Som Distilleries Breweries & Wineries Ltd

Breweries & Distilleries

Little Masters

Rs. 157.95
April 03, 2023

Stock Info

Breweries & Distilleries
Face Value (Rs)
Equity Capital (Rs cr)
Mkt Cap (Rs cr)
52w H/L (Rs)
155.50 - 53.90
Avg Daily Vol (BSE+NSE)

Shareholding Pattern

(as on 31-Dec)
Public & Others
Source: Ace equity, StockAxis Research

Price performance

Return (%)
Source: Ace equity, StockAxis Research

Indexed Stock Performance

Som Distilleries Breweries & Wineries Ltd Sensex
Som Distilleries Breweries & Wineries Ltd
Source: Ace equity, StockAxis Research

Lower penetration of beer and favorable demographic profile provides huge scope for growth for SOM

Company Profile

Som Distilleries & Breweries Ltd (SDBL), incorporated in 1993, is based in Bhopal and is one of the leading alcoholic beverages manufacturers in India. SDBL is primarily engaged in production of beer and blending and bottling of IMFL. Company offers a broad line of products at every price point to cater to varied preferences of the consumers. The product portfolio consists of various options across beer, rum, brandy, vodka and whisky. The Company has three key millionaire brands (sales more than 1 mn cases per annum) – Hunter, Black Fort and Power Cool.

Investment Arguments

Continuous product innovation to augment growth

The Company has strong portfolio of brands including millionaire brands, Hunter, Black Fort and Power Cool. Its key strategy is to develop continuous product innovation to capitalize on seasonal themes and enhance consumer traction and engagement. SDBL Launched Woodpecker Wheat Beer, India’s first filtered wheat beer in FY2020; the brand has created significant traction in very short period and is expected to gain further momentum. The Company commands ~3.5% market share in the Indian beer market and has immense potential to grow the market share by enhancing its penetration across India.

Improving geographical diversification

The company has a strong market share in Madhya Pradesh’s beer market, with a presence for three decades. Further, target markets of Karnataka, Kerala, and Odisha are all-weather markets in terms of liquor consumption. The company has increased its market share in Karnataka and Odisha’s beer industry over the last one year, thus strengthening its geographical presence.

Favorable excise policy announced for the FY 2023-24 in the state of Madhya Pradesh

The company’s market position remains healthy in Madhya Pradesh, significant expansion in distribution network and no hike in excise duties augur well for the company.

Traction in beer demand

The Company witnessed revival in beer demand in the domestic market in Q3 FY2022 after two summer seasons of weak performance amid the Covid-19 pandemic. The revival is likely to continue in the ongoing season supported by its growing footprint in Karnataka. Som Distilleries and Breweries Limited has announced that dispatches of beer cases have doubled from Bhopal plant in the month of January 2023 as compared to the same period last year.

Capex to drive growth

Som Distilleries has lined up a Rs.100 cr expansion plan between the two plants, one in Bhopal, one in the Hassan plant, in Karnataka. Management had indicated that Bhopal plant will cost us about Rs.58 odd crores, and the Hassan plant would be about close to Rs.43-44 crores. It aims to complete the expansion by Q1 FY2024.

Contract manufacturing to increase plant utilisation

Som Distilleries & Breweries has entered into a contract manufacturing arrangement with Radico Khaitan for manufacturing Indian-manufactured foreign liquor (IMFL) and ready-to-drink brands. The company will manufacture the IMFL and ready-to-drink beverages for Radico at its plant in Hassan, Karnataka. This will lead to better utilisation levels of SDBL’s IMFL facility.

Q3FY23 Financial Performance

The Company's performance for Q3FY2023 was particularly strong, with encouraging results across various key metrics. The Company recorded beer volume growth of over 69% y-o-y, and IMFL growth of over 55.1% y-o-y. The Company sold a total number of 26 lakh cases of beer and 3 lakh cases of IMFL resulting in an income of Rs.151 cr. This has led to a topline growth of 66.7% y-o-y. During the same period, EBITDA stood at Rs. 19.5 cr registered a growth of 186% YoY, and PAT stood at Rs. 10.5 cr growing manifold YoY with a margin of 12.9% and 7% respectively. The company's strategies have led to a growth in important markets resulting in an increase in market share. Cost efficiencies driven by better utilization resulted in improvement in margins. In October 2022, the company's brands held a 14% share of the total beer market in the state of Karnataka, demonstrating their strength and resilience in a competitive market and reinforcing their popularity among consumers.

Key Risks & Concerns

Highly regulated alcohol industry - The liquor industry is highly regulated by state governments, who control the sales and distribution, making the Group susceptible to changes in Government policies. Any change in Government policies with respect to production, distribution of liquor, taxation, and state excise duty, or any material changes in the duty structure, may impact the liquor industry and the company.

Vulnerability to raw material price increases - Company’s margins and profitability are susceptible to fluctuations in input cost (barley, packaging, new bottles and freight). Any significant increase in raw material prices could keep margins under check for the company.

High Working capital - The company’s working capital requirements are high, led by its requirement to maintain inventory across its plants, resulting in high utilization of working capital limits.

Outlook & Valuation

SDBL is the only listed company in India having both Beer and IMFL, which complement each other and reduces the risk of seasonality while providing marketing efficiencies. Considering strong portfolio of brands, new launches of products, growing market share, capacity expansion, improving financial performance and Lower penetration of beer and favorable demographic profile provides huge scope for growth. The Company anticipates delivering robust volume and revenue growth in the coming quarters.

At CMP of Rs.157, the stock is trading at 23x which appears reasonable. Hence, we recommend a BUY on the stock.

Consolidated Financial Statements