Tilaknagar Industries Ltd. (TI) was incorporated in July 1933. The company is primarily engaged in the manufacturing and sale of Indian-made Foreign Liquor. The company has a diverse product portfolio of brands with various varieties of liquors such as brandy, whisky, vodka, gin and rum. Its brand portfolio holds 15 brands across all the aforementioned liquor categories. Its products are sold under the brand names ~ Mansion House Brandy, Courrier Napoleon Brandy, Madiraa, Mansion House Whisky and Senate Royale Whisky. The company is a market leader in Brandy with a market share of 17% as of FY22.
The Company has a strong distribution network across the country; selling primarily through state corporations and direct sales and distributors. It also exports its products to East and South-East Asia, Africa, the Middle East, and Europe.
The company has ultra-modern manufacturing facilities set up with 4 owned facilities and 16 contract manufacturing units spread across 12 states in India, with the mother plant located at Shrirampur, Ahmednagar District.
The company is betting big on the growing prominence of brandy in the Indian-made foreign liquor (IMFL) market. According to the company, brandy sales are expected to be close to 20-22 percent of the overall IMFL industry, which is in the range of 70-75 million cases in the current financial year.The share of Brandy together as a percentage of total revenues as on 31st December 2022 is 94%. Under this Mansions House Brandy is a flagship brand of the company. The mansion is also the highest-selling Brandy brand in India as per IWSR. Mansion House Brandy sold more than 5.5 million cases in FY22, a growth of 24 percent over FY21 volumes. The brand witnessed consistent growth on YoY basis across all states and has grown its market share from 2.4% in FY17 to 3.14% in FY22 and from 12.4% to 16.8% for the same period within the brandy category. In FY22 Telangana and Pondicherry were the states with the strongest demand for this brand.
Tilaknagar Industries (TI) currently drives 86 percent of its sales from the southern markets. It plans to increase the revenue contribution from other markets like North and North-East in the current financial year. Currently, Andhra Pradesh, Telangana, Karnataka, Kerala, Puducherry, and Tamil Nadu are prominent markets in southern India.
The company will be launching its new premium products Mansion House Reserve, the premium variant of its flagship brand, Mansion House, and its French Style flavored premium brandy (Flandy) into new markets in the next financial year.
Currently, Flandy is available in Telangana, and Puducherry and will soon be launched in Sikkim. Its Mansion House Reserve is available only in Tamil Nadu for now. The company said it is deliberating on the other markets that it can launch the products in.
TI had initiated debt restructuring after the company faced difficulties due to a highly-leveraged balance sheet. So far, the company has reduced its debt from ₹1,200 crore in March 2019 to ₹323 crore as of December 2022. Apart from debt reduction, TI has also raised ₹311 crores through three preferential issues over the past 15 months. There has been a 13 percent dilution in the promotor holding in the company. Given the strong cash flows, being generated through operations along with the reduction in finance costs, TI does not foresee a requirement to raise any further equity.
The company has 4 owned facilities and 16 contract manufacturing facilities, set up with ultra-modern resources. The company's mother facility is located in Shrirampur, Ahmednagar District. TI also has a 100 KLPD grain-based distillery and a 100 KLPD molasses-based distillery in Shrirampur. TI sold more than 6.7 million cases in FY22, a growth of 23.4% compared to FY21; with a predominant volume share from the Southern states contributing 86% of the volumes. It has a distribution network of 40,000 outlets across India.
Past five-year financial analysis
For the past five years, the Revenue and PAT CAGR of the company is at 9% & 16% respectively. The five-year average EV/EBITDA and PE of the company is at 10x & 5x respectively. The current ROE & ROCE of the company is at 97% & 13% respectively. In FY22 the revenue of the company stood at Rs 783 crores, an increase of 43% on a YoY basis. EBITDA was at Rs 112 crores, an increase of 107% on a YoY basis on account of higher operating leverage. EBITDA margins of the company during the year were at 14% increasing by 400 bps on a YoY basis. PAT for the year was at Rs 45 crores increased from a negative of Rs 35 (Loss) crores in FY21.
Q3 FY23 Analysis
Revenue for the quarter ended 31st December 2022 stood at Rs 303 crores, an increase of 47% on a YoY basis. EBITDA during the quarter was at Rs 41 crores, an increase of 28% on a YoY basis. EBITDA margin for the quarter was at 13%, decreased by 300bps on a YoY basis, on account of inflation in raw material prices. PAT for the quarter stood at Rs 76 crores, an increase of 660% on account of an 'Other Income' gain of Rs 52 crores from exceptional items.
Risk & Concerns
The IMFL (Indian-made foreign Liquor) industry is a high-risk industry primarily on account of the high taxes and innumerable regulations governing it. As a result, liquor companies suffer from low pricing flexibility and have underutilised capacities, which, in turn, lead to low margins.
Inflationary tailwinds lead to hikes in raw material prices raw materials e.g. molasses and grains or packing materials e.g., glass, and packaging materials may impact the operating margins and profitability of the company. Also, dependence on limited suppliers may expose the company to supply risk.
The markets of the IMFL industry are dynamic in nature and are rapidly evolving. Over the past 10 years period in order to boost domestic businesses in this industry-government has eased the barriers to entry rules, which has allowed many competitors to enter these markets. Growing consumer demand and new tastes & preferences in the industry are also one of the reasons for increased competition.
Outlook & Valuation
The company is betting big on the growing prominence of brandy in the Indian-made foreign liquor (IMFL) market. The company has given a strong quarter in Q3 FY23 and we expect the growth to continue on account of expansion in the eastern part of the country& new product launches. Debt restructuring will improve profitability.
At a CMP of Rs 139, the stock is trading at 48x FY22 earnings. We recommend a 'BUY' rating for the stock.