In the last three years, many sectors and companies which have been in the dumps for years have made a comeback. There are two kinds of comebacks, one is comeback on the dalal street. Second is a comeback in the real business. It is the second one which is more important as that is what finally matters to even the street. If one looks at the history of the liquor industry it has been dominated by two large names, but over the last few years, many smaller companies have made a comeback in a real business sense. Some due to their one brand getting super successful, others have been able to restructure their operation, reduce debt by selling some of the non core assets. Some by becoming bottlers and outsourcing their capacity to large players. In a nutshell, after two decades of ups and downs, these smaller players have reached the point where there is a possibility that they might see a re-rating, if they stay in course of clean and transparent corporate governance.
Around three months back a small liquor company, which has not been covered by any analysts and ignored by the street, announced that sales of its recently launched single malt had crossed a certain threshold. The market cap of the company went up three times in less than two months. After that stock has corrected but still is quoting very close to the high it had formed post the news. That is the power of a brand and also the fact at this point in time, the street is hungry for any new idea and a possible success story has led to this kind of reaction. But there is another thing which needs to be realized that in the liquor industry, probably some of the Indian promoters have realized that if they have to move up in the ladder, they need to have strong brands, even if it means investing better and having patience. The only unanswered question and also probably the risk associated is whether these promoters are ready to have better transparency and higher corporate governance standard
One set of companies which probably read the manifesto of political parties very carefully before any state elections are liquor companies. The reason is prohibition, a part of their election promises. If not they have a sigh of relief. But soon after elections, there is another headache which the liquor are reasonably sure that they would have to deal with is increase in the state taxes on liquor. Given the fact that every state is eager to raise its resources, a large number of times, liquor as a product is something which is low hanging fruit for raising revenue for the state. But despite all these, if one looks at overall sales, their revenues are able to grow, bottomline largely become better and in some cases companies have been able to reduce their debt also. So, while it is short term one might very soon hear some negative news flow but those are probably opportunities to have a look at these stocks with a long term perspective
It is not only in India, but in a large number of countries across the world, liquor is a heavily taxed business. Despite being heavily taxed, if one looks at the long term trends, it is business which grows at a certain rate irrespective of all headwinds. In India, liquor is a state subject and many state governments publicly say they don t want to grow, but if one looks at their revenue collection numbers it is clear they cannot stay without it. Despite all the headwinds, what is that which makes them grow?
Piccadily Agro Industries Ltd. has surged by its daily limit in two sessions this week after its single-malt Indri Diwali Collectors Edition won top prize at the Whiskies of the World Awards. The stock is now up 292% so far in 2023 with the push from the result of the annual US-based competition.