Buy Associated Alcohols & Breweries Ltd for the Target Rs.1,210 by Choice Broking Ltd
From Grain to Glass: Operational Leverage Through Integration
AAB is building a fully integrated liquor platform anchored by its ENA-tomalt facility in Madhya Pradesh. With 58% captive ENA use, 41 bottling lines, multi-grain flexibility, 10.5 MW captive power, and cattle feed contributing ~8% to topline, AAB operates with strong internal cost efficiencies. Led by premium launches like Nicobar and Hillfort, having 4– 10x higher realizations, IMFL is expected to contribute 40% of total Revenue. With INR 800Mn malt plant, we see margins stabilizing at 12% by FY28E, positioning it as AAB’s key profit driver.
Path To Premium: Multi-state Expansion As a Growth Catalyst
Historically concentrated in MP, Kerala, and Delhi (80%+ of revenue), AAB is now replicating its Kerala playbook. It scaled to 1.5Mn cases, across premium-rich states like Maharashtra, UP, Karnataka, and Goa, which account for over 40% of India’s premium liquor demand. Backed by a geographical expansion, rising IMFL acceptance (+25% YoY, in FY25), and premium brand launches, the company is well-positioned to drive scale, price-led growth, and revenue diversification. We expect this shift to enable a 8.2% revenue CAGR over the next few years.
Stable Cash flows Powering Self-Funded Growth
Over the years, AAB has built a cash-generative foundation through its IMIL business, now complemented by ethanol, both operating under regulated, tender-driven models that ensure volume stability and predictable margins. These segments have consistently funded growth via internal accruals, enabling the company to undertake capex without stretching its balance sheet, as reflected in high free cash flows and low leverage (barring FY23–24). We believe this positions AAB to structurally compound profits, with high-visibility earnings powering the next leg of growth, without compromising balance sheet strength.
Investment View
With rising share of IMFL Proprietary (IMFL P) brands (34% of revenue in FY25), stable earnings from ENA and contract manufacturing, we expect AAB to deliver Revenue / EBITDA / PAT CAGR of 8.2% / 8.6% / 7.9% over FY25–28E. We therefore initiate coverage with a BUY rating and a target price of INR 1,210, based on our DCF model. Our valuation implies a ~25x / 22x PE on FY27E / FY28E EPS.
Key Risks
Early-stage brand equity, overdependence on Madhya Pradesh, and state-level policy risks may constrain AAB’s premium scale-up and delay sustained margin improvement.
For Detailed Report With Disclaimer Visit. https://choicebroking.in/disclaimer
SEBI Registration no.: INZ 000160131
