Thanks you very much Pratyush, That helps.
Call takeaways:
(1) All plants of the company are now fully operational;
(2) 80-85% shops were operational within a month of states allowing the sale of
liquor;
(3) West Bengal and Orissa performed better than Maharashtra as Swiggy, Zomato were allowed to deliver liquor;
(4) franchise income in the normal course is Rs 1.6-2bn per year. The company expects it to be ~40% lower going forward,
(5) ENA is likely to remain stable and support gross margin, going forward, and
(6) the company took a price hike in 7-8 states.
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Can you pls elaborate this point by exactly what you mean by franchisee income and why company expects it to be significantly lower going forward? Thanks
Indeed, there is now also a strategic tie up of Flipkart with hipbar, Diageo holds significant stake in it, for online delivery of orders placed via Flipkart. If multi channel market opens up for United spirits and breweries and gradually grocery retailers start keeping stocks like in US…then that’s a big reform towards acceptance of responsible drinking. A can of beer costs less than water and available in major grocery stores in west, similarly top quality spirits available is shelfs adjacent to cheese, milk and bread …that’s what resulted in resilient performance of likes of Diageo as they eventually become less of a pub/bar/restaurant and more of a lifestyle/ FMCG product.
USL has licensed its popular category of products to 3rd parties for royalties in some states. These 3rd parties takes care of entire manufacturing and distribution of these products is those respective states.
But, these 3rd parties are typically smaller players with limited resources, and thus in current situation they are facing difficulties in operations. Thus USL’s franchisee income was lower this quarter and they expect the same for the entire year as well.
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Diageo India’s Nitesh Chhapru wants people to consider Scotch whisky at casual get-togethers
Any update on USL taking over Pioneer distilleries? The announcement was made last December but I don’t seem to find anything regarding this further. Can those invested\researching this share some info.
What you mean taking over?
Pioneer Distelleris is already a subsidiary of USL.
Process to merge it with USL is going on and probably under regulatory approvals.
There is no definite date on that, but I think it’s safe to assume there is no risk on merger
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Could you please share the valuation model.
Disc. Tracking and interested
Yes, I was inquiring abt merger only. Want to xplore if thr’s sm arbitrage here?? Not heard anythng since Dec announcement. Is the record date announced?? Is thr any change in share swap ratio?
Arbitrage is there… About 10% discount if you buy Pioneer Distelleris…
100 CMP * 47. – 470 rs you are getting McDowell
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That’s what the most interesting stuff about McDowell…
It’s range bound since so many years…
Good Quality companies remain rangebound in during their tenor in multiple phases. …
These phases may range from 5-8 years max…and then new growth engine starts…
Reliance was rangebound from 2011-2016 … None of market rallies helped it… But now it’s reverse and helping market rally…
Timing and Patience is all we need…
India remain under penetrated market for alcoholic drinks and so whatever stagnant phase of 5-8 year is should be used as an opportunity to accumulate-trade in between… Online sales of alcohol will also act as a contributor to this…
Keeping in mind that rally will come and make stock 3X-4X in 2 years from the time it starts…
Disclosure: Invested and biased …
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Hi Paresh
Could you pls elaborate as to what gives you confidence that rally will come in next 2 years to make it 2x-3x…
Do you foresee huge earnings upside? If yes, what are the factors that will make earnings grow so fast.
Thanks
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somehow i am not so bullish anymore… I too felt the same way. However off late, the stringent givernmental red tape and bureaucracy, has ensured that USL is now letting go of shareholder value in lots of states by giving away / outsourcing the distribution to others. I feel, the current management is doing a good job, but until the debt is cleared it will not see a multiple x valuation
Disc - invested
What exactly do you mean by outsourcing/giving away distribution to others and how is that giving away shareholder value? It can be a strategy to outsource more capital intensive or backend work and concentrate more on brand building and marketing? Thanks
Appointed date of the merger in the scheme is 1st April 2019. Approval of the scheme seems to be pending. But found this article on the reason for the merger and some increase in the shareholding.
Disclosure: Not Invested.
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Nice article to read about sin stocks.
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Yes. This is well thought strategy to outsource low margin brands and difficult to operate regions. They want to focus on premium categories.
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Long overdue action. It is a small biz to take liquor from duty free shops or CSD stores and flip it for quick buck. Indian scotch brands are not that bad though.