ASSOCIATED ALCOHOLS & BREWERIES LTD - doubts regarding the transparency

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

  1. There was never a solid case for how they could expand out of MP. Liquor being a govt. Regulated industry, barriers to open in New states are no trivial. Thus, long term, the most likely case is a 7% state gdp growth at best. They had some hits in kerala etc which later seemed to fizzle out. Their stated volume expansions kept getting delayed or suddenly revised downwards.
    Having one large integrated distillery into really great considering cross border alchohol transfer and ena/ethanol being out of gst ambit.
  2. Dr. Vijay malik has a thorough study going back many years which dredged up a lot of Corp governance issues. Remuneration to the Kedia’s, loans from AABL to MEBL, MEBL coming in as subsidiary and then moving out etc.
  3. Beer and spirits have different unit economics. United spirits and united breweries are separate entities for instance. Since broached the merger a few quarters back, AABL stopped quarterly earnings calls too, the case for merger is never clearly explained. It has been in the works for long.

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:

  1. During Q2, OPM of Associated came down drastically (nearly 7%) (I say drastically because one of the reasons Associated catches most people’s attention is the consistency in their margins) and during the same timeframe margins of Mount Everest were significantly higher. The reasons given by mgt. in the concall were raw material price pressures and energy prices, but the obvious thesis is the same should have been effected Mount Everest OPM as well which is not the case. I personally think they just did this to extrapolate the good margins of Mount Everest whilst valuing for the purpose of merger.
  2. Whenever they are asked about the reasoning for the swap ratio, all they say is the fact that they will have huge synergies due to a single shop for both liquor and beers. No solid mathematics behind it. They just keep saying a reputed valuer has done it.
  3. As per AR 21, investment in MEBL was valued in the books of Associated at 128 per share, in AR 22 it was valued at 225 per share and now for the merger at 650 per share! Makes sense? To me atleast it doesn’t!
  4. Overall it’s a scheme which completely kills the minority share holders and only benefits Kedia family since they are the promoters in both companies.

As per audited figures on Care ratings report, Mount beverages had operating margins of just 4-5% in FY21 and FY22.

Associated alcohol OPM have been hovering around 14-15 percent and this certainly looks quite contrary to the management claims (snippet below from the concall)

Link to the report

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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)