IPO: Allied Blenders & Distillers

Allied Blenders & Distillers, a leading Indian-made foreign liquor (IMFL) company, is coming out with its IPO (initial public offering) on June 25, 2024. Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision. In a nutshell Quality: The company's three-year average ROE and ROCE are 0.5 per cent and 11.3 per cent, respectively. Moreover, its cash flow from operations (CFO) has been positive during FY21-FY23. Growth: The company's revenue grew by around 6 per cent annually during FY21-23 due to stable demand and the introduction of new products. However, its profitability has been volatile with an average operating margin of 2 per cent during the same period. Valuation: Post the IPO, the stock will be valued at a P/E and P/B ratio of 2,665 and 5.6 times, respectively. Overview: Whiskey dominates the IMFL market and accounted for 95 per cent of the company's volumes in FY23. The company stands to benefit from stable demand due to the habitual nature of its products, and the rising trend of premiumisation in the overall industry. That said, the industry is highly regulated. It faces the constant risk of increasing taxes. The inability to raise prices due to volatile raw material costs and regulatory price restrictions are a constant threat to the company's margins. About the company Allied Blenders & Distillers is one of the leading alcohol producers in India, with an 8.2 per cent market share (in terms of volumes) in the IMFL market in FY23. It primarily produces whiskey, followed by brandy, rum, vodka, and gin. Some of its prominent brands include Officer's Choice, Sterling Reserve, and Iconiq. Allied Blenders & Distillers boasts a pan-India distribution network with 79,329 distributors. Strengths of Allied Blenders & Distillers It is a well-established brand in the Indian whiskey market, with an 11.8 per cent market share as of FY23. It operates in an industry with high capital requirements and entry barriers for other players. Moreover, advertising is highly restricted, which benefits existing brands. Weaknesses of Allied Blenders & Distillers It has one of the lowest operating margins in the industry at 2.3 per cent as of 12-months ending December 2023. Around 48 per cent of the company's revenue comes from various government-controlled retail outlets, leading to lower pricing power . It is unable to raise prices due to government mandated regulatory caps on prices and delays in the revisions of MRP (maximum retail price). Competitive pricing amongst the existing IMFL players also weighs on the profitability of the company. IPO details Total IPO size (Rs cr) 1500 Offer for sale (Rs cr) 500 Fresh issue (Rs cr) 1000 Price band (Rs) 267-281 Subscription dates June 25-27, 2024 Purpose of issue Repayment of debt Post-IPO M-cap (Rs cr) 7,860 Net worth (Rs cr) 1,409 Promoter holding (%) 80.9 Price-to-earnings ratio (P/E) 2,665 Price-to-book ratio (P/B) 5.6 Financial history Key financials (Rs cr) 2Y CAGR (%)