Associated Alcohols

&

Breweries Ltd BSE Code: 507526 CMP: Rs.38.60 Book Value: 44.23 Face Value: Rs.10 1617 Dividend: 2.5% EPS: Rs.6.13 P/E: 6.6.65 Long-term Debt-Equity Ratio: 0.75 Performance: Market Outperformer Time and Target: Short and Medium Targets are Rs.65 & Rs.90 respectively.

Introduction: Associated Alcohols & Breweries Ltd. (AABL) is the flagship company of the Associated Kedia Group. It is engaged in manufacturing Indian Made Foreign Liquor (IMFL), distilling of potable alcohol, rectified spirit, Extra Neutral Alcohol (ENA) etc. AABL is also bottling international brands like Smirnoff Vodka, Christian Brothers Brandy for Diageo and Single Malt Scotch Whiskey - Glen Drummond for Mason & Summers. The company has good product range as it manufactures single distilled, ENA and also triple distilled alcohols for reputed brands. Shareholding Pattern: The promoters hold 47.38% while the Institutional Investors hold 0.05%. Private Corporate Bodies (PCBs), NRIs/OCBs/Foreign others hold 23.70% and 4.30% respectively, while the investing public holds 24.57% of the equity. Thus the company has a low floating stock. There were also some private placements some months back to the promoters and outsiders. Financials: For FY07, while its income rose to Rs.85.76 cr. from Rs.77.77 cr. in FY06, the operating profit jumped to Rs.6.3 cr. in FY07 from Rs.2.78 cr. in FY06 and for PAT FY07 was Rs.3.6 cr. against Rs.2.8 cr. in FY06 resulting in an EPS of Rs.5.44 in FY07 against Rs.4 in FY06. Its reserves, too, improved to Rs.23.8 cr. in FY07 from Rs.20.3 cr. in FY06. But its working results for Q1FY08 were impressive as its net profit rose 136.36% to Rs.0.78 cr. as against Rs.0.33 cr. during Q1FY07, while sales rose 49.90% to Rs.29.50 cr. in Q1FY08 as against Rs.19.68 cr. during Q1FY07. This indicates the growth of the company after sugar and molasses prices has ebbed. The season for the company started from September and will continue till May, 2008. Hence subsequent quarters may see further improvement in its fundamentals. Triggers: • AABL is one of the few distilleries making Grain Spirit in India. Its quality of Extra Fine grade of ENA is used as raw material by many national & international brands. Shaw Wallace, UB group, Triumph Distillers & Vintners, Diageo, Mason & Summers, Seagram's etc. are some of its customers for its Fine Quality of ENA. • The company has a virtual monopoly in the country liquor section in the central India and Madhya Pradesh in particular. The company is mainly concentrating on country liquor section due to steep competition from the IMFL space. • AABL’s product portfolio includes all varieties of potable alcohol products: from country liquor, high quality Rectified Spirits (RS) and Extra Neutral Alcohols (ENA), Indian Made Foreign Liquors (IMFL) of all categories like whisky, brandy, rum, gin and vodka to bottling of premium Scotch. Its products command high customer satisfaction at national and international levels. Smirnoff Vodka, one of the largest selling Vodka of the world, is manufactured from the ENA distilled by AABL. It is bottling Single Malt Scotch for Mayson & Summers of Bangalore and also for Diageo. • In view of its quality norms for the manufacture of products, there is always great demand for its products and its order load is always more than the supply position. AABL products are not only used in India, but are also exported since its quality is well accepted internationally. • The company is mainly operating under the bulk Alcohol segment and supplies it to the government and leading IMFL manufacturers. Liquor consumption is growing by 8-10% CAGR which will help the company strengthen both its topline and bottomline. Moreover, the Company's units are operating at optimum level and it is to add some value added products to the IMFL section, to enhance margins. • The company is contemplating to sell / transfer 10,50,000 shares of its subsidiary M/s. Jaipur Distilleries Ltd., which is a loss making unit. This hiving off is expected to unlock value for AABL shareholders. The company will use these proceeds for expansion of capacities and to clear off its debts. • AABL has been generating biogas from industrial effluents of the distillery, which has resulted in 40% saving in power costs and may help it to earn carbon credits in future. By March 2008, the company will be fully self-sufficient in captive power production. • The company’s products are mostly sold in the domestic market; it is free from the worries of currency fluctuations. • 50% of AABL’s order book is filled by government contracts and the balance by private companies on a long-term basis, which ensures a steady income and ability to withstand any downturn in the industry. • With the substantial fall in the price of molasses, the company is making huge profits on its contracts. • AABL makes high quality bulk Scotch for large domestic and international brands on a contract basis and is now contemplating to enter the lucrative beer market within a short time. • The expansion of its existing facilities will be completed by the end of December 2007. • AABL has taken up massive plantation of Jatropha for better environment. Seeds of Jatropha are used for the production of eco-friendly bio-diesel and produce an additional revenue stream for the company. • Utilising the residues of its distillery treated effluents, AABL has developed organic manure by the name of ‘Samriddhi Vermi Compost’, which is eco-friendly and cheaper than chemical fertilizers. • AABL also distributes the spent grain generated while processing the grains, namely Jwar and Millet as cattle feed. • The scrip is trading at a low P/E of only 6.39 compared to the industry average of over 50. The comparison is more pronounced with United Breweries, Tilaknagar Industries, Khoday etc. Conclusion: Considering all the factors mentioned above and taking note that the scrip is trading below its book value, it can be bought at the CMP of Rs.39.4, for some decent price appreciation over the next 6 months. Its short and medium term targets are Rs.65 and Rs.90 respectively. The scrip has a strong support at Rs.34 and resistance at Rs.48.5. One should keep a stop loss of Rs.35, in case the market slips or if one has a very short term view.

Also Ansal Buildwell Ltd is ready to explode from Rs.86 to reach Rs.150-Rs.275. The company came out with an EPS of Rs.5.43 in the September quarter alone. Buy in bulk quantitities.

Another circuits tomorrow in VBC Industries Ltd, hence keep holdling. The scrip is now moving towards Rs.42 mark.