Liquor stocks in low spirits, but this unlisted player is on a high!
New Delhi: ‘Sin stocks’ like those of alcohol and tobacco companies are usually considered slowdown-proof. A demand slowdown in the economy singes such stocks rather late in the day, and only under extreme circumstances.
Yet, listed stocks of liquor manufacturers and breweries have not been doing well in Indian market this year, having failed to lift investor spirit.
But one brewer, B9 Beverages, has created a lot of buzz in the unlisted space, with its unlisted shares rallying over 20 per cent return since they became available in the unofficial market early this year.
Shares of listed players such as Winsome Breweries, Ravi Kumar Distilleries, GM Breweries, Associated Alcohols, Empee Distilleries, Jagatjit Industries, Pioneer Distilleries and Radico Khaitan have eroded one-fourth to half of the investor wealth in the official market year-to-date (YTD).
Other liquor stocks such as Globus Spirits, United Spirits and United Breweries have declined between 3 per cent and 20 per cent during the same period.
Even the April-May general election and ICC World Cup earlier this year failed to lift the performance of these stocks. But shares of B9 Beverages have stood out.
The company, founded by a New Delhi-based entrepreneur Ankur Jain in 2015 and incorporated in 2012, sells craft beer under its brand name ‘Bira 91’ and has wide acceptance among India’s millennials.
“The brand has developed pretty well in the market,” says Dinesh Gupta of UnlistedZone. “But for investor, there is very limited information available about the company’s financials.”
B9 Beverages expects to hit break even this financial year, growing revenues to more than double at Rs 400 crore. It aims to hit the primary market in three to five years.
In the unofficial market for unlisted shares, B9 Beverages has surged from Rs 950-1,000 earlier this year to Rs 1,150-1,200 currently, according to Sagar Shah of Ascent Wealth Advisors.
Report card
Data provided by Unlisted Zone showed B9 Beverages has grown its revenues from Rs 4.14 crore in FY16 to Rs 31.96 crore in FY17 and Rs 160.24 crore in FY 18. The company reported net loss of Rs 12.32 crore, Rs 55.06 crore and 21.37 crore, respectively, for those years.
The company is said to have 3.02 crore shares, with a face value of Rs 10 each, which at current market price of Rs 1,150, gives it a total market capitalisation of about Rs 3,500 crore.
Shah of Ascent Wealth Advisors said it was loss-making venture till FY18, and is unlikely to report profit anytime soon. “It is a risky bet. Investors are paying almost double the average P/E. It makes sense only if one has a horizon of 5 to 10 years,” he said.
B9 Beverages currently has a debt-to-equity ratio of 1.45, Ebitda of (-)31.91 per cent and a negative return on equity (RoE) of 19.59 per cent.
Trick or Treat?
Top brewers holding sizeable market shares, such as Kingfisher, Carlsberg and Tuborg, are major competitors of B9 Beverages.
B9 has also inked a major five-year deal with the International Cricket Council (ICC) as official sponsor of ICC global tournaments till 2023, the company confirmed. The sponsorship is for mega events like ICC Cricket World Cup, ICC T20 World Cup, ICC World Test Championship, ICC U19 Cricket World Cup and the ICC Women’s World Cup. ICC has 104 member countries.
It is very difficult to say whether investors should buy this stock or not. The stock price is very high going by its recent private equity (PE) placements, which were made around Rs 560-600 level,” Shah said.
Sandip Ginodia of Abhishek Securities finds the stock expensive. “A lot of queries have come about Bira of late, but the company is not making any profit,” he pointed out.
Supply vs Demand
Bira 91 grew its production five times in FY18. In FY17, the company had announced plans to expand production footprint five-fold to 20 lakh barrels before the summer of 2019 from capacity of 3.50 lakh barrels.
Dinesh Gupta said the company’s products are in short supply because of high demand. “The stock is not widely available, as it is a private limited company. Thus, the maximum number of stakeholders is 200 only. We are strictly adhering to the minimum quantity of shares fixed at 100 shares,” he said.
Gupta further said people are buying B9 because it has been creating some buzz. “The stock is on a high in the short term because of sentiment. It should come down,” he said.