Pincon Spirit Stock

(Gaurav Agarwal) #41

Hi Agarwal

Sum of Cash flow from operation for long period of time should match sum of net profits for the same period. Cash flow from operation for one particular year can be negative whereas net profits could be positive for multiple reason.

Few companies like rice companies which procure rice for whole year in 2-3 months may show negative cash flow from operation if seen in those months for long period of time.

(Agarwal) #42

OK that explains my query to some extent.

(PS) #43
  • High Debt To Equity - For expansions… Moreover debt is from Manoranjan Roy only… only short term debt was raised from iDBI which was for singapore acquistion (Orbitol)
  • Management never said they want to go into production and brewing… they want to grow inorganically…through brand acquistions… recently one brand professor whiskey was acquired which is south east asia famous
  • Yes operating cash flows are negative…should wait and watch on this… as they are aggresively growing…
  • closing stock - this is positive…its for election purpose

Disc: 20% of portfolio… views may be biased

(Abhishek shah) #44


1). Negative Operating Cash Flows - One should try to understand the reason behind the negative cash flows. Is it because the business is bad? Is it because the accounts are manipulated? Or is it because the growth Y-on-Y is such that they need to continuously pump in more and more money in working capital. When you are planning to invest in a company, you always tend to invest with a 5 year horizon. Do you see operating cash flows getting positive at the end of 5 years? Yes, I do feel. Over next 5 years the growth in the business will start tapering off. Less working capital will be needed y-on-y. Operating cash flows will automatically turn out to be positive. - I personally like companies generating negative operating cash flows if the reason is growth !!

2). Interest Income - Notice interest income schedule. Interest income was recorded in FY15 but not in FY16. Company has enough cash and bank balance. Have raised this query to the mgmt through the IR, and I expect their answer in a day or two.

3). High Rebates & discounts - Check the P&L schedule for high rebates and discounts given by the company. What is the reason behind such high discounts and rebates?

4). Loan from Director - Last year Mr. Roy had given a loan of 60cr (convertible). During the year, he converted 10cr of loan to equity. In AR the total loan from director has increased to 61.75cr. It should be 50cr. This means additional loan has been issued by Mr. Roy. If that is the case, has the company taken shareholders approval (I am not able to find any BSE announcement). Mr. Roy gives unsecured loan to the company charging no interest, but gets the right to convert his loan into shares of the company. This shows his confidence in the business.

5). What is export receivable in debtors schedule? This amount of 60,227,514/- reflects in debtors for two years now. This same amount reflects in revenue schedule under sub head “FMCG exports”. Please provide the exact details on this. What we understand from this is that the company also exports FMCG. Is this correct? If yes, was this one time order? If no, why have the sales reduced substantially?

7). Pincon looks safe after Mamta Banerjee is back for another 5 years. AR mentions of some “composite license”. How is the regulatory environment in West Bengal? Is the government encouraging on shifting from unorganised market to organised market? - http.docx (0 Bytes)

Mamta banerjee has clearly told in one of the communications that she never intends to ban alcohol in West Bengal. States like Andhra Pradesh, UP and West Bengal are planning to introduce liquor in tetra packs so that the good quality liquor cant be mixed with the bad liquor and be sold in the grey market. West bengal is already in fiscal deficit of 6%. This figure is very high compared to the next highest fiscal deficit state of India which has just 2.75% (approx). Think of an individual who is already in debt and has to pay 1 lac every month to service debt, earns 0.90 lac only every month (fiscal deficit of 6%). That individual earns income from two sources - one from his salary of 60000 rs per month and the other from his small part time practice worth 30000rs. Can that individual afford to let go the additional 30000 rs which he is generating from his practice?? If he does, he will push himself in more trouble? This is where is West Bengal currently. They can not afford loosing this simple/no brainer revenue - alcohol contributes 20% to the overall revenue. More, alcohol consumption is deeply routed in the culture of west bengal. You cannot compare situation of Gujarat with that of West Bengal, because its demographics are different. More over, in Kerala and Bihar the ban was more of a political gimmick and not a prudent and a rational decision. The decision was to solely come back in power and win the hearts (votes) of women. This is not the case in West Bengal since Mamta Banerjee is already in. Further, the govt. in more over encouraging the use of tetra packs and such packagings and wants the industry to get organised. Pincon fits well here.

But, Kerala was the highest alcohol consuming state of India. Can you imagine ban in this state? We should think over this and this is a fresh event !!

It has been 4 days back only, when the state opposition raised their voice for ban in West Bengal citing the huge success of this ban in Bihar. Need to take this very seriously.

8). The OPM are low (6%) since almost 60-70% is a trading business. IMIL and IMFL (the manufacturing business) margins are high - close to 8-8.5% and increasing Y-on-Y. Operating leverage will kick in, more and more portion of manufacturing business, and increased market share will all make the OPM close to 14-15% in next 4-5 years.

9). Mr. Roy is a good person. He was wrongly accused before, to which he has been already given a clean chit. Refer the earlier discussions done in the Pincon thread.

10). Top mgmt consists of highly experienced people picked from United Spirits, Radico Khaitan and HUL (for oil business).

Business growing at 60% CAGR is available at a PE of 12 !! Its looks a no brainer !! But, the valuations are not cheap because market is not mad to let the stock trade at this valuation !! The risk is very high. One needs to closely track the business and the political scenario. However, the chance of banning alcohol is almost nil. There has been no evidence of Mamta Banerjee expressing her views against alcohol consumption or banning alcohol outright. All what she has been doing is to increase the states revenue by bringing the alcohol consumption under organised sector, eliminating the hoochs and illicit liquor, thereby safeguarding the lives of the people and introducing liquor (IMFL) in tetra packs.

Disc - Invested with a tracking position. Views might be biased.

(Abhishek shah) #45

Hi Ravindra,

I find that you are tracking GM Breweries also. Can you provide us with the following insights -

1). Why are the OPM of GM breweries so high? Is it because has a more of a trading business?
2). Are business segments of Pincon and GM breweries both same - focus on IMIL and IMFL?
3). What led to decrease in the raw material cost of GM breweries? (GM Breweries thread).

Lets make a peer group comparison.

1). Globus Spirit.
2). Radico Khaitan.
3). GM Breweries.
4). IFB Agro.
5). Pioneer Distilleries.

This will help us get a complete overview of the industry.

(Abhishek shah) #46

My report on Pincon.Pincon Spirit.docx (33.5 KB)


Hi Abhishek,
Please don’t take responsibility of other’s actions by giving them character certificate. No need to tell us that “Mr. Roy is a good person”. If you know him personally, then please let us know more about him. How did Mr. Roy, who used to sell alcohol at a shop, make the kind of money to become promoter of this company and give unsecured loans of 50 - 60 crs?
Another advice is to check company’s manufacturing capacity. The management of Globus Spirits recently mentioned in their concall that Pincon is not a manufacturer of alcohol, but only a bottler.


Hi Paresh
Where did you read about aquition of Proffesoor whisky?

(Abhishek shah) #50

Hi Pranav,

Thanks for your response.

1). How do you define manufacturing? Can you please elaborate with respect to liquor industry? Do you mean this to be blending of alcohol or manufacturing of ENA? Are you very sure that Globus does the manufacturing thing?

2). Can one blindly rely on what the competitor say? It would be useful for you to note that Pincon is already well established brand in West bengal. Globus spirit copied Pincon’s success and has recently gone for expansion in WB. Check the ROE of Globus !! Have you gone through the financial statements of Globus? If not would suggest you to go through it. Would also suggest to go through last 5 years of AR of globus and specifically Financial statements to find out what you are missing. You have come out with a good point, pointing out to what Globus has to say. But, have you studied Globus properly? Do you know its management well? So, then can you blindly rely on what they tell?

3). What difference does that make if Pincon does not manufacture? They have brands in market which are a huge success. If that is the case then Pincon is a roaring buy. Its asset turnover ratio will be highest in the market, and no peer can compete it.

4). Have you gone through the career history of Mr. Roy? Do you know how much years he has been in the liquor industry? Do you know what he has been doing all these years? Was he just selling liquor through his 8 retail shops? Or was he in the distribution business also? When did Pincon list its stock? Was Pincon a mere distributor till it listed itself or was already in the business of blending,bottling and marketing of its brands?

5). I have visited the manufacturing facilities at Pincon. I have met the top mgmt and asked my questions. I have done scuttlebutt rather than just blindly relying on what mgmt said. I have a video which I will share shortly. Of course I cant write all these details in my report. An advise from my side - counter question the mgmt of Globus Spirit next time when they make the concall.

Thanks for your concern.


Take a deep breadth and calm down. Rather than answering, you ask 50 questions. Don`t forget that markets deflate big egos.
I know what I do and both Pincon and Globus do not make the cut for me. You would not like to hear this, but at this stage you need far more depth in your thinking.
Good luck with your investment!

(Abhishek shah) #52

Thanks Pranav,

I am already calm. I have done my research well. I am always open to contradictions or any negative views to my thesis and I would always like to take a deep dive and confirm if my thesis still hold correct. I asked you questions because I wanted to understand your concerns about the business.

for eg - What do you mean by manufacturing? Does it mean blending or manufacturing of ENA?

Answer to your questions -

1). Mr. Roy has spent 2 decades in liquor industry. He started with his already owned family business of 7-8 retail outlets selling liquor. In next 2 years of his career, he ventured into wholesale distribution of liquor brands. He has been into this business since 18 years now. Recently, 5 years back he started his manufacturing business. He listed Pincon 2 years back only. He has 3000 tie ups with different brands for the distribution of the same. Hope I answer your question. So perhaps this provides sufficient logic for where he brings 50-60 cr money.

I have checked the management quality from 3 angles -

–> In depth study of Financial stmt. found no accounting manipulations. I have certain questions on certain items which I have already listed down in my earlier thread.
–> Tried to google for any frauds, SEBI suspensions, cases or any other criminal or civil cases against the promoter or top mgmt. Found one which has been extensively discussed in the thread earlier. Note he has been given clean chit.
–> Met the mgmt personally and tried to understand their history and vision.

I would like to make this to your note that none of the companies in India manufacture ENA. They outsource ENA or purchase from outside and blend with water, bottle them and sell them under their brands. Take any company - GM breweries, Globus, Pioneer or Pincon.

So, now let me ask you questions.

1). Have you met the management of Pincon?
2). Have you visited the factory?
3). Have you gone through the ARs of Globus spirit and Pincon?
4). What do you mean by manufacturing in liquor industry?

Please note that neither my report nor my thread only talks about positive on Pincon. I have equally pointed out the negatives. You could have politely asked me for the basis on which I tag the promoter as a clean and honest man !! I would have answered to your questions. And that would be helpful to me even. I would have got to know the company from a different angle. I have answered to your questions. Please do ask me for any further inputs if you want. I would expect an answer to my questions from you.

Any ya, thanks lot for advising me on my investing. This helps.:astonished:

Best Regards,
Abhishek Shah.

(Dazzled beginner) #54

Hi , going through the 38 th annual report found following noteworthy points.

  1. company started venturing into IMIL business.
    Possible moat: venturing into a segment which is largely unorganised with no strong competitors.Indian estimates of illicit liquor is around 50,000crores+ rupees per year. Company has now started BRANDING the IMIL business.
    It has started switching from molass based extraction to grain based production of liquor.
    Also adding this to RO treated water it claims to have De odourised the liquor smell which attracts the vast IMIL consumer base.even though it has entered this segment in 2015 it claims to have captured 40% market in bengal. Also as they have acquired 2 popular IMIL brands bengal tiger and uddan both which are more than 15 years old in the industry. Apart from this company has also embarked to acquire blending and bottling plants in dankuni and barahanagar. . The company also looks to buy 2 bottling units in malda and koochbehar in this fiscal year… All the above mentioned steps should increase bottling capacity from the current 1.25 crore per month to 2.5 crore bottles per month as stated by CFO of the company. Also one should bear in mind consumption of IMIL in begal is around 6.5 crore bottles per month apart from illicit liquor consumed.
    Company wants to improve the market share to 60% in IMIL in bengal by 2017. …that itself is a giant leap of 20%… sounds ambitious, need to watch whether they would accomplish it.
    Revenue from IMIL with 40% market share with 1.25 crore bottling per month in 2015 was 123 crore. . With doubling of capacity in IMIL plus acquisition of two new IMIL brands we need to see the revenue this year…my educated guess is that there will be at least an improvement of 30%. ( strictly from my point of view😀)
  2. moving on to IMFL
    Acquisition of ORPL of Singapore based company allows the company to export it’s premium brand Jamaican xxx rum to SEAN countries.
    AR claims that contribution of revenue from IMFL has come down to 33% from 49% of previous year.
    This clearly suggests that company wants to focus more on IMIL where there is not much competetion from organised sector. .now there is some confusion that I encountered while reading the AR…In page 18 , 19 it is said that revenue from IMFL alone was 341 crore which is around 33% of total revenue of 987 crores for year 2015-16.
    However in a highlighted box in the same page it is stated that revenue from IMFL for the year 2015-16 was 588 crores. …would be happy if anyone can clear this doubt…
  3. going to FMCG
    2 brand of oils are being produced … since 2013.
    Total capacity of 50,000 tonnes from the plant.
    Sales volumes of 15- 16 was 31,000+…
    So there is scope of improving the sales further 40 to 45% without any CapeX.
    Opportunities of growth…
    Since it is focusing on BRANDING OF IT’S IMIL segment which lacks significant competition as major players are concentrating on premium grade liquors , there is a huge untapped opportunity.
    This is traslating into good performance…
    Company further wants to acquire plants in northern part of bengal where it’s presence is still marginal.
    Company also is increasing its presence in states outside bengal - karnataka, orissa and jharkhand.
    This increased the revenue outside bengal to 35%… yoy. …scalable opportunity appears to be vast.
    Also company plans to buy a bottling and blending unit for IMFL for this year…
    Md has put forth a vision of doing a revenue of 3000 crore by 2020… current revenue just below 1000… This sums up the opportunity. .However how much of this vision can be realised is to be seen…
    Some rumours of pincon trying to sell a Scotland based companies liquor in India. …hope someone can shed information on that…
    Company commentary suggests explosive growth ahead… seems to be like a heads I WIN A LOT , tails- I loose very little sort of a bet
    Negatives: high debt …
    Also I feel the company doesn’t disclose the information as and when they take a course of action… although relieved that a lot of unanswered questions were answered in 38th annual report.
    Also felt the commentary by the MD of a achieving a revenue of 3000 crores by 2020 was a little aggressive ( personally feel management should be conservative when giving a forward looking commentary)

Disclosure : invested at 100 rs level prior first bonus was issued… ( 25 rs after 2 bonus adjusted)
Around 5% of my portfolio…planning to build as conviction increase… view may be positively biased

(Abhishek shah) #55


Good write up. But, would suggest to be skeptic. The way the company is aggressively expanding mainly by inorganic growth can turn out to be disastrous. The story seems fantastic. But, the story seems good because there are hidden risks too. Please do consider them.

1). Can Pincon decide the market price of its liquor products? No !! Govt. fixes them.
2). Can Pincon decide on the raw material costs? Not much. Ethanol prices are decided by govt. This does not mean ENA or rectified spirit !! If you want to understand this - check what happened to GM breweries.
3). What is the industry structure? What are the regulatory risks? Study the recent bans in Kerala and Bihar !!

So, if you win you win like a lottery, but the chance of fall is equal.

You have misunderstood what they are trying to tell. IMFL includes IMFL wholesale (distribution business also). This is why its share has come down. IMFL branded business has grown at 60%. It is the distribution business which has lost its share in the total revenue. Hope this clarifies.

We need to closely track this company. Its not a “sit calm and your money will grow” like story. Its like Avanti feeds, you need to be on your toes.

(Dazzled beginner) #56

Thanks for clearing the doubt. …
What impact does this reduction in distribution of IMFL have on the company?..
Also continuing the positives and negatives of the company
For a company which has a revenue of 987 crores it’s PAT is around 25 crores. …meaning the margins are wafer thin …almost like a commoditised business.
However the CFO in a commentary has said that intentionally selling the liquor at cheap prices to wipe out competition. .This also starts creating a brand recall in the minds of consumers , once this is done then pricing power may come into effect. ( however difficult to guess the time frame).
2) repeated diluting of shares by issuing bonus shares…few bad quarters or an unexpected turn of event may act as a double edged sword.
3) liquid cash of company is around 38 lakhs. …any bad event which leads to spending of money may put the company in trouble.
Positives :slight_smile:
Repeated dilution of shares by issuing bonus talks about the confidence of the MD… ( COZ increase in number of shares meaning increase in dividends too) …coz the second dividend of 0.75 rs given recently was given to the bonus shares too.
2) also the dividend increased from the first time which was .50 rs… so dividend is also increasing this suggests that companies profit are for real …unless of course there is a financial shenanigan. …

(PS) #57

Margins are too thin… Need margin improvement like hell…


I apologize for appearing to be discourteous. I have evaluated the company on parameters that I think are important and was not asking for any information, only asking people to re-think before writing absolute statements. We have avoided making absolute statements like attesting to people’s character and vouching if accusations were true or false. An example - The report on Pincon mentioned that the promoter started with selling alcohol at a shop and moved up, which does not agree with what is being mentioned now. I was only warning against such over-enthusiasm in writing, because our statements on this platform may influence opinions of others.
With benefit of hindsight, I would not approve if 10-15 years earlier I would have felt confident in my thesis to trust people in liquor business in India. However, it is the difference in opinion that makes investing interesting.

(Dazzled beginner) #59

Hi pranav, difference of opinion is what makes a market…
Can u tell us on what parameters did pincon fail to make the cut according to u… We are all here to learn…
Wen optimist invent the aeroplane , it was the pessimist who invented the parachute :)…
Can u point us towards the red flags u came across

(Abhishek shah) #60

Absolute statements in any report should not be encouraged if it is without any reasonable basis or due diligence…I think I have done my part of due diligence from 3 angles as specified in detail above…I hold the right to make that absolute stmt since my stmt was backed by adequate basis…I was not firing in the air…by mentioning that Mr Roy started his career from shop floor…I never pointed out at his integrity or honesty…I pointed out to his history and path of his journey…

Could you please let us know any specific, objective, logical argument against pincon…Thanks I advance!!


Hi Ming,
I evaluated Pincon quite some back and things might have changed by now. I decided not to analyze it any further after a brief study. I will tell what I can recollect.

India is a country where enforcement of contract/security is very difficult. The regulators understand this and force as much disclosures as possible. Very few countries (don’t remember of any major economy) would have mandatory definition of “Promoters” that we have and we force these guys to disclose valuable information. The promoter’s integrity is very important to me. I didn’t like the way promoter has been treating the company. I do not always take accounting numbers, even fund infusion by promoters, at face value.
Last I checked, the company was mostly a trading entity operating at very low margins. Their asset utilization was very high. The low margins in business were inspite of big chunk of promoter loans that were interest free / at low interest (if i remember correctly). I don`t see virtue in generating huge trading revenues at low price margins. I do not agree with people who say that all alcohol firms in India are only blenders and bottlers and that manufacturing of alcohol is a misnomer. Even Aurangabad Distillery Ltd, which filed DRHP at NSE SME exchange, claims to make Rectified Spirit, Denatured Spirit and Extra Neutral Alcohol (ENA). One can look at pages 109 to 112 in their DRHP for a brief overview of alcohol manufacturing process. Pincon sells cheap alcohol and the audience who watches business news channels is not their target segment. Yet they have been spending money on advertising on these news channels. I am not comfortable with this kind of behavior. If I recall correctly, the company was generating low, or probably -ve, cashflows and taking large amounts of debt from banks. This appeared to be a low margin, trading-like business operating with dollops of other people’s money. It was a business that I weeded out at initial stages of evaluation and do not intend to look at anytime soon.

Hope this helps. Good luck!

(Gaurav Agarwal) #62

Hi Abhishek,

I am just trying to understand the company. Do not wish to heat-up the discussion in anyway?

How do you know promoter is good? I have few points to make here

  1. Why Mr. Roy has declassified himself as promoter of the company?

  2. Why he has giving loan to the company at 0% interest rate? Why no equity infusion?
    Why he does not issue warrants to himself, at least we could know the price of conversion? What is price of conversion of 10L equity shares on 30-Mar-16?

  3. Why so many subsidiaries in finance sector - LRN Finance, Ask Financial Services?