Is this case with all beer(liquor) companies, asking from the knowledge perspective.
any inputs here?
Will margins have an impact when they outsouce to other bottling agency? how does that work?
Second CSD contract in recent times.
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Company is excited to announce the introduction of a new strong beer called “Legend” in Karnataka. This beer is designed to appeal to strong beer enthusiasts and is made with high-quality ingredients for a rich and intense flavor. We aim to capture a substantial market share in Karnataka with Legend.
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the good part is that the promoter is not stopping to buy… Every other day the promoter buys 0.01% and now the shareholding has gone upto 38.5% (after warrant conversion) from 24%. I am confident of Som making strides in coming days ? Any red flags here?
Risk: Promoters of SDBL don’t have a clean past.
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GST evasion in 2020: LIQUOR: GST intelligence officers arrest SOM Distilleries promoters in alleged tax evasion case, ET Retail
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Anti Trust Violation 2022
competition commission: CCI raids Associated Alcohols, Som Distilleries in price fixing probe - The Economic Times -
Multiple other mispractices in the past
Analysis:... - Dr Vijay Malik - Simplifying Stock Investing
Would like to prefer a cleaner company as compared to this. Stock has already tripled in one year, on account of everyday buying by SDBL promoter.
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Lets take a step back to probe the possibility of highlighted growth of the company. I have created a table based on what I think can be a possible path to sale of 150 million cases by FY 30. It translates into a possible sales growth of approx. 10x from FY 23 levels. Imagine what such growth can do to the share price. Considering they’ll require ~ INR 12 crore to add 1 million cases of capacity (adjust for inflation in the coming years) it looks manageable amount of money with multiple financial instruments at their disposal. I have taken 90% revenue from beer and 10% from IMFL.
From the consumer point of view, considering the price hike in IMFL vs Beer across India, its reasonable to assume that beer volumes may grow disproportionally and on the higher side. I spend a lot of time abroad, and almost always found people drinking beer over hard liquor (unless they are addicted to a brand). I have personally tried SOM products for over a year and loved their beer, all three of them stood high on my quality index, namely power cool, hunter and woodpecker (Woodpecker started coming into the market just recently).
| Cases in Mn | Revenue | Beer Revenue | IMFL Revenue | |
|---|---|---|---|---|
| FY 23 | 15 | 800 | 730 | 659 |
| FY 24 | 30 | 1620 | 1458 | 162 |
| FY 25 | 36 | 1944 | 1749.6 | 194.4 |
| FY 26 | 50 | 2700 | 2430 | 270 |
| FY 27 | 75 | 4050 | 3645 | 405 |
| FY 28 | 100 | 5400 | 4860 | 540 |
| FY 29 | 125 | 6750 | 6075 | 675 |
| FY 30 | 150 | 8100 | 7290 | 810 |
The very nature of liquor industry dealing directly with Govt is bound to raise confrontations at times and its possibly true of any company operating in the liquor space. Despite this constant, SOM went up from ~40 Rupee per share to a high of 380+ in a short span of time and companies like Carlsberg and Radico have collaborations with them along with ace investors putting their money into it. So overall, long term story looks positive to me but as always, be alert when investing.
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I believe that maintaining the same level of optimism and confidence in such turbulent times is what differentiates an investor from a speculator. Kudos to you!
Also, It isn’t the first raid for the company and isn’t the last either, everyone knows why places are raided right before the elections, after all cash plays a vital role in every election.
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There are Income Tax dept raids in multiple locations/sites of Som Group companies. Senior folks houses are also being raided and is likely to continue for days. Reason mentioned is tax evasion. Any insights into this? Is there possible wrongdoing or just government flexing its muscle?
As mentioned in my previous post, promoters have been involved with these things since 2020.
Possible wrongdoing: Yes, this is true for most of the small cap companies. Yes they are involved in wrongdoings, but the question is, will anything happen to them? Will they get jailed or give a fine?
Would something be found, will the IT officials take the bribe and let it go etc etc.
We don’t know.
Coming to the share price
- Smallcap companies faces intense competition from companies like Radico, United Breweries
- Stock has tripled in 3 months post April and gave parabolic returns. It should consolidate here for some time or give some correction.
- Any bad news on macro level will effect these kind of stocks the first
- There is some reason QIP did not get full subscription and had to be cancelled.
Taking into account all these factors, my decision is to wait and watch for some filings by the company, or some media release on the outcome.
But for long term investor, this news should not matter.
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In the current situation, we can explore different possible outcomes:
1. Worst-Case Scenario (10% Probability):
- Promoters might be evading tax, and the IT department could catch them. This could lead to hefty fines or prosecution.
- The stock market may react negatively, causing a short to medium-term decline in stock prices. However, recovery is possible in the coming quarters due to strong company performance.
- Liquor companies generate revenue from state government sales, so they are likely to meet their revenue targets over the next 6-9 months.
- Retail investors may forget about the raid and resume investing, as seen in the past (2021, 2020).
2. What Usually Happens (50% Probability):
- Experienced promoters may opt to pay fines or reach settlements, avoiding legal troubles. IT may find something small, rather too small.
- Stock prices may experience short-term fluctuations but could recover, considering the promoters’ past experience in dealing with such situations.
- The fact that this is not the first raid and no previous prosecutions occurred may provide reassurance.
3. Best-Case Scenario (40% Probability):
- The IT department’s raid may not uncover any wrongdoing, allowing promoters to maintain their reputation.
- Promoters may highlight their strong corporate governance and accounting practices.
- This positive outcome may lead to a favorable stock price reaction.
It’s important to keep in mind that these scenarios are speculative, and the actual outcome will depend on multiple factors, including the findings of the IT department, legal proceedings, market sentiment, and the broader economic landscape.
Individual investors should conduct thorough research, consider their risk tolerance, and make investment decisions based on their financial goals and personal circumstances. Staying informed through reliable sources, closely monitoring the situation, and being prepared for different outcomes are advisable. Consulting with a financial advisor or an expert in such matters can also be beneficial when making investment decisions during uncertain times.
FYI Look what HDFC securities is saying about SDBL. They have given a buy rating today. Its HDFC, not some immature investor who doesn’t know which side of gun he/she is using to aim, what they are aiming at and when to fire.
The Hindi news from Bhopal indicated that IT didn’t find anything is giving excuses now. The raid was to probe tax evasions, most likely politically motivated.
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The news indicates that Trident was raided possibly because MD is given a prestigious positions by the Punjab Government. Reports are that SDBL promoters have a political friends who are not in power right now.
Did anything happen to Trident? Do you see similarity in the two incidents?
Things like these are non events. Unless something truly serious is found. IT proceedings take a long time and the assessees often go for multiple appeals. There should be no medium term impact on financials and operations.
I don’t think the raid will cause any trouble worth worrying about, it’s all election-linked acts, politics and corruption go hand in hand. So it is always easy to convince the people about the authenticity of the charges brought, through media trial. The actual trial takes time and on most occasions, CBI fails to prove the charges. But the government gets instant mileage from the media trial, purpose is served.
On most occasions, we find CBI works in tandem with ED. The ED, which in recent times has become a fearsome ‘super’ investigative agency is responsible for investigating violations under the Prevention of Money Laundering Act (PMLA) and the Foreign Exchange Management Act (FEMA).
Under PMLA, the agency has conducted over 1,700 raids from March 2011 to January 2020 in connection with 1,569 specific investigations. In the same period though, the ED has managed to secure convictions in only a paltry 9 cases, most of which are relatively low-profile cases.
Both the ED and the IT department have become more active from 2014 onwards. The ED conducted just 99 raids in FY’12 for PMLA and FEMA cases. This jumped to a high of 670 raids in FY19.Financial Year. Similar is the story for the IT department, abysmal increase in the number of cases but convictions eluding
If we see the success rate of these three agencies in securing a conviction, it looks like most such charges are brought under flimsy ground to garner political mileage. A mere 1.5% chance of finding something worth all the havoc they create, In short - Paisa khao mauj manao is the moto, I doubt if anything substantial will show up in the case of SDBL either.
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Is the company trying to be more transparent this time ?
- The Income Tax Department is conducting a search at the company’s premises and related plants since November 7, 2023. As of now, the company has limited information about this situation.
- The company has been following the rules and making the required disclosures to the stock exchanges. Due to the ongoing Income Tax Department scrutiny, they couldn’t provide this clarification earlier. The delay in providing this response is because they needed permission from the Income Tax Department to access their IT assets for filing.
- The company states that once the Income Tax Department’s search concludes, they will inform the stock exchanges of any significant information or events.
Tax Department has been conducting a search and seizure operation at their corporate office and factories since November 7, 2023 and concluded on November 11, 2023
Company’s regular business operations are continuing without disruption.
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Why is the promoter increasing stake consistently?
I believe they plan to give higher dividends, or this guy just has a lot of disposable money.
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Expectations of very good growth over next 3 to 5 years. Ie ild recommend you to read concall
The points you mentioned do play a role but you are missing out on the most common reason behind promoter buying - Foreseeable earnings growth which in turn raises the stock price and makes the promoter’s net worth go zoom and buying usually happens a couple of quarters before unusual growth in numbers.
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