Questions are What are the raw materials of Breweries ? Why did its cost decrease so much ? Is it going to continue to reduce further ? The stock already got a PE expansion from 5 to 20 in last 2 years in the expectation the raw material cost may drop further. If it doesn’t the stock looks overvalued. The company in general has a very low sales growth in single digit, so only decreasing trend in raw material cost is driving this marketcap. Even if raw material cost in F17 becomes 25-30% of sales and growth remains 10-15% the stock is overvalued. Only if they are able to get the raw material cost to 20% and also growth to 20% the stock is a good pick ie it can still double in a year assuming P/Es don’t expand or contract further. Stocks which gets triggered by raw material price decrease and not by sales growth are generally cyclical in nature and starts nose diving once the raw material stop showing signs of decreasing further.
Current valuation not a buy for me but if I were holding I would hold for a year more.
Disc: Not invested
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