Som Distilleries - To Increase Market Share Through Product Innovations, Capex: HDFC Securities

HDFC Securities Retail Research

Som Distilleries and Breweries Ltd.'s prospects seem exciting at this juncture as it has delivered strong operating performance over the past few quarters and the management is aggressively targeting market expansion in a growing liquor market.

Company’s performance in Q1 FY24 was a beat on all fronts. The incremental capacity at Karnataka plant (doubled from 45 lakh cases to 90 lakh cases) which was commissioned in May 2023 is already fully utilised and the management is contemplating another round of expansion.

This underscores the management’s ability to capitalise on market opportunities and take on the competition. Recently, the board has approved a fund raise of ~Rs 350 crore to facilitate organic and inorganic expansion. This comes after ~Rs 141 crore warrants issue to promoter and non-promoter group in July 2023.

We believe the domestic market offers various opportunities in term of sub-geographic penetration and market diversification. The management of Som Distilleries is cognizant of the same as it intend to seize and increase the company’s market share by exploring untapped markets, through product innovations and undertaking capex.

We have revised upwards the FY24 and FY25 estimates (though higher tax would soften the increase in profit estimates) and upped the target price. We think the base case fair of the stock is Rs 357 (26 times FY25E earnings per share) and the bull case fair of is Rs 385 (28 times FY25E EPS).

Investors can buy the stock in Rs 320-328 band (23.5 times FY25E EPS) and add more on dips in Rs 285-291 (21 times FY25E EPS) band.

Key triggers

• Capacity expansion on track.

• Continued to gain the market share.

• Entry in new markets.

• Approved fund raise of Rs 350 crore.

Key concerns

• Disruption in key markets,

• Political risk,

• Seasonality,

• Volatility in raw material.

• Competition,

• Aggressive expansion plans may lead to further equity dilution,

• Entry into new states without manufacturing facility in that state can dilute margins due to interstate taxes.

About the company

Incorporated in 1993, Som Distilleries and Breweries is primarily engaged in production of beer and blending and bottling of Indian Made Foreign Liquor. It offers a broad portfolio of products at different price points to cater to varied preferences of consumers.

Som Distilleries’ flagships brands include Hunter, Black Fort, Power Cool and Woodpecker in the beer segment and Milestone 100 whisky and White Fox vodka in the Indian made foreign liquor segment.

Other IMFL brands include Legend, Pentagon, Black Fort, Genius, Sunny, Gypsy and Blue Chip. Hunter and Woodpecker brands are supplied as draught beer to all major hotels in Madhya Pradesh and Karnataka.

Som Distilleries has recently launched ‘Woodpecker’ Wheat Beer, India’s first filtered wheat beer. ~91% of revenues came from beer sales in FY23. Som Distilleries’ manufacturing unit is located at Bhopal (Madhya Pradesh).

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