ICICI Securities has issued a "BUY" recommendation for Allied Blenders and Distillers Limited (ABD), a leading Indian-made foreign liquor (IMFL) company, with a target price of Rs 400, indicating a 24% upside potential. Leveraging its robust portfolio, premiumization strategy, and strong operational efficiency, ABD aims to capitalize on India's growing alco-beverage market. With revenue and EBITDA projected to grow at a CAGR of 10% and 30%, respectively, over FY24-27E, the company's focus on strategic backward integration and market expansion positions it as a promising investment opportunity.

Strong Market Position and Brand Portfolio

Key Facts: - ABD is the largest Indian-owned IMFL company and ranks third in India in terms of sales volume. - Iconic brands like Officer's Choice Whisky and Sterling Reserve Blend 7 contribute to its leadership in the mass premium and semi-premium segments. - The company holds an 8.2% market share in the IMFL segment as of FY23.
ABD's comprehensive product portfolio spans luxury to mass premium categories, positioning it to cater to diverse consumer preferences. Key brands, including ICONiQ White Whisky and Zoya Premium Gin, have driven premiumization in its offerings.

Focus on Premiumization to Drive Growth

Revenue Insights: - Premium and luxury segments are expected to grow from a 33% value share in FY23 to 34% by FY28 in the whisky market. - ABD's Prestige & Above (P&A) segment is projected to contribute 55% to revenue by FY27, up from 47% in FY24.
The company has launched multiple high-value products, such as Arthaus Blended Malt Scotch and Sterling Reserve Premium Cellar Brandy, to enhance its P&A portfolio. This strategic focus aligns with consumer trends favoring higher-priced, premium-quality beverages.

Operational Efficiency Through Backward Integration

Key Projects: - Acquisition of a distillery in Maharashtra to enhance ENA (Extra Neutral Alcohol) production capacity. - Establishment of a malt maturation facility and PET bottle manufacturing plant in Telangana.
These initiatives aim to mitigate cost pressures from raw material volatility, improve supply chain resilience, and enhance profitability. Management anticipates an EBITDA margin expansion of 300-400 basis points over the medium term.

Strong Distribution Network

ABD operates a pan-India distribution network, covering 79,000+ outlets and exporting to 14 countries. The highly regulated nature of India's alcohol industry creates significant entry barriers for new players, giving ABD a competitive advantage.
Regional Focus:

Strategic emphasis on markets like Andhra Pradesh, which recently updated its liquor policy to allow private retail sales.
Strengthened distribution partnerships in premium and luxury segments.

Key Growth Drivers

ICONiQ White Whisky: Launched in FY23, this product reached 2.3 million cases in its first year and is expected to double its volume in FY25.
Premium Product Expansion: The company has launched new high-margin products and created a dedicated sales vertical to support its premium and luxury brands.

Cost-Saving Initiatives:

Adoption of PET bottles and tetrapacks for cost efficiency.
Elimination of monocartons for specific product lines.

Financial Projections

- Revenue CAGR: 10% (FY24-27E) - EBITDA CAGR: 30% (FY24-27E) - Target Price: Rs 400 - Current Price (as of Nov 28, 2024): Rs 322
ICICI Securities highlights that these growth metrics are supported by ABD's premiumization strategy and operational improvements.

Risks to Outlook

- Regulatory changes, including potential bans or tax hikes in key states. - Challenges in scaling premium products or maintaining profitability in mass-market segments. - Volatility in raw material prices, particularly ENA and glass.

Conclusion: A Promising Investment Opportunity

ABD's robust market presence, strategic focus on premiumization, and commitment to operational excellence make it a compelling investment choice in India's dynamic alco-beverage industry. With a projected upside of 24% and strong growth potential in premium segments, ICICI Securities' recommendation reflects confidence in the company's strategic direction. However, investors are advised to consider potential risks and conduct thorough due diligence before making investment decisions.