Alcoholic Beverages Company Transformation | Associated Alcohol | Next Radico Khaitan?
Summary
TLDRThe video script discusses three companies in the food and beverage industry, focusing on Associated Alcohol, a company with a troubled past but promising future under new leadership. The presenter emphasizes the importance of due diligence and shares insights on how to track market opportunities through insider trading and idea generation. The script highlights Associated Alcohol's strategic shifts, including geographical expansion and new product launches, and the potential for margin improvement as key investment considerations.
Takeaways
- 📈 The speaker is discussing the potential of three companies in the food and beverages industry, emphasizing that these are not stock recommendations but ideas for further research.
- 🚫 The company Associated Alcohol has had a troubled past, with issues related to demonetization, ED raids, and corporate governance concerns.
- 🔄 There is a change in leadership at Associated Alcohol, with the new generation showing intent to improve the company's operations and corporate governance.
- 📚 The speaker suggests reading books related to business and the market for insights, citing 'The Consolidators' as a source of ideas for SIS, OBO Reality, and Radico Khaitan.
- 🌐 The speaker mentions the importance of geographical expansion for Associated Alcohol, noting its growth from Madhya Pradesh to other states like Kerala.
- 🔑 The company is transitioning from a contract manufacturer to a brand owner, focusing on premium brands and higher-margin businesses.
- 📊 The IMFL (Indian Made Foreign Liquor) business segment, both licensed and proprietary, is growing at a healthy rate and has the potential for margin improvement.
- 🆕 Associated Alcohol is planning to launch five to six new brands, including gin, premium blended malt whiskey, and tequila, targeting trending segments in the market.
- 🔑 Insider trading and promoter activity are highlighted as a method for tracking potential investment opportunities, with Associated Alcohol being an example of this strategy.
- 🛑 The speaker stresses the importance of doing one's own due diligence and not relying solely on the information provided in the discussion.
- 📘 The speaker promotes a free course on their website, 'learn.scientificinvesting.in', which compiles their public work and analysis for educational purposes.
Q & A
What is the primary focus of the third company discussed in the transcript?
-The primary focus of the third company is on beverages, specifically alcohol, and the company is named Associated Alcohol.
What is the speaker's stance on providing stock advice or recommendations in the transcript?
-The speaker clarifies that the discussion is not meant to provide stock advice or recommendations, but rather to initiate ideas for further research.
What is the historical context mentioned for Associated Alcohol?
-Associated Alcohol had a bad past, often associated with negative events such as demonetization, ED raids, and CBI raids, which affected its reputation.
What change in the company has caught the speaker's attention?
-The change in leadership from one generation to another has caught the speaker's attention, as the new generation seems to show the right intent to improve the company's operations.
How does the speaker relate the story of Associated Alcohol to another company?
-The speaker relates the story of Associated Alcohol to Radico Khaitan, another company in the beverages sector that was transformed by the second or third generation of entrepreneurs.
What book influenced the speaker's interest in certain companies?
-The book 'The Consolidators' influenced the speaker's interest in companies like Sis, OBO Reality, and Radico Khaitan, which were taken over by second or third-generation entrepreneurs and turned around.
What is the speaker's view on the importance of reading business and market-related books?
-The speaker emphasizes the importance of reading interesting books related to businesses and the market for gaining insights and generating investment ideas.
What are the two main business segments of Associated Alcohol that the speaker finds interesting?
-The speaker finds the IMFL (Indian Made Foreign Liquor) licensed and proprietary segments interesting, as they are growing at a higher rate and have higher margin potential.
What is the speaker's view on the current margin of the IMFL business?
-The speaker views the current margin of the IMFL business as being at the lower end, which could be a comfort for investors as it indicates potential for margin improvement and higher EPS growth.
What are the new brands that Associated Alcohol plans to launch according to the speaker?
-Associated Alcohol plans to launch five or six new brands, including a Gin brand, a premium Blended malt whiskey brand, a premium ready-to-drink brand, a premium Brandy brand, and a Tequila brand.
How does the speaker track the market and generate investment ideas?
-The speaker tracks the market through various methods, including insider trading data, where he noticed promoter buying in Associated Alcohol, which led to further investigation and interest in the company.
What is the speaker's expectation from Associated Alcohol in terms of growth?
-The speaker expects Associated Alcohol to grow in terms of geographical expansion, new product launches, and margin improvement, which could potentially increase the stock's value.
What is the speaker's concern regarding corporate governance for Associated Alcohol?
-The speaker's concern is to ensure that Associated Alcohol does not engage in any questionable corporate governance practices, and he will be tracking the company's actions to ensure positive signals continue.
What resource does the speaker offer for those interested in learning more about investing?
-The speaker offers a free course on their website, learn.scientificinvesting.in, which collates all their public work, analysis, and educational content for interested individuals.
Outlines
🍷 Associated Alcohol: A Beverage Company's Transformation
The first paragraph introduces Associated Alcohol, a company with a troubled past due to issues like demonetization and regulatory raids. Despite its history, the company is now on the radar of the speaker due to changes in leadership and a new generation's intent to improve corporate governance. The speaker emphasizes that this is not stock advice but a potential idea for research, highlighting the company's shift from contract manufacturing to building its own brand. The story draws parallels with Radico Kitan, another beverage company that successfully revamped its business, suggesting a similar trajectory for Associated Alcohol.
📈 Business Insights and Growth Strategies of Associated Alcohol
The second paragraph delves into the business segments of Associated Alcohol, discussing the company's efforts to transition from a low-margin contract manufacturer to a premium brand owner. The company's B2C segment, particularly the Indian Made Foreign Liquor (IMFL) business, shows promising growth with a CAGR of 22% and potential for margin improvement. The speaker also mentions the company's plans to launch new brands, such as gin, premium whiskey, and tequila, targeting trending segments in the market. The paragraph concludes with the speaker's method of tracking the company through insider trading and the significance of promoter activity as an indicator of potential growth.
🌟 Tracking Associated Alcohol's Future Prospects and Corporate Governance
In the final paragraph, the speaker outlines their expectations for Associated Alcohol, focusing on geographical expansion, new product launches, and margin improvement as key growth indicators. They express a cautious optimism about the company's future, contingent on maintaining strong corporate governance. The speaker also shares their approach to idea generation, including the use of insider trading data and their platform, Simba, which is being enhanced to include various investment thesis. The paragraph ends with an invitation for viewers to explore a free course on scientific investing and an encouragement to subscribe and share the channel's content.
Mindmap
Keywords
💡Beverages
💡Associated Alcohol
💡Corporate Governance
💡Demonetization
💡Due Diligence
💡IMFL (Indian Made Foreign Liquor)
💡Geographical Expansion
💡Margin
💡Insider Trading
💡CAGR (Compound Annual Growth Rate)
💡Brand Launch
Highlights
The company Associated Alcohol is undergoing changes, possibly due to a generational shift in leadership.
Associated Alcohol has a troubled past with issues related to demonetization, ED raids, and poor corporate governance.
The speaker emphasizes the importance of doing one's own research and not taking the discussion as stock advice.
The company Radico Khaitan serves as an example of a successful transformation in the beverages industry.
The speaker suggests reading business and market-related books as a source of investment ideas.
The book 'Consolidators' inspired the speaker to look into second and third-generation entrepreneurs.
Associated Alcohol's new generation leaders are showing intent to grow the business in a more legitimate way.
The company has expanded geographically from Madhya Pradesh to other states like Kerala.
Associated Alcohol is transitioning from a contract manufacturer to a premium brand owner.
The company's B2C segment, specifically IMFL (Indian Made Foreign Liquor), is growing at a CAGR of 22%.
Margins for the IMFL business have fallen but offer potential for improvement, which could lead to higher EPS growth.
Associated Alcohol plans to launch five to six new brands, including a gin brand and a premium blended malt whiskey.
The speaker tracks the market through insider trading and noticed promoter buying in Associated Alcohol.
Promoters have issued warrants at 485 rupees, indicating confidence in the company's future.
The speaker discusses the importance of tracking corporate governance and avoiding potential 'Hanky Panky'.
The speaker offers a free course on their website, consolidating all their public work and analysis.
The speaker invites viewers to subscribe and share their channel to reach a wider audience.
Transcripts
now the third company is not in the food
business but something similar it's into
beverages so Ka B
P again it's a old listed company but
again there is something interesting
which is happening in this company the
company's name is associated alcohol and
let me tell you again whatever we are
discussing nothing is a stock advice or
recommendation some of these companies
have a bad past so please use this one
to initiate idea but beyond this uh you
know something which you can research
but then everybody needs to do their own
research I don't want to M on the price
Buy sell that is not my job please do
your own due diligence it's your money
and you are responsible so before I get
into the interesting part of the
associated alcohol let me highlight the
bad things about Associated alcohol
Associated alcohol had a very bad past
when you start googling about uh you
know all the things whe whether it was
demonetization or it was Ed rate every
time there was some kind of CBI raid or
Ed raid or you know all these things
where
uh there so you will think about then
why I'm talking about this company when
there are so many negatives and I told
about corporate governance is important
and all the only reason uh this company
is in my radar because uh there are
certain things which are changing maybe
because of change in leadership from one
generation to other generation and the
other generation has so far is showing
the right intent and the extinct to you
know uh right intent uh to do things in
the right way now only time will prove
it but uh that is how stories are made
and then 5 years down the line everybody
talks about it this reminds me of
another stock called radic of hean which
is highly popular uh this stock came on
my radar again somewhere in
201819 uh from a very interesting books
so I want to emphasize we should always
read interesting books related to
businesses and market so there was a
book which came in 201718 at least I
came to know about this book in
20178 that book book was the
consolidators and the book was on the
second and third generation
entrepreneurs who took a struggling
business from their parents and then
they built that business and I got three
interesting ideas from that book one was
Sis one was OBO reality and one was
radico kitan that is why if you'll see
on my website YouTube channel I have
already covered sis way back in four
years back I have covered over reality
four years back but the the main source
of idea of these businesses came from uh
this particular book and R kitan was
also one of the ideas I acted so I have
a idea of beverages business since then
because I was invested in Redo kitan for
two three years uh then there is another
company United Spirits so if you want to
learn more about you you know this
industry uh again value picker is a very
very good uh website to do stock
research I have written the thread on
United Spirits I don't I'm not active
there but there's a lot of information
available about the industry if you want
to go and understand about the industry
and all so coming back to Associated
alcohol why I'm interested in Associated
alcohol the story is little similar to
what has happened in
redoan so both these companies uh
earlier when parents used to run this
company they used to be more a contract
manufacturer company which means they
were not the brand owners they didn't
have the brand they used to do contract
manufacturing or low high volume low
cost kind of uh you know BR you know
business on the own Brands but like
radico decided that they will launch
their own product and they revamped 800m
then they came with uh uh some of the
visis which have become very popular
Associated alcohol what has happened 3
four years back the next Generation has
taken over the business in terms of
decision making and they have come up
with the similar kind of mind set and it
used to be a contract Manufacturing
Company doing contract manufacturing as
well as uh lowcost alcohol bidding for
the government businesses and all but in
last 2 three years they have shown
intent to grow in the right way and one
is by geographical expansion so earlier
they were only in madhi Pradesh now they
have gone from madhi Pradesh to Kerala
and few more States and they plan to
enter into more States in Northeast in
Karnataka Delhi and all of that and in
Kerala now in last two three years they
have become the number four player so
I'm not just talking about things which
are in air but I'm also talking about
things where at least there is some
initial sign of
execution also from a contract
manufacturer they're trying to convert
into a premium brand owner player so if
we look at their business four five
segments imil which is basically a low
Marg lowcost tendering business where
there are suppliers to you know mad
Pradesh for the alcohol this business
grows around 10% this business is around
10 15% de beta margin right now it's a
lower end of the margin the second
business is Ena business uh which is
more for manufacturing for captive
consumption and for alcoholic beverages
companies uh this business is again not
growing that well and 7 to 10% of ABA
margin they do little bit bit of
contract manufacturing uh where they do
bottling and all uh small 4% business
the more interesting business is on the
b2c side which is the imfl business
proprietary and licensed what is imfl
licenses under imfl license they are
selling license brands for companies
like Dio and all and they pay royalty to
the brand owners and if you look at the
three years kager of this business it
has grown at around 22% kager and this
is a higher margin business though
currently even this business is around
12% margin this business used to operate
at a time at 177% margin the reason for
the margin fall is there are two three
reasons for the margin fall and
currently I think the company is
operating at the lowest end of the
margin which is another comfort for many
people it's a risk for me it's a comfort
because that is how the reversion to
mean cycle works and that is where you
get a you know chance of improvement in
the margin and hence a higher APS growth
rate than the sales grow
so the bottling prices have gone up and
they are above the roof so that is one
reason the raw material prices grain
prices have grown up so these two are
the major raw material component of this
industry and in both places the prices
have shoot up and that is why the
margins are kind of Lifetime low margins
but this business can grow can on a
sustainable basis my understanding is it
can do a 15% Abita margin and this
business is growing at 22% kager and the
imfl proprietary which is Indian met
foreign liquor which is their own brand
this business is also growing at 19%
kager and this business is right now at
almost 14.5 to 15% margin and at Peak
this business can operate at 20% margin
so this is the side of business which is
interesting and this is where the big
thing which may play out is they're
going to launch five six new brands and
these five six new brands the first
brand which is the Gin brand they have
all already launched in Q3 they're going
to launch a premium Blended malt whiskey
brand they're going to launch a premium
ready to drink brand and if you see
these are the trending things if you see
ready to drink and all malt malt whiskey
and all so they're picking the right
segments time will tell how much they
will grow uh they're going to come up
with a premium Brandy brand and they're
coming going to come with a tequila
brand so in next two years they're
coming with five six Brands and the
segment is more a brand segment owned by
them growing at a higher ker working at
a higher beta margin and there is a
chance to grow from here at a higher
rate now another point I want to
highlight is I don't think I haven't
seen many people talking about this
company so the question comes how this
company came on my radar so there are
different ways I track the market and
one of the ways I track the market is by
insider trading where the promoters are
buying in the business and I keep
tracking this data and when you look at
this company in September 2023 there was
a promoter buying which happened for
almost four five crores and since then
the company has been on my
radar then after that what has happened
the promoters have issued warrants at
485 rupees so there have been multiple
triggers in the business then launch of
some of these Brands and the pipeline if
you go for quarters back you didn't have
the pipeline of six Brands they had
pipeline of only one thing coming so
slowly you're getting more and more
information so this is how you track and
you generate ideas I also didn't want to
give only information about the company
but also how I generate idea maybe
sometime I will make a separate video
around how we how should we track the
insider trading data and in practitioner
we run a practitioner program uh where
we cover many such case studies in
detail uh many such sectors in detail
Market in detail uh we have built our
own tool for idea generation which is
Simba right now in Simba we have ideas
you know related to based on technical
analysis based on momentum but slowly we
are going to add some of these idea
generation thesis also in terms of
insider trading and you know special
situation and all so do look at
practitioner do look at Simba but this
is how we generated the idea so what is
my expectation from Associated alcohol
is I want to track how they will grow in
terms of geography rical expansion
Kerala has been good can they expand in
Karnataka can they expand in Delhi can
they expand in Northeast how they do in
these uh you know new product launches
which are premium product if they are
able to establish even two products out
of five successfully this can really
rate the stock and the third trigger is
from the bottom of the margin cycle how
the margin improves and if the margin
improves by 2 3% over time and if
they're able to grow into double digit
so your margin Improvement will lead to
higher EPS growth rate and the most
important thing yet to track is hope
they don't do any Hanky Panky you know
on the corporate governance side uh so
far the signals have been positive but
we need to track so these are the three
interesting stories in the food and
beverages business I wanted to discuss
let me know if you want me to pick some
more Industries and discuss multiple
opportunities in the in similar ways and
uh let me know your views if there is
any other interesting company in the
similar business I will come up with
another video soon also please note all
these videos the blogs we write the
collaterals which we make the analysis
which we do all the public work which we
are doing now we are collating
everything into one free course on our
website learn. scientific
investing.in and it is available in the
form of a free course so if you register
you have all the content access at one
place so do make best use of it and I
will see you in the next video video so
if you like our Channel if you like our
work do subscribe do share it with your
friends and in your community so that we
can reach out to more and more people
and I will see you soon thank you
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