Promoters are merging this company into their unlisted company (Mount Everest Breweries Limited) which is into Beer manufacturing. Board has approved this merger. Now they will seek all approvals from various regulatory authorities.
I am bit skeptical about this transaction since there is not much information in the public domain. If anyone has any details, please share.
Disc: Invested
In the past, I had studied AABL and I will write based on that. Over a long run, the ticker has done quite well 40% CAGR. But, Several red flags for me
Given this background, in my opinion, the prudent thing is to let the market price the combined entity and to see whether the claimed synergies are indeed coming through.
Disclosure - I am an IDIOT, please treat this as no more than the rants of a drunken sailor.
I am not invested. This is NOT a recommendation.
This is clearly a situation where the interests of minority shareholders are being sidelines.
A few things that caught my attention:
As per audited figures on Care ratings report, Mount beverages had operating margins of just 4-5% in FY21 and FY22.
Link to the report
Announcement under Regulation 30 (LODR)-Award_of_Order_Receipt_of_Order
Announcement under Regulation 30 (LODR)-Award_of_Order_Receipt_of_Order.pdf (14.9 KB)
Q3 FY24-
We have constantly solidified our preferences as critical players in Kerala and Madhya Pradesh. Further, we are delighted to note an increasing demand of our products in Delhi.
In line with our broader strategies to become a pan-India player , we actively target markets in Karnataka, Maharashtra and Goa. The company plans to form a subsidiary in Uttar Pradesh to expand its footprint domestically. The decision is driven by the state’s favorable incentives for manufacturing. We are in the early phase of acquiring land for the Greenfield project and are actively engaged.
we are confident that the plant will operate at full capacity from February 2024 onwards, the recent addition in anticipation to the yield meaningful revenue by FY25.
Notably, a slight margin pressure has been attributable to an increase in grain price. We expect this to continue in future as well . The price of other critical material has also remained at an elevated level.
Furthermore, industry shift has impacted our ENA sales, particularly prohibition of sugar syrup as an ethanol feedstock. In response to these industry headlines, we have deliberately decided to retain our stock, aligned with our commitment to maximize returns. We are optimistic that the market condition will soon be as favorable as most suitable stream
IMIL sales volume was stood at INR28.40 lakhs due to change in the policy of MP Government.
Ethanol OPM margins- 8%, 9%. including by-products.
So in the next financial year, we’ll be entering Maharashtra, Goa, Pondicherry and Karnataka, Assam and Pondicherry market. But now from April onwards, we will be available in Goa and Maharashtra for sure . And then we are looking at Karnataka, Pondy and Assam this financial year.
we already have booked 100% orders for Ethanol Plant. So that much supply is less so that the demand is more in the market.
So we have a multi-feedstock plan. Currently we are using maize. So we can maize, rice, sorghum or any other raw material which have a starch content. And plus we are strategically located in Indore so we can procure raw material from the neighbouring states which are either maize or rice-driven state. So that’s not an issue but overall the price of all the commodities are at elevated level. So currently all the commodities are moving in tandem.
Currently we are using maize since we are getting more benefit as compared to rice.
Using Maize to produce Ethanol. And if I do the math, you require about 2.85 kgs of maize to produce one litre of ethanol.This plant will generate 250-300cr in yearly basis FY25 and onwards.
Going towards premium Brands which will increase the margins in the future.(whole industry is going through Premium brands)
So see, Imran, what we have, so we have a third party, tri-party agreement with the solar power producers. So accordingly, we get a substantial lower power charges from the MPP. And they just charge the additional conveyance fee for supplying the power.
So that’s the advantage we have on the this thing. Plus, as far as boiler, we have a captive power sources as well. We have a turbine through which we generate our own power. So if we purchase a power from the grid, it will be costlier than what we are producing at our own end. So that’s why we have a benefit over the others. Right.
And there’s a huge opportunity now because of tourists and everybody coming and placing UP. Plus, apart from that, we need to have presence in, we are already present in central India and Madhya Pradesh. So, now to cater to the northeastern market, which has got great potential, we have planned to set up a plant in Uttar Pradesh. In that, we have planned to put in 100KL plant with a bottling unit.
So, post license approval, probably around 12 to 24 months, around 24 – 18 to 24 months, we can seal the plant up. Yes.
Investors asking to get new young promoters on concalls.
As per an investor, packing is not that good, if they improve packing then can command higher prices.(Jo dikhta h wo bikta h)
I came across this company, few days back while looking at mid and small caps in Alcobev segment. Company’s revenue has grown at a very fast pace in last one year ,debt is very minimal and company is entering into the newer markets with newer premium products. There are some stories of patchy management past on the internet, which could be negated with the new generation taking over. Now the question is can this growth continue and will the PE multiple expand?
In my opinion majority of the growth in last 2 quarters has come from the ethanol business while the premium segment growth is flat. Company is trading at a multiple of 36/37 , once the growth from ethanol business spread across all the 4 quarters, the normal growth rate would be around 10% to 15% with 50% to 60% business coming from commoditized business or IMIL, so this is quite similar to Globus spirits business and there are less chances of valuations to expand.
I have made a detailed YT video on it.
As the Management guided margin expansion playing out.
Thank you for highlighting these results. I invested in this company a while back.
My thesis was however more around three factors:
1. Cheap Starting Valuations: This company was trading at 1X P/S when I invested and had a PE of about 25
2. Transformation with the launch and success of brands: I felt if the company launched more brands, the valuations would expand significantly and it would see a journey like Radico did or Piccaddily Agro did.
3. New Generation Takeover and Elimination of Corporate Governance Issues: The newer generation would eliminate the corporate governance problems and thus help in getting more recognition amongst investors.
The reversion to mean in margins was more of a cherry on the top, as I felt I would get the company for cheap because the grain prices were pretty high. With these results, I have a few observations, some positive, some not so much.
Positive Observations
1. IMFL Proprietary Revenues have grown the fastest amongst all categories indicating some major changes are taking place: IMFL(Prop) has grown by 31% YoY, followed by IMIL at 23% YoY, IMFL Licensed hasn’t grown as fast
2. Reversion to Mean Margins has played out across all verticals: Ethanol and IMIL EBITDA have jumped up 91% YoY, IMFL(Prop) EBITDA has jumped up 75%, whereas ENA has jumped up by 56% and IMFL Licensed by 54%
This then brings us to the negative observations, which I think somebody should ask them about in the concall:
Negative Observations
1. No new product launch this quarter unlike promised: The company had earlier promised the launch of a premium alcohol brand in Q1 FY25, then postponed it to Q2FY25 last quarter, however I haven’t seen details of the launch this quarter too. There seems to be a problem here.
2. Margin cycle may have played out completely: The range of EBITDA margin the company has promised is between 9-11% at the corporate level, whereas this quarter’s EBITDA margin was north of 12%
Are we in a peak margin cycle here?
3. The third concern I have is more regulatory, MP CM Mohan Yadav has recently announced that there will be a prohibition drive in some religious districts of Madhya Pradesh: While making these comments, the CM also talked about this being phase one of leading MP to complete prohibition, I don’t know if it was a slip of tongue or if they actually mean it. But either way, it could mean a substantial loss in revenue to the company.
You can find the video of this here on my X: x.com
