margin of 14 per cent, which is in line with long-term average as during last year same quarter there was loss at EBITDA level due to lockdown. 

PAT for the quarter was ₹25.7 crore with a margin of 10 per cent. Last year in the same quarter the company had posted loss. It also saw strengthening of its balance-sheet. Gross debt as on June 30, 2022 stood at ₹180.3 crores compared to ₹197.3 crores as on March 31, 2022. The total debt to equity ratio at the end of June quarter was 0.6 times compared to 0.7 times in March 2022. One of the reasons for such growth is that the company has been able to gain market share from 3.5 per cent in 2019-2020 to 11.5 per cent for 2019-2020. The shares of the company look expensive as they are trading at PE of 50x. Nonetheless, given that it has recently turned around and is showing consistent improvement in its financials and balance-sheet, we recommend our readers to BUY this scrip.