Investment rationale:
Extended presence to newer markets:
Recently, Tilaknagar industries extended its presence to newer markets, key among them being the large yet challenging territory of Tamil Nadu and established a foothold in the northern states of Delhi, Rajasthan, Haryana, Himachal Pradesh and Chandigarh. This represents a large national breadth and will enable it, in the years to come, to compete more effectively across all product segments, price points and territories.
Judiciously follows market trends and consumer behavior:
The company judiciously follows market trends and consumer behavior as part of its intelligence studies to determine the plausible steps forward. Riding on the success of the 90 ml pack of Mansion House, it has extended the same to Senate Royale, to maximize on the success formula. Further, it has already got into family shaped bottles for its flagship brand -Mansion House and re-launches it in Andhra Pradesh. The company's promotions have been inspiring. Successes include its targeted campaign for 'Hottt Shott Silk', the festive packaging for 'Mansion House' and 'Courier Napoleon' and "Level up" campaign for 'Senate Royale'.
Recycling of water and use of green power:
The company's recycling initiatives include the recycling of water and use of green power from biogas. The fortunate result is overcoming its dependence on the state electricity supply. The host of anti-effluent devices installed includes a 250m³ Reverse Osmosis plant that treats effluents, returning 50 percent of its inputs as pure, reusable water. A 450m³ bio-digester converts the distillery's spent wash into purified gas, which is fed to special biogas engines to produce almost 700 kilowatt of power.
Strong presence in the Indian market:
Retail:
TI has a very strong presence in the Indian market, reaching out to 22 states through a well knit sales and distribution network. TI is very strong in markets such as Karnataka, Andhra Pradesh, Kerala and Puducherry and has recently entered Tamil Nadu successfully. It is also taking effective steps to establish itself in the North-Indian markets for an increased national presence.
Institutional:
Government corporations:
Andhra Pradesh, Kerala, Orissa, Karnataka, Delhi and Chhattisgarh
Distributors:
Maharashtra, Goa, Daman, Silvassa, Puducherry, Mahe, Karaikal, Yanam, West Bengal, Sikkim, Assam, Meghalaya
Defence:
Canteen Stores department, Border Security Force, Central Reserve Police Force, Indo-Tibetan Border Police and National Security Guard
Achievements:
- Entry into the key market of Tamil Nadu, establishing foothold in major North Indian markets.
- Already implemented organization-
wide enterprise resource planning for better management control and quicker route-to-market.
· Continued with capital expenditure programme as per plan.
Growth initiatives the company has planned:
TI is growing steadily over the last three to four years and its quarterly results are evidence enough for this. It is aiming for a pan India presence, as it believe that this is imperative from a growth point of view. It is planning to expand its white spirits segment, which includes gin and vodka. In the financial year 2009-10 the company has already touched the sales of 8 million cases. Acquisitions have worked well with TI in the past. Recently, it announced the acquisition of seven new brands from Alcobrew Distilleries Ltd. The brands namely bachelor deluxe whisky, white house premium whisky, golden chariot premium whisky, black colt matured xxx rum, nigro he-mans xxx matured rum, bon king rum and white house v.s.o.p. brandy, which have a strong presence in the canteen stores department segment apart from civil markets. India is an important market and the acquisition of these new brands reiterates TI's commitment to further strengthen its position in the Indian market. TI will now be a sizeable player in this segment and be able to service the armed forces even better than before.
Factors that insulates from competition:
Its main competitor is the United Spirits Limited; with a market share of about 60 percent, Jagatjit Industries and Radico Khaitan, amongst others. The following three factors set it apart from its competitors:
- Premium quality of blends and continuous improvements therein
- n Well established brands for over 25 years that cater to all kinds of consumers
- n Own selling and distribution network and presence at all levels of the supply chain
Valuation & recommendation:
At the current market price of the stock Rs.193, the stock trades at a p/e of 10.06x and 7.11x for fy2011e and fy2012e respectively. We expect the scenario to be in rising mode. Hence, we recommend, "Buy" on the scrip with a Price target of Rs. 226, arrived on the basis of ev/ebitdax by discounting fy2012e, fy2013e ebitda i.e. 132.51 & 172.16 crore with 2011e, fy2012e ev/ebitdax i.e. 6.50x & 4.92x. There seems to be some kind of valuation gap in the Indian Made Foreign Liquor space. TI is trading at a p/ex valuation of just 10.06x on its fy 2011e while is the same is way higher for the other players - United Spirits at 46.89x, Radico Khaitan at 40.10x, United Breweries at 56.83x, Jagatjit Industries at 48x, Empee Distilleries at 13.83x. When considering the trailing twelve months ev/ebitdax also, TI has been at the bottom of the pyramid. It is acceptable that the leaders and the ones with very strong brands could command higher p/e multiples, but there seems to be a big gap in valuations between the companies. The company is clearly on a growth path and the forward earnings with introduction of some strong brands could improve the p/ex drastically.
The finest steel has to go through the hottest fire...!!!
Samir Kumar Shah.
9830405060
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