Allied Blenders and Distillers
- Allied Blenders and Distillers is coming out with a 100% book building; initial public offering (IPO) of 5,61,79,773 shares of Rs 2 each in a price band Rs 267- 281 per equity share.
- Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
- The issue will open for subscription on June 25, 2024 and will close on June 27, 2024.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 2 and is priced 133.50 times of its face value on the lower side and 140.50 times on the higher side.
- Book running lead managers to the issue are ICICI Securities, Nuvama Wealth Management and ITI Capital.
- Compliance Officer for the issue is Ritesh Ramniklal Shah.
Profile of the company
The company is the largest Indian-owned Indian-made foreign liquor (IMFL) company and the third largest IMFL company in India, in terms of annual sales volumes between Fiscal 2014 and Fiscal 2022. It is one of the only four spirits companies in India with a pan-India sales and distribution footprint, and a leading exporter of IMFL, and had an estimated market share (in terms of sales volume) of 11.8% in the Indian whisky market for Fiscal 2023. The company’s flagship brand, Officer’s Choice Whisky was launched in 1988 with its entry into the mass premium whisky segment. Officer’s Choice Whisky has been among the top selling whisky brands globally in terms of annual sales volumes between 2016 and 2019. Over the years, it has expanded and introduced products across various categories and segments. As of December 31, 2023, its product portfolio comprised 16 major brands of IMFL across whisky, brandy, rum and vodka. Certain of its brands, such as, Officer’s Choice Whisky, Sterling Reserve, Officer’s Choice Blue and ICONiQ Whisky, are ‘Millionaire Brands’ or brands that have sold over a million 9-litre cases in one year. The company’s product range includes five main categories of IMFL, i.e., whisky, brandy, rum, vodka and gin. It also sells packaged drinking water under its Officer’s Choice, Officer’s Choice Blue and Sterling Reserve brands.
The company has over the years established market leadership in the alcoholic beverages market in India with a market share of 8.2% in IMFL market by sales volumes in Fiscal 2023, with sales across 30 States and Union Territories, as of December 31, 2023. Over the years, it has developed an extensive pan-India sales footprint and as of December 31, 2023 it has 12 sales support offices, and pan-India route-to-market capabilities covering all channels and alcohol permitted States and Union Territories. Its pan-India distribution network has enabled it to support the growth in annual sales volumes of its products. As of March 31, 2023, its products were retailed across 79,329 retail outlets across 30 States and Union Territories in India. Its industry position, strength of its brands, its pan-India sales footprint and logistics arrangements have further consolidated its position leading to significant business growth and financial performance. In addition, as of December 31, 2023, it exported its products to 14 international markets, including countries in the Middle East, North America, Africa, Asia and Europe.
The company owns and operates its distillery located in Rangapur, Telangana that is spread over 74.95 acres with a built-up area of over 25,000 square meters. Its in-house distillation capacity of extra neutral alcohol (ENA), the key material used in the manufacture of its products, is 600.00 lakh litres per year. It also has extensive bottling capabilities across India. As of December 31, 2023, it relied on 32 bottling facilities, including bottling facilities owned and operated by it and contract bottling facilities both on exclusive and non-exclusive basis, for bottling its products.
Proceed is being used for:
- Prepayment or scheduled re-payment of a portion of certain outstanding borrowings availed by the company.
- General corporate purposes.
Industry overview
India is one of the fastest growing alcoholic beverage markets in the world growing from a small base of 1.3 litres per capita of recorded consumption of pure alcohol in 2005 to 2.7 litres per capita consumption in 2010 and further to estimated 3.2 litres per capita consumption in 2023. Alcohol consumption is divided across three major categories of alcoholic beverages with varying trends across countries. The consumption of different alcoholic beverages has matured in developed economies, but it is still going through a transition in developing countries. Distilled alco-beverage consisting of spirits as a category is the largest category of alcoholic beverages which contributed close to 44% of alcohol consumption in the world in 2023. Un-distilled alco-beverage primarily including beer and wines together contribute almost equivalent to distilled alco beverage. India is a spirits’ market with close to 90% of alcohol consumed in the form of spirits. The per capita consumption of spirits in India is one of the highest among top economies of the world. Proportion of women in current drinkers was 37.8% in 2023. Close to 30% of all women are in the category of current drinkers. Also, when females drink alcohol, they drink less on an average compared to men. Men consume close to three times the alcohol consumption by women. The proportion of current drinkers in overall population has come down from 39.1% in 2010 to 40.0% in 2023 but the total market size remains unchanged as the overall population increases.
Alco-beverage industry around the world has been saddled with extra burden of regulations due to perceived effect and abuse of alcohol. Globally, countries have alcohol policies consisting of laws, rules and regulations that aim to prevent and reduce alcohol related health complications. Alcohol policies incorporate a multilevel, multicomponent approach, targeting multiple determinants of drinking such as availability, price, marketing, and drink– driving. Sales and production of alco-beverages is regulated in majority of countries in the world to guard against harmful use. These policies include control from production, pricing, storage and movement and final consumption of alco-beverages. India is primarily a distilled alcohol market with more than 92.0% of recorded pure alcohol consumption in form of distilled spirits. This is unlike developed countries where the contribution of undistilled alco beverages including beer and wine together is higher than distilled spirits. Distilled spirits in India continue to be the dominant form of alco beverage consumption even as acceptance of beer and wine is increasing. Even in the case of undistilled alco-beverages, alcohol content by volume is higher than in Europe and USA. In the case of beer category, strong beer has a dominant share in the overall beer consumption. In wines category, fortified wines with higher alcohol content control a sizable market share in India.
Pros and strengths
Among the largest IMFL companies in India with diversified and contemporary product portfolio: The company is the largest Indian owned IMFL company and the third largest IMFL company in India, in terms of annual sales volumes between Fiscal 2014 and Fiscal 2022. Four of its brands, namely, Officer’s Choice Whisky, Sterling Reserve, Officer’s Choice Blue and ICONiQ Whisky are ‘Millionaire Brands’. As of December 31, 2023, its product portfolio comprised 16 major brands of IMFL with 10 brands of whisky that include its flagship Officer’s Choice Whisky, Sterling Reserve Whisky and ICONiQ White International Whisky, three brands of rum, three brands of brandy and one brand of vodka, respectively. Further, it has also recently launched Zoya Special Batch Premium Gin in January 2024. Its products are present across various price points of IMFL categories in India. Over the years, it has introduced contemporary brands that appeal to consumer tastes and preferences. Its whisky brands include blends of Scotch malts from the Highland, Lowland and Speyside regions. The company’s flagship brand Officer’s Choice Whisky has been among the top selling whisky brands globally in terms of annual sales volume between 2016 and 2019. Officer’s Choice Whisky franchise including Officer’s Choice Blue was ranked third among the largest selling whisky brands globally in 2021 and was exported to 14 countries, as of December 31, 2023. Officer’s Choice Blue whisky sold one million cases in the first year of its launch in 2011 and is among the leading whisky brands in its segment in several Indian States with share of 4.3% in Fiscal 2023 by – sales volume. In addition, Sterling Reserve Blend 7 was the third largest selling brand in the semi-premium whisky segment by volume in India in Fiscal 2022.
Strong brand recognition: Over the years, the company has developed a well-recognized product portfolio, and transformed from a single brand company to multi-product and multi-brand company with presence across various categories and segments of the IMFL industry in India. Since the launch of Officer’s Choice Whisky in 1988 in the mass premium segment, it has invested significant resources in enhancing the strength and appeal of the Officer’s Choice brand. Officer’s Choice Whisky is the market leader in the mass premium segment with a market share of 20.9% in terms of annual sales volumes in Fiscal 2023. Its proposition with Officer’s Choice is aimed at offering high quality products at affordable price points that elevate a consumer’s drinking experience. Towards this, it has extensively focused on packaging, communications and point of sale visibility to build appeal and heighten engagement with the brand. It has also tactically associated with specialised premium stores across the country to improve its brand visibility and product reach. It entered the premium and semi-premium whisky segments with the launch of Sterling Reserve Blend 10 and Sterling Reserve Blend 7 in Fiscal 2018 and these brands have been recognized as Brand Champion (Indian Whisky) for four years in a row between 2019 and 2022 by The Spirits Business, London.
Access to extensive pan-India distribution network with ability to scale: The company has access to a pan-India multi-channel distribution network and is one of only four spirits companies in India with a pan-India sales and distribution footprint. Its ability to access an extensive distribution network ensures that it is able to serve consumers across India. Its multiple route-to-market capabilities cover all channels including open market, part corporation market and full corporation market channels. Its extensive operations across India, presence in multiple States and current capacity ensures that it is able to effectively address these issues which has allowed it to garner a significant share of the mass premium market and noticeable and growing market share for its premium products. In addition, given that its product portfolio caters to various categories and segments, retailers can offer its entire product portfolio to consumers across the value chain, which drives premiumisation and retains customers within its product portfolio. As of March 31, 2023, its products are retailed through across 79,329 retail outlets across 30 States and Union Territories in India.
Strategically located, large scale and advanced manufacturing facilities with sophisticated R&D centre: The company’s distillery is located in Rangapur, Telangana and is spread over an area of 74.95 acres and has a built-up area of over 25,000 square meters. Its in-house distillation capacity of extra neutral alcohol (ENA) is 600.00 lakh litres per year. In addition, it also has extensive bottling capabilities with an optimal mix of owned and third-party facilities with a pan-India presence across 22 States and Union Territories, as of December 31, 2023. As of December 31, 2023, it owned and operated nine bottling units, and had entered into arrangements with five third-party bottling facilities where the entire licensed capacity is utilized by it. Over the years, it has developed relationships with third-party bottlers and as of December 31, 2023, it has entered into 18 bottling agreements on a non-exclusive basis including one where it has entered into a royalty arrangement. In its experience, the company has been able to create quality products as a result of its continuous in-house research and development activities. Its research and development (R&D) capabilities are centred on product innovation, which includes new product conceptualisation and development, acquiring novel raw materials and product engineering. It has a research and development facility located at Aurangabad, Maharashtra and is equipped with instrumentation for testing of raw materials, packaging materials, blend tasting and testing and finished product quality. It also has a trained in-house panel of sensory experts that analyse and evaluate consistency and correctness of its products.
Risks and concerns
Substantially dependent on sales of whisky products: The company’s revenue and profitability remain substantially dependent on the sales of its whisky products. Its ability to further grow its business will depend on various factors, many of which are beyond its control. These factors include, but are not limited to: customer loyalty to its existing and future whisky products; evolving consumer preferences and its ability to adapt its business and operations; recruiting and training qualified personnel; further strengthening its brands in new markets; competition in its markets; availability of financing at suitable terms and conditions; and sourcing and managing the cost of its expansion and identifying suitable supply and delivery resources. Further, since launching new products is a continuous process which its management evaluates on a regular basis for which no Board approval is sought or required under applicable laws. Its new whisky or other products, when launched, may not meet the desired success, and there can be no assurance that these products will gain market acceptance or meet the particular tastes or requirements of consumers. Further, it is currently evaluating various proposals to further grow its presence in various markets. In addition, production and sales of its whisky products could be rendered uneconomical by regulatory or competitive changes and may also be adversely affected by other factors, including increases in excise and other taxes, inability to procure raw material supply, interruptions in production or distribution, marketing or pricing strategies of one or more of its competitors, changes in consumer preferences or other factors.
Dependent on limited customers: The company is dependent on limited customers for a significant portion of its revenues. Its key customers include certain state beverage corporations and private distributors in part corporation market, full corporation market and open market, as applicable. Reduction in the amount of products it sells to such customers whether due to circumstances specific to such customers, such as pricing pressures, an inability on its part to manufacture the products in a timely manner, shortage of raw materials especially ENA, changes in government policies or adverse market conditions affecting its supply chain, could have an adverse effect on its business, results of operations, financing condition and cash flows. Its key customers primarily include state beverage corporations, wholesalers and distributors any change in its relationship with such key customers could impact its business and lead to a reduction in its sales volumes. Under the terms of its agreements with state beverage corporations it is required to furnish a security deposit as mandated by the state beverage corporation and indemnify the state beverage corporations for any payments that it is liable to make. Orders placed by state beverage corporations may be cancelled and its deposit may be forfeited on the occurrence of certain events or instances. There is no assurance that its key customers will continue to place similar orders with it in the future.
Operations subject to extensive Central and State regulations: As a producer of alcoholic beverage products, the company is subject to production, packaging, quality, labelling and distribution standards and regulations in India. It is also subject to regulations in countries to which it exports its products, in particular regulations relating to packaging, quality, labelling and distribution. The operations of its production and distribution facilities are subject to various Government excise, environmental laws and workplace regulations, including laws and regulations enacted by various ministries, including the Cable Television Networks (Regulation) Act, 1995, the Food Safety and Standards Act, 2006, the Food Safety and Standards (Alcoholic Beverages) Regulations, 2018, the Bureau of Indian Standards Act, 2016, Bombay Denatured Spirit (Gujarat Amendment) Rules, 1988, Bombay Prohibition (Manufacture of Spirit) (Gujarat) Rules, 1963, the Mizoram Liquor Total Prohibition Act, 1995, the Nagaland Liquor Total Prohibition Act, 1989, Manipur Liquor Prohibition Act, 1911 and various state excise laws. Further, the sale of alcohol is prohibited in certain States. The prohibition in any State in which it currently operates, or an increasing number of States prohibiting the consumption and sale of alcoholic beverages or any other restrictions on the manufacture or sale of alcoholic beverages, would have a material adverse effect on its business and financial prospects.
Increasing competition in IMFL industry may create certain pressures: The IMFL industry is highly competitive in India, with the company’s main competitors being United Spirits Limited, Pernod Ricard India Private Limited, Radico Khaitan Limited, John Distilleries, Tilak Nagar Industries, Jagatjit Industries and Globus Spirits. It competes mainly on product offerings in the whisky, brandy and rum categories, brand image, price, customer service, distribution network and quality. It may face competition from larger competitors with significant resources and which benefit from economies of scale and scope. If its competitors develop and implement methodologies that yield greater efficiency and productivity, they may be able to offer products similar to its at lower prices without adversely affecting their profit margins. Even if its offerings address industry and customer needs, its competitors may be more successful at selling their products. If it is unable to provide its customers with products that suit their tastes and preferences at competitive prices or successfully market those products to current and prospective customers, its business, results of operations and financial condition may suffer.
Outlook
Incorporated in 2008, Allied Blenders and Distillers is an Indian-made foreign liquor company. The company offers four Indian-made foreign liquor categories: whisky, brandy, rum, and vodka. In addition, it sells packaged drinking water under the Officer's Choice, Officer's Choice Blue, and Sterling Reserve brands. Over the years, the company has introduced contemporary brands that appeal to consumer tastes and preferences. Its whisky brands include blends of Scotch malts from the Highland, Lowland and Speyside regions. The company’s consumer centric approach in building brands has enabled it to achieve high sales volumes. Its brands have been positioned based on relevant consumer insights. It has strategically undertaken brand-building initiatives through prudent use of resources and investments to increase awareness and recall of its brands. Its distillery is located in Rangapur, Telangana and is spread over an area of 74.95 acres and has a built-up area of over 25,000 square meters. On the concern side, in recent years, there has been increased public and political attention directed at the alcohol beverage industry. This attention is a result of public concern over alcohol related problems, including drunk driving, underage drinking, peer pressure to consume alcohol and health consequences resulting from excessive consumption of alcohol beverages. Besides, as a manufacturer of alcoholic products, its success depends on the uninterrupted supply and transportation of the various raw materials required in the manufacture of its products and of its products from distillery and bottling facilities to its customers, or intermediate delivery points such as its warehouse, that are subject to various uncertainties and risks.
The company is coming out with an IPO of 5,61,79,773 equity shares of face value of Rs 2 each. The issue has been offered in a price band of Rs 267-281 per equity share. The aggregate size of the offer is around Rs 1500 crore to Rs 1578.65 crore based on lower and upper price band respectively. On performance front, the company’s total income decreased to Rs 71,167.49 million in Fiscal 2023 from Rs 72,081.65 million in Fiscal 2022. The company has recorded a restated profit for the year of Rs 16.01 million in Fiscal 2023 as compared to Rs 14.76 million in Fiscal 2022. Meanwhile, the company has consciously developed its portfolio to provide consumers with products at various flavours, segments and price points. In order to strengthen its presence in the more premium segments, it will continue to develop products based on consumer and market insights in whisky, rum, gin and white spirits. It also intends to introduce product experiences that will appeal to younger consumers and include flavoured spirits, craft spirits, low alcohol content beverages and ready mixes. To improve its backward integration capabilities, it intends to acquire or build additional distilleries across India that will improve and expand its production capacity. Acquisition or development of such distilleries will limit supply constraints which in turn will allow it to improve its margins.
