Buy Associated Alcohols and Breweries; target of Rs 870: Ventura Securities

The research firm ICICI Securities believes earnings of apparel brands and retail companies under their coverage may surprise positively from Q3FY22E as the likely demand recovery may result in better than expected margin performance. Some of the costs savings achieved during pandemic may sustain and coupled with high operating leverage may lead to higher than pre-covid margins from Q3FY22E.  Stocks like Trent, V-Mart and Aditya Birla Fashion and Retail are the preferred picks backed by their strong and consistent track record of execution.

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Ventura Securities report on Associated Alcohols and Breweries

Associated Alcohols & Breweries Ltd (AABL) is one of the most undervalued stocks in the listed alcohol beverage industry. Its 5-year revenue CAGR of 9.5%, net earnings CAGR of 32.3% & FCFF CAGR of 31.8% CAGR notwithstanding the pandemic has been nothing but spectacular. This, coupled with its prudent capital allocation, has resulted in the RoIC expanding to an enviable 41.2% (+1,705 bps since FY16). We expect the momentum to gather further steam with revenues/ net earnings/FCF growing at 18.8%/14.6%/19.1% CAGR over FY21-24 while sustaining the high RoIC.

Outlook

Given the compelling growth story, we believe that the stock is due for a re-rating. We initiate coverage on AABL with a BUY for a price target of INR 870 (18xFY24E EPS, ~20% discount to GSL’s current valuation) representing an upside of 105% over the next 24 months from the CMP of INR 425.

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