What you must know about Allied Blenders and Distillers IPO?

About Allied Blenders and Distillers Ltd

Allied Blenders and Distillers Ltd offers a strong-line of spirits and beverages created from world class ingredients. These spirits cater to every palate’s preference. The products made by Allied Blenders and Distillers Ltd are sold in over 24 countries across the globe and are consumed by millions. Its product range includes whisky, gin, brandy, rum, vodka, and packaged drinking water. Some of its most popular whisky brands include Officer’s Choice, Sterling Reserve Whisky, Iconiq White Whisky, X&O Barrel, Srishti Premium Whisky etc. Among its popular gin brands are Zoya Premium Gin, which is seen as a perfect sipping companion. Among its well known brandy brands include Kyron Premium Brandy, Officer’s Choice Brandy, and Sterling Reserve Premium Cellar Brandy.

The company also offers a wide brand palate of rum products. This includes Jolly Roger Rum and Officer’s Choice Rum. Among its better known vodka brands are its highly popular Class 21 Vodka. Finally, in its palate of bottled water, it offers packaged drinking water under the brand names of Officer’s Choice and Sterling Reserve. Allied Blenders and Distillers Ltd owns and operates a distillery in Rangapur in the state of Telangana, spread over 74.95 acres and has a built-up area of over 25,000 SQM. Its in-house distillation capacity of extra neutral alcohol (ENA), the key material used in manufacturing its products, is about 54.75 million litres annually. The company also have extensive bottling capabilities across India. Allied Blenders and Distillers Ltd relies on over 30 bottling facilities, including those owned and operated by them. In addition, there are also contract bottling facilities, both exclusive and non-exclusive, for bottling its products.

The fresh funds will be used for repayment / prepayment of some of its high cost loans. The promoters of the company are Kishore Rajaram Chhabria, Bina Kishore Chhabria, Resham Chhabria Jeetendra Hemdev, Bina Chhabria Enterprises Private Ltd, BKC Enterprises Private Ltd, Oriental Radios Private Ltd, and Officer's Choice Spirits Private Ltd. The promoters currently have a 96.21% stake in the company, which will get diluted post the IPO. The IPO will be lead managed by ICICI Securities, Nuvama Wealth, and Iti Capital; while Link Intime India Private Ltd will be the IPO registrar.

Highlights of the IPO issue of Allied Blenders and Distillers IPO

Here are some of the key highlights to the public issue of Allied Blenders and Distillers IPO.

•    The IPO of Allied Blenders and Distillers Ltd will be open from June 25th, 2024 to June 27th, 2024; both days inclusive. The stock of Allied Blenders and Distillers Ltd has a face value of ₹2 per share and the price band for the book building IPO has been set in the range of ₹267 to ₹281 per share. 

•    The IPO of Allied Blenders and Distillers Ltd will be a combination of a fresh issue of shares and offer for sale (OFS) component. The fresh issue brings in fresh funds into the company, but is also EPS and equity dilutive. The OFS is just a transfer of ownership; and hence neither EPS nor equity dilutive.

•    The fresh issue portion of the IPO of Allied Blenders and Distillers Ltd comprises the issue of 3,55,87,189 shares (355.87 lakh shares approximately), which at the upper price band of ₹281 per share will translate into a fresh issue size of ₹1,000.00 crore.

•    The offer for sale (OFS) portion of the IPO of Allied Blenders and Distillers Ltd comprises the sale / offer of 1,77,93,594 shares (177.94 lakh shares approximately), which at the upper price band of ₹281 per share will translate into an OFS size of ₹500.00 crore. 

•    The 177.94 lakh shares in the OFS is being offered entirely by the promoter shareholders of the company. The selling promoter shareholders include; Bina Kishore Chhabria, and Resham Chhabria Jeetendra Hemdev. 

•    Therefore, the total IPO of Allied Blenders and Distillers Ltd will comprise of a fresh issue and an OFS of 5,33,80,783 shares (533.81 lakh shares approximately) which at the upper end of the price band of ₹281 per share aggregates to total issue size of ₹1,500.00 crore.

The IPO of Allied Blenders and Distillers Ltd will be listed on the NSE and the BSE on the IPO mainboard.

Key dates for Allied Blenders and Distillers IPO and how to apply?

The IPO of Allied Blenders and Distillers Ltd opens on Tuesday, 25th June 2024 and closes on Thursday, 27th June 2024. The Allied Blenders and Distillers Ltd IPO bid date is from 25th June 2024 at 10.00 AM to 27th June 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 7 PM on the issue closing day; which is 27th June 2024.

Data Source: Company RHP

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account. The credit of shares to the demat account on July 01st 2024, will be visible to investors under the ISIN Code – (INE552Z01027). This allocation to the demat account is only applicable to the extent of the allocation of shares and if no allocations are made in the IPO, then no credit would be visible in the demat account.

Promoter Holdings and Investor Allocation Quota

The promoters of the company are the Chhabria family. The promoters currently have a 96.21% stake in the company, which will get diluted post the IPO to. As per the terms of the offer, not more than 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while not less than 35% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee and promoter quota, as indicated above. There is a dedicated employee quota of shares to the tune of ₹3 crore as per the red herring prospectus (RHP). The net shares have been presumed based on the amount and the discount of ₹26 to the upper ceiling price, but final allocations are still subject to change prior to the IPO opening. The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Lot sizes for investing in the IPO of Allied Blenders and Distillers IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The minimum lot size for investing in the IPO of Allied Blenders and Distillers Ltd is 53 shares and retail investors have to invest a minimum of ₹14,893 in the retail portion of the IPO. Retail investors can invest up to a maximum of 13 lots comprising of 689 share worth ₹1,93,609 at the upper band price of ₹281 per share.

The lot sizes above only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Allied Blenders, the above table captures the lot sizes applicable to different categories of buyers. It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Financial highlights of Allied Blenders and Distillers Ltd

The table below captures the key financials of Allied Blenders and Distillers Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of Allied Blenders and Distillers Ltd which can be enumerated as under:

a)    In the last 3 years, revenue growth has been rather strong, with the FY23 sales revenues 34% higher than the FY21 sales revenues. We are not comparing the data for previous year as FY23 has shown a sharp growth over previous years and hence may not be reflective. However, net margins have been extremely low at 0.05%.

b)    While the net margins of the company have been low at 0.05%, even the ROE at 0.39% and the ROA at 0.06% are very low even by industry standards. These are the latest year figures, but previous figures have also been approximately in sync. The challenge appears to be that of pricing pressures.

c)    The company has relatively healthy sweating of assets at around 1.26X in the latest year, although this may not be too critical in the light of the weak profitability ratios of the company.
Overall, the company has reported strong and steady growth in sales but the net profits and the margins and the per share profitability metrics look too tepid at this juncture.

Valuation metrics of the Allied Blenders and Distillers IPO

Let us turn to the valuations part. On the latest year diluted EPS of ₹0.07, the upper band stock price of ₹281 gets discounted at a P/E ratio of more than 4,000 times, which is actually not too relevant from an investor perspective. The picture does not change too sharply even if you we look at the projected number for the current fiscal FY24 part year. However, it would be useful to look at some of the qualitative merits of the company.

Here are some qualitative advantages that Allied Blenders and Distillers IPO brings to the table. 

•    The company has positioned itself with a very wide portfolio of spirts across the target markets and the price ranges. Some of its brands, by themselves, are worth a lot more than what the profit numbers may reveal.

•    Allied Blenders and Distillers is only one of the four liquor companies in India with a true-blue pan-India distribution network. This is a business that relies on reach. In that, their long legacy in the spirits market is a major entry barrier.

If you add up the qualitative factors they are surely positive. However, for the time being, investors to look at the IPO purely as a brand play and demand play, rather than a profit play. The hope is that profits pick up over time. That could be a long-haul story for investors and only the investors prepared for the long wait should look at this IPO closely.