The company’s shares rewarded their shareholders handsomely in recent years as they maintained continued upward trajectory. Over the past five years, the company’s shares have surged from ₹19 apiece to the current level of ₹224.50, marking an impressive gain of 1081%. Notably, in November, the stock reached a 15-year high of ₹291 apiece.
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Despite the significant surge in share value, the brokerage believes that the stock is trading at reasonable valuations considering the current business metrics and scale of operations.
Rapid growth
The company stands as a leader in the Indian-made foreign liquor (IMFL) brandy segment, which contributes to 93% of its total volumes. It has secured approximately 20% of the market share in this segment.
In the prestigious Prestige & Above (P&A) segment within the brandy category, the company commands around 28% market share. Its flagship brandy, Mansion House Brandy, holds the distinction of being the largest-selling brand in India and the second largest globally.
According to Drinks International’s report ‘The Millionaires Club 2023’, Mansion House Brandy (MHB) is ranked as the world’s second-fastest-growing brand across categories.
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The company’s second ‘Millionaire’ brand, Courrier Napoleon Brandy (CNB), caters to the Deluxe to Super Premium segments. Both P&A brands, Mansion House Brandy (MHB) and Courrier Napoleon Brandy (CNB), have witnessed robust CAGR in volumes, with MHB registering 33.2% and CNB 35% growth over FY21-FY23, according to the brokerage.
India’s liquor industry is experiencing rapid growth, driven by increasing disposable incomes and a burgeoning young demographic. Premiumisation, the introduction of flavored variants, and expansion in the out-of-home segment are expected to further propel growth in India’s alcohol markets in terms of value.
Displaying exemplary volume growth
According to Systematix, the company is currently scouting for multiple initiatives in premiumisation and expanding its portfolio and geography. It said that the company has risen from its difficult past, where it committed some strategic errors, and has chalked out a clear growth roadmap for the medium to long term.
An industry-beating growth, a beefed-up balance sheet (post multiple fund raises), and a strong top management team are testimony to its new beginnings.
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The brokerage emphasised that the company has been achieving remarkable volume growth in the brandy segment for several reasons: it holds a leadership position in the category, faces limited competition, c) experiences relatively low premium salience, and is witnessing increasing penetration.
With multiple recent launches in the brandy category, the brokerage noted that the company is strengthening its leadership position by offering products across various price points within the category. Additionally, it is exploring new categories in the alcove space to unlock fresh avenues for growth.
The company achieved a 33% volume CAGR during FY21–FY23, primarily driven by robust growth in the brandy segment. Over this period, the proportion of brandy to total volumes consistently increased from 84% in FY18 to 93% in FY23.
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In contrast, the share of rum decreased by half from 10% to 5%, while vodka and gin remained steady at 1-2%. However, the volume share of whisky, operating in a highly competitive market, declined from 4% in FY18 to 1% in FY23.
Notably, in recent quarters, the brokerage observed that the company’s volume growth has consistently surpassed that of the Indian Made Foreign Liquor (IMFL) industry.
Debt-free balance sheet
With a virtually debt-free balance sheet and limited capex plans, the company is expanding its share of brandy by aggressively stepping up marketing and promotion spending to build the category and further solidifying its share in the South.
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Stable input costs, continued remiumisation and improving state and brand mix should aid margin expansion, the brokerage noted.
Financials and valuation
Systematix projects a CAGR of 13.3% for revenue, 18.6% for EBITDA, and 29.9% for profit before tax (PBT) from FY24 to FY26E. This growth is primarily driven by a 12.3% CAGR in volumes, excluding any contribution from new non-brandy segments.
“The stock holds significant re-rating potential, considering its debt-free balance sheet, 20%+ RoE, and above-industry growth. We initiate coverage with a ‘Buy’ and target price of ₹317, based on 35x FY26E earnings, which we find reasonable for the current business metrics and scale of operations,” said the brokerage.
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The brokerage notes that the company’s peer, Radico Khaitan, is trading at 42.2 times consensus earnings, while larger listed multinational corporations (MNCs) are trading at over 50 times earnings.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 14 May 2024, 06:20 PM IST