Alcoholic Beverages Company Transformation | Associated Alcohol | Next Radico Khaitan?

Summary

The 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

00:00

🍷 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.

05:01

📈 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.

10:02

🌟 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.

Keywords

💡Beverages

Beverages refer to liquid foods and drinks other than water, including alcoholic and non-alcoholic options. In the video's context, the focus is on a company in the beverage industry, specifically dealing with alcoholic beverages. The script discusses the company's transition from contract manufacturing to owning and growing its own brand, which is central to the theme of business evolution.

💡Associated Alcohol

Associated Alcohol is the name of the company being discussed in the script. It represents a case study of a company with a troubled past that is now showing signs of positive change under new leadership. The company's name is symbolic of its industry and product focus, and the script explores its potential for growth and improvement.

💡Corporate Governance

Corporate governance involves the system of rules, practices, and processes by which a firm is directed and controlled. The script emphasizes the importance of corporate governance, noting that Associated Alcohol's past issues were partly due to poor governance. The current generation's intent to improve governance is a key factor in the company's potential turnaround.

💡Demonetization

Demonetization refers to the process where a currency unit is no longer accepted as legal tender. In the script, it is mentioned as one of the challenges faced by Associated Alcohol in the past, indicating the company's vulnerability to economic policy changes.

💡Due Diligence

Due diligence is the process of investigating a business or investment before signing a contract or making a commitment. The speaker in the script advises viewers to conduct their own due diligence, emphasizing personal responsibility in investment decisions and the importance of research beyond the information provided.

💡IMFL (Indian Made Foreign Liquor)

IMFL is a term used in India to describe a category of alcoholic beverages that includes both Indian and foreign brands. The script discusses the company's growth in the IMFL segment, highlighting its shift from contract manufacturing to owning and selling its own brands, which is a significant part of the company's strategic change.

💡Geographical Expansion

Geographical expansion refers to the process of a company extending its operations into new regions or markets. The script mentions Associated Alcohol's expansion from Madhya Pradesh to other states like Kerala, indicating a strategic move to increase market reach and potential for growth.

💡Margin

In a business context, margin refers to the difference between the cost of a product and its selling price, often expressed as a percentage of the selling price. The script discusses the company's margin levels, noting a potential for improvement as a sign of positive financial health and growth potential.

💡Insider Trading

Insider trading involves the buying or selling of a public company's stock by someone with access to non-public information about the company. In the script, the speaker mentions tracking insider trading as a method of identifying potential investment opportunities, citing a specific instance of promoter buying in Associated Alcohol.

💡CAGR (Compound Annual Growth Rate)

CAGR is a measure of growth that represents the rate of return that would be required for an investment to grow from its initial to its final value over a specified number of years. The script uses CAGR to describe the growth rates of different business segments within Associated Alcohol, indicating the potential for future expansion.

💡Brand Launch

A brand launch refers to the introduction of a new brand or product line to the market. The script discusses Associated Alcohol's plan to launch several new brands, which is a strategic move to diversify their product offerings and capture different market segments, reflecting the company's ambition for growth and innovation.

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

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you have all the content access at one

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