Som Distilleries and Breweries

No offence here @Ganesh3180 but i have been watching all small caps and none of them are at 52 week highs…

Moreover the results posted by Som and the wrong PDF uploaded should have hit the stock more but fortunately it has survived more beating…you should be happy about it.

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Q4 n Full Yr Concall Transcript is released by the company. But Unable to open from the co. website as well as from Researchbyte site.Can anyone upload the transcript. Yesterday there was a flurry of activity and the scrip is moved to T to T segment. Company has sent a communication to the exchanges that Full year audited results have been approved.

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Results on a brighter side
The company has reported total income of Rs.283.14 crores during the period ended June 30, 2019 as compared to Rs.166.01 crores during the period ended June 30, 2018.

The company has posted net profit of Rs.14.57 crores for the period ended June 30, 2019 as against Rs.11.21 crores for the period ended June 30, 2018.

The company has reported EPS of Rs.4.49 for the period ended June 30, 2019 as compared to Rs.4.07 for the period ended June 30, 2018.

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well researched by Dr. Vijay Malik at SOM Distilleries & Breweries Ltd: Fundamental Analysis -Dr Vijay Malik

Better to read direct ‘Analysis Summary’ at the end of the article.
From Management perspective , company doesn’t seems worth investing.

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Yes absolutely
The last time it went up because of the news of buying from big investors

The promoter has been buying aggressively from the open market. What could be the reason?

Disclosure: Tracking position

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@Aditya942000 The alcohol market will see an uptrend in 2022. I think it would be a great idea to invest in Som distilleries since it has been performing well

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Looks like Som Distilleries is the last to join the reopening party…

The last 4 columns (of this extract from screener below) shows that all major distillers and liquor manufacturers have already picked up in the last 4 quarters…

May be if this show continues for an year… the stock may be rewarding on improving EPS

PS: Som showed up in three of my screens I) 52 week high; ii) improving Operating Profit & EPS and iii) increasing promoter stake… So this is a fleeting peek into the stock… regular boarders may please share views

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ABOUT THE COMPANY
Som Distilleries & Breweries Ltd
The only listed Beer and IMFL company in India

SDBL, incorporated in 1993, is involved in brewing, fermenting, bottling, canning and blending beer and IMFL. It is the flagship company of the Bhopal-based Som Group.

Som Distilleries & Breweries Limited (SDBL) and its wholly owned subsidiaries—Woodpecker Distilleries & Breweries Private Limited (WDBPL) and Som Distilleries & Breweries Odisha Private Limited (SDBOPL)

CAPACITY

I Think Karnataka has 4.5mnc pa. as their current capacity. Mnc is million cases per annum

MARKET SHARE

  1. 14% market share in Karnataka as on October 2022. Up from 3.9% in FY21 and 6.9% in FY22.
  2. 12% market share in Orissa as on 31st December 2022. Biggest competitor is United breweries.
  3. 35% market share in MP for Q1 FY22. Market leader
  4. Pan India market share of 3.5% as on 31st December 2022 up from 2% in Q1 FY23
    The reason for me to share the above details was as follows
  5. The commercial production from the Hassan unit commenced from June 2018 and in a very short period they have significant market share of 14% despite 2 years covid effect.
  6. SDBOPL commenced commercial production from March 2019 and has a latest market share of 12%. This is despite UB competition.
  7. They are Planning to enter UP and delhi where the market size is close to 3.5cr to 4.5cr cases per annum in UP and 1.5cr cases in Delhi. To give perspective their current run rate 1.3cr beer only.

The overall point is that there is something very good about their Beer otherwise you cannot gain market share at such a rapid pace when you are competing with much larger brands like UB.

CAPACITY EXPANSION

  1. The company has recently done a capex of 100cr. Close to 58cr in MP and 43cr in Karnataka.
  2. The MP capex is for increasing their canning line. This will increase canning capacity within overall capacity (overall MP capacity will remain same). This is being done in line with their plan to enter Delhi and UP.
  3. Their Karnataka capacity will double to 9mnc pa from current 4.5mnc pa
  4. They have paid 65% to 70% for the capex and they don’t plan to raise any debt for the balance amount.
  5. Existing capacity can give 1100cr revenue and this adds 150 to 200cr taking it to 1300cr.
  6. It will be functional for the beginning of Q1 FY24
  7. They are planning a rights issue of up to 50cr for working capital needs and is averse to raising more debt

CAPICITY UTILIZATION

So beer sales are very seasonal. During summer people want to keep them cool so they drink beer and during winter people want to keep them warm so they drink IMFL,IMIL this helps the company to reduce seasonality.

To make use of this summer season the company has done capex.

Q1>Q4>Q3>Q2. Quarterly beer sales generally.

  1. The Karnataka plant is at 100% utilization. The MP plant is at 55% utilization and the Orissa plant is at 40% utilization this is for 9months and beer only.
  2. MP and Orissa were at 70% utilization in Q1 FY23
  3. They can have an annualized peak utilization of 80% to 85% combined for all three.

ABOUT THE BUSINESS AND COMPANY PORTFOLIO

  1. The Raw materials used by the company are Barely, glass bottle, sugar and CP boxes

  2. 90% to 95% of sales is from beer on a yearly basis and 99% is own sales.

  3. The company has recently entered into contract manufacturing with Radico Khitan for IMFL and RTD.

  4. They are producing beer currently for 7Ink they are selling in Maharashtra.

  5. For most of the sate the wholesaler are the state government but in Maharashtra the distributor is private and the retailer is also private so they always carry the risk of delinquency of their money so the company wants to take Maharashtra at a later stage(BIG MARKET)

  6. The have 3 main brands called the Millionaire Brand in beer (Hunter,Powercool,Black Fort) with Hunter being the premium brand and power cool being the cheaper one.Wood pecker is Wheat beer which they plan to launch in a big way this summer

  7. This is a heavy working capital intensive business because the company has to pay exercise duty before they receive revenue for sales. Eg: If the sell the wholesaler 100cr of stock and the Exercise duty is 50% they pay him upfront 50cr.

BUSINESS ANALYSIS

Just before proceeding the sales of this company is screener is after paying exercise duty because on an average exercise duty is 45% of the sales.

  1. Promoter are constantly buying stake. The TOP 11 share holder holds 55% of the company stake.

THERE ARE 3 VERY IMPORTANT FACTOR IN SALES

a) The ED in MP is 15% to 20% of sales and the ED combined in KA,OR is 60% to 65%. Now KA is running in full capacity throughout the year but MP has seasonality so these 2 quarters MP share in sales increases which increases their overall realization per mnc. Presenting a hypothetical example below

b) During this summer premium brand HUNTER is expected to pick up. If the share of hunter increase in summer realization increases. Calculate hunter share in Q4FY22 and Q1FY23 and compare with rest.
image

c) Gross margins in Q1 is always the best because of higher capacity utilization. Q1FY23 was at 43% and the latest quarter has 41%.

  1. It would be fair to assume that the Sales In MP should be latest 1.5 time that of Q4 FY22. The sales keep increasing as we move towards summer. MP was at 70% utilization in Q1 FY23 so we can somewhat predict Q1 FY24

  2. KA is at 100% utilization so Q4FY23 can have marginal increase in sales with more selling in OR

  3. With KA capacity doubling from Q1FY24 and OR having 70% utilization in Q1FY23 we can expect blockbuster Q1FY24.

  4. Beer Realization per case in Q1FY23 was 506 Rs and Q3FY23 had 490 rs. For Q4 FY23 and Q1FY24 expecting strong volumes and better realization.

MY SALES PROJECTION

  1. Net 2 Quarter can be block buster and that is why the Promoters are constantly buying from market. From my analysis the next 2 Quarter can have 50cr of PBT. Just for comparison SOM TTM PAT is 51cr.
  2. I still have to understand their taxation hence not predicting PAT.
  3. Current net Debt is 152cr and debt to equity 0.5. This is one of my concerns if it further increase but they don’t plan to take any further debt in near term.

TECHNICAL AND MY THESIS

  1. They have not participated in the current rally of all alcohol and beverage company. 150 is the Key resistance and the entire highlighted area is close to 100pts. So above 150 we can really have some action in this counter and the trigger is going to be the Q4 and Q1 results.

  2. I see this as a short to medium term opportunity. I feel the future is very bright for the company and it has a huge market to cover. I would first try to understand all beverage policy especially the states in which this company is operating. Try to understand more of the risk of the company and then develop a long term view.

  3. Just to give an example the company is confident of 20% to 25% sales growth next year and it does not face any tax related issue for next year. So their peak utilization is 80% to 85% and with the targeted sales growth they reach close to that utilization. This means they will further have to do capex. This mean more debt or dilution.

  4. Though FY24 looks promising as they are targeting 14% margins I am still in the process of evaluation.

  5. The market size is pretty huge so the scope of growth is high and there is something special about their beer so I am actively tracking this stock for even the long term but as of now have no view.

RISK AND VALUATION

  1. The Indian liquor industry is highly regulated and beer has a disadvantage because ED is charged on volumes weather beer or IMFL. Beer just having 5% to 8% of alcohol, form the consumer perspective they are paying more money for the alchol when consuming beer when compared to IMFL.
  2. Working capital intensive nature of operations – SDBL’s operations are working capital intensive due to its requirement of excise duty payment upfront and high inventory holding. They constantly need money
  3. Under the current tax regime, state governments have only liquor and fuel under their control. Any additional taxation on liquor to meet target state revenue objectives can be detrimental for the industry as it will have severe impact on the demand.
  4. The alcobev industry cannot do direct promotion of its product as it is banned in India. The company in last 2 years did 35cr to 40cr of surrogate advertisement
  5. In many states, where the government is also the biggest distributor, it fixes the prices at which it buys products from the alcoholic beverage companies and the prices at which they will sell to the end consumers. The state governments decide the end consumer price, leaving manufactures with no say in determining their selling price.
  6. High Price Elasticity of Demand
  7. Every state government has its own rules and regulations in addition to the regulations set up by the central government. As a result, tax and duties are imposed on inter-state movement of alcohol which restricts consolidated of operations and synergy benefits are not fully realized.
  8. The beer and IMFL industry can be adversely impacted due to the volatility in key input raw
  9. Over last few years, many international companies have entered the Indian market due to the immense potential prevailing in the country. These players could impact volumes primarily in the metros as their products are well known among affluent or lifestyle seeking consumers. Like Budweiser, Carlsberg.

These are the reasons I would take some time to evaluate long term opportunity

Company seems to be fairly valued at 20times earnings and 3 times PB. When compared with peers it hold better valuations and next 2 quarters have the probability of being huge makes this a good short to medium bet.

@sahil_vi I admire you a lot and just wanted your view even if you dont track the company as to how I can further improve. I hope you remember me :grinning:

EDIT

MAIN POINTS

  1. They are expecting 300cr revenue from the new capex. If we see KA will add 4.5mnc capacity so at 450rs to 500rs of realization with 100% utilization the revenue comes up to be 200cr to 220cr. This means they are expecting 80cr of revenue from canning facility which will eventually sell in UP, Delhi.
  2. They are expecting top line of 1000cr in FY24
  3. They Plan to take promoter stake at 51%. Current limit is 5% per year.
  4. They are saying there PAN INDIA market share is at 10% it was at 3.5% at 31st December 2022
  5. Their Karnataka market share is at 16.6% was at 14% mentioned in latest presentation.

Disclosure- Not invested as of now but planning to buy

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There is this new risk to sales in MP which we will have to keep in mind, that from April 1st, ahatas or place nearby liqour shop where people can sit and drink will be shut.

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Dolly Khanna entered into Som Distilleries

https://twitter.com/VPickr/status/1645709869172011009?s=20

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Yes for verification i am attaching screenshot

Few more recent disclosures from SOM
image
image

Rights issue details
image

10 shares for every 211 shares and record date is 14th please correct me if my interpretation is wrong.

Question which I will ask in this Concall

Thankyou

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Rough Notes from Q4 Call

MP - POS for beer has expanded, the impact is positive. Market has expanded last year and expecting further expansion.

Karnataka - higher demand than supply. Company doing it’s best to cater to it.

Odisha - Plant undergoing expansion. Planning some tie ups in short to medium term

90% of sales comes from the state where plants are present. Last year we had difficulty to cater to demand within those states.

This business is best done with a plant in the state from where demand emerges. Maharashtra & some other state(UP) may be options for expansion. Looking for various opportunity. 200-300 funds requirement.

Gross Margin decrease this Q: Cost pressure all around, specially glass bottle , last year seen 35-40% increase. Similar increase in barley prices, but it has now stabilised. It is down to Q1 level. It had increased in Q2 & Q3.

Do we procure ENA for IMFL - Yes, but it’s only 10% of revenue.

IMFL is just for complementing sales, focus is on beer.

We have taken price hikes (Beer) in MP, Karnataka, Delhi, Odisha in range of about 4-5%

Capex : Odisha. taken 25 cr. term loan from PNB. capacity enhancement from 42 to 60 lac cases.

Debt : Don’t expect any further increase in debt in current financial year.

New plants : at Bhopal & Hassan have stabilized and operating close to 85% to 90% capacity currently.

Karnataka - 90 lac cases. added 45 lac cases in Karnataka.

FY23 volume was 15 Million. FY24 volume : See 22-25% growth in sales, revenue of 1000 cr. aspiration of 13-14% margins.

Soda Ash prices have also decreased in April, so hope glass bottle prices have peaked out.

Peak Plant utilization of 85-90% possible

Gross Margins : Cans - Cost escalation in cans have been 15-20% range compared to 40% in glass bottles. Cans have higher realization compared to glass bottle. Endeavour is to improve the sales mix from bottle to cans. Current contribution of cans : KA - 10%, Bhopal - 10%

Disc: Hold from Mar’22 levels and added more in Feb’23.

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Promoter has been buying from open market for sometime now.
Yesterday and todays data shows big purchase of RE & normal shares from open market.

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@rajpanda Sir thankyou for your notes.

I was present in the con call but never got a chance to speak :cry:
Written to the IR team but I have a 100% track record of never getting a response

Anyway I already found answers to all my previous question I had new set of questions and found answer to 50% of them. I am putting the questions for which I have not found the answer below.

Q 1 - Their gross sales in Q3 excluding the standalone number ( Sales from Maharashtra plant) was 190cr and in Q4 it is 320cr. KA was already at 100% utilization and despite that they added incremental sales of 130cr, How?? Too good. I think they should have a dominant share in OR now. This is the reason they might be doing capex in OR. In OR their market share was 12% as on 31st dec 2022 and biggest competitor is UB so if they gain market share here then we can conclude that there is something very good about their beer.

Despite being aware of the glass bottle thing I tried to overestimate the margins. So when ever sales increases or they set up new capacity they have to purchase new bottles which are expensive than the returned bottles this they faced in 2019, 2018 when they set up capacity in KA and OR.

In MP their ED as a % of gross sales has been very volatile like in Q1 it was 11% in Q2 12% in Q3 26% and in Q4 16%. I think this is because when ever they sell more from the MP plant in MP their ED is low but when they sell outside MP this ED is high. So next quarter this should further fall as they would sell maximum in MP.

The way management was answering margins for Q1 FY 24 ( Lets see, Lets see) and they will have to buy new bottles in Q1 because of new capacity looks like margins in Q1 is also going to be some what same.

My expectation is 300cr to 400cr sales more close to 350cr and margins of 11% to 12%. Their PAT growth on a YOY basis should be within 0% to 25%. Anything above this would be an earning surprise ,at least for me. Q2 should be a extremely good quarter on a YOY basis.

They will exceed 1000cr sales next year as per me. Lets see.

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Som Distilleries announced a strategic tie-up with Carlsberg for the Odisha plant
https://twitter.com/VPickr/status/1660566371095433216

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very bullish commentary from mgmt.

Can exceed 2000 cr. revenue in 2 (or 3) years ? Margins will automatically increase. That’s the nature of business because lot of costs are fixed. May have few more tie ups like Carlsberg in future.

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https://twitter.com/Alazyinvestor13/status/1677771089878061058?s=20

Som Distillery KTA

  1. 1000 cr+ revenue in FY24
  2. Promoter holding will reach 50% from 34%.
  3. Karnataka’s capacity doubled - 45 lakh to 90 lakh cases. Will increase further to 150 lakh cases.
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Orissa plant has been started and we will see volume growth from here on.

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