Buy AAB Ltd For Target Rs.960 by Choice Institutional Equities Ltd
Central Province Gains Traction, IMFLP Volume Grows 40% YoY
The Central Province (CP) Series continued to scale up sharply (+260% YoY volume), anchoring a 58% YoY rise in IMFL Proprietary (IMFLP) segment revenue to INR 652 Mn, with realisation up 13% YoY on a richer mix. IMFLP volumes grew 40% YoY to 0.8 Mn cases, keeping the segment on track in line with its ~30% FY27E growth guidance. However, consolidated EBITDA margin contracted to 11% (from 14%) as Ethanol swung to an operating loss amid continued industry-wide oversupply, with realisation down ~29% YoY despite higher volumes. Key monitorables include the pace of RTD/Tequila/Brandy rollouts, ethanol realisation recovery from October tenders and margin resilience in the proprietary portfolio.
View and Valuation
We reduce our FY27E earnings estimate by ~6% to factor in continued weakness in the Ethanol business amid industry-wide oversupply and lower blending allocation. However, we remain constructive on AAB, supported by a strong traction in proprietary IMFL brands, RTD and single malt launches. We continue to factor in ~36% growth in the IMFLP portfolio. We anticipate a Revenue / EBITDA / PAT CAGR of 9.9% / 14.3% / 15.3% over FY26–FY29E, respectively. Thus, we maintain our ‘BUY’ rating with a revised target price of INR 960 (vs. 1,070), implying an FY28E PE of 17x.
Kultur RTD Launched in MP; Tequila & Brandy Slated for Q2 FY27E Lauch
AAB continued to strengthen its premiumisation strategy, led by strong traction in the Central Province portfolio and premium brands such as Hillfort and Nicobar. Kultur, its RTD offering, was soft-launched in Madhya Pradesh and registrations are expected across 8 more states ahead of the festive season. Premium Tequila and Brandy remain on track for a Q2 FY27E launch in Madhya Pradesh and Kerala, while malt maturation continues to support the upcoming single malt whiskey. The SDF Industries’ acquisition in Kerala will strengthen bottling capacity, alongside expansion into Odisha, Andhra Pradesh and Karnataka, supporting profitable, pan-India growth over the medium term
Potable Growth Offset by Ethanol Losses and Input Costs
* AAB reported a net revenue of INR 2.8 Bn, growing by 5.3% YoY (beating CIE estimate by 12.1%)
* Revenue from Potable Alcohols segment increased by 6.8% YoY, while the Ethanol segment revenue grew by 3.0% YoY. Potable Alcohol operating margin stood at 15.6% (-28 bps YoY), while Ethanol segment reported negative operating profit of INR 83.7 Mn
* EBIDTA margin contracted by 328 bps YoY; EBITDA stood at INR 299 Mn (- 19.5% YoY) (versus CIE estimate of INR 386 Mn)
* PAT for the quarter stood at INR 178 Mn. PAT margin saw a decline of 252 bps YoY, coming in at 6.3% (vs CIE estimate of 9.3%)
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