Evaluating Allied Blenders and Distillers Ltd IPO opportunity; Should you invest?

In this analysis, we take a closer look at Allied Blenders and Distillers Ltd and present you with the exclusive IPO details.

About the Issue  

Allied Blenders and Distillers Ltd is set to launch its initial public offering (IPO) for equity shares, each with a face value of Rs 2. The IPO price range is set between Rs 267 and Rs 281 per equity share, resulting in a total issue size of Rs 1,500 crore at the upper price band.  

The IPO is scheduled to commence on June 25, 2024, and will conclude on June 27, 2024. The market lot size for the IPO is 53 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 689 shares or a total investment of Rs 1,93,609 assuming the upper price band.

Objects of the Issue  

The offer encompasses both the fresh issue and the offer for sale. It's important to note that the company will not accrue any proceeds from the offer for sale. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. Prepayment or scheduled repayment of a portion of certain outstanding borrowings availed by the company

2. General corporate purposes

Promoter holding  

Kishore Rajaram Chhabria, Bina Kishore Chhabria, Resham Chhabria Jeetendra Hemdev, Bina Chhabria Enterprises Pvt Ltd, BKC Enterprises Pvt Ltd, Oriental Radios Pvt Ltd, and Officer's Choice Spirits Pvt Ltd are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 100 per cent in the company.

Company profile  

The company is the largest Indian-owned and Indian-made foreign liquor producer and ranks as the third largest IMFL company in India, based on annual sales volumes from Fiscal 2014 to Fiscal 2022.

As of December 31, 2023, the company’s product portfolio included 16 major IMFL brands across whisky, brandy, rum, and vodka. Some of its brands, such as Officer’s Choice Whisky, Sterling Reserve, Officer’s Choice Blue, and ICONiQ Whisky, are 'Millionaire Brands,' each selling over a million 9-litre cases in one year. The company’s flagship brand, Officer’s Choice Whisky, was launched in 1988, marking its entry into the mass premium whisky segment. Officer’s Choice Whisky has ranked among the top-selling whisky brands globally in terms of annual sales volumes from 2016 to 2019.

It is also one of only four spirits companies in India with a pan-India sales and distribution footprint. As a leading exporter of IMFL, the company held an estimated market share of 11.8 per cent in the Indian whisky market in terms of sales volume for Fiscal 2023. As of March 31, 2023, the company's products were available in over 79,000 retail outlets across 30 states and union territories in India.

Additionally, as of December 31, 2023, the company exported its products to 14 international markets, including countries in the Middle East, North America, Africa, Asia, and Europe.

Financials  

The company has achieved considerable revenue growth over the past few years. However, its profit margins have remained very low, consistently below 1 per cent. This is primarily due to the company allocating more than half of its income to excise duty and also incurring substantial finance costs, both of which have a significant impact on its profitability. 

Reducing its interest burden through the repayment of debt from the net proceeds of the fresh issue amounting to Rs 1,000 crore would significantly boost the company's profitability.

Valuation and outlook  

The issue is priced with a P/BV ratio of 16.77 times, calculated using its Net Asset Value (NAV) of Rs 16.76 as of December 31, 2023. When we calculate the PE ratio for the company by considering the annualised FY24 earnings relative to the fully diluted paid-up equity capital, the resulting PE ratio stands at 1,222.

Despite the current perception of the offering being highly aggressive, the impact of repaying outstanding loans and achieving increased profitability will benefit the company in the long run. Leveraging its strengths, including a leading market position, substantial market share, strong brand recognition, and access to an extensive pan-India distribution network with scalability capabilities, the company is well-positioned for significant growth.

Hence, we recommend investors to subscribe to the issue with a long-term perspective.