By Hemant Gupta
Rationale for Recommendation: Being in business of Sugar and Country Liquor, PAIL is going for IMFL which is high growth area. PAIL has already achieved EPS of 4.65 in H1 which is higher than EPS of entire previous year. Promoters have increased their stake through open market purchase by nearly 10%. Now, promoter's stake stands at 68.9%. And, scrip has already reacted sharply from previous month's high of Rs 53.80. Stock is available at 3.60xFY11E Eps which is much much lower than peer group companies.
BACKGROUND: Set up in 1994, PAIL started to manufacture and their by-productslike molasses, bagasse. Company has been promoted by HDIDC and well know Piccadily Hotels P Ltd. Mr Vinod Sharma is main promoter of the group who was earlier member of Parliament in Rajya Sabha in 1990s and well-known for their financial and political clout in North India. However, some conservative investors have been avoiding this scrip as son of promoter had been indicted in a murder case and is serving jail term.
Earlier, only sugar unit was operational but started liquor unit in late FY08 which has led to sharp improvement in its performance as company's country liquor has emerged amongst leading brands in Haryana.
Till FY07, PAIL was a loss-making unit due to dependence only on sugar. For FY08, company had started with liquor production and sold 21.77 lacs cases. During that year, despite 5 cr loss from sugar division, PAIL achieved Net Profit of 1.20 crores which means liquor business started earning profits from inception.
For FY09, PAIL sold 28.6 lac cases with sale of 48 crore. It achieved, during the year, 3.29 cr profit from sugar division and 5.40 crore profit from liquor division.
2009-10 2008-09 2007-08
Rs Cr Rs Cr Rs Cr
Net Sales 169.90 143.20 117.90
Depreciation 5.70 3.95 3.60
Net Profit 9.84 9.00 1.19
Equity 23.59 23.59 23.59
Cash Profit 15.54 13.95 4.79
During 09-10, company provided 6.60 cr for deferred tax. Hence, actual Cash profit during the year was Rs 22 crores. Total tax provision in 09-10 stood at 10 cr as against 2.89 cr in 08-09.
It is clear that performance of PAIL has improved considerably in last 3 years. This improvement is mainly due to country liquor business which is contributing to the bottomline.
CURRENT PERFORMANCE:
H1/2010-11 H1/2009-10
Net Sales 92.23 69.15
Net Profit 10.96 7.39
EPS Rs 4.65 3.13
Piccadily has reported excellent results for H1 although sugar division reported loss for both quarters. Net Profit is up 40% upon YOY Basis.
SEGMENTWISE RESULTS:
Net Sales :
- Sugar 29.17 34.95
Other/Liquor 63.95 34.36
Profit/Loss before Int/tax:
- Sugar -2.50 2.48
- Other/Liquor 19.29 6.49
Thus, in H1, Piccadily has reported 64 cr worth sales from liquor division which is 100% growth over H1 of previous year. And, profit before interest/tax from liquor division is higher by 200%.
At the end of FY10, Company had nearly 60 cr debt which has gone for expansion of liquor business. Gross Block of company increased from 83 crores to 116 crores, with another 13 crore capital work in progress
Buoyed by success of country liquor, Piccadily is going for IMFL business which is high growth area. In India, country liquor industry size is approx 225 million cases and has been stagnating since 2 years. However, IMFL segment is growing at blistering pace of 12-15% since 5 years and is the fastest growing and most profitable segment inalcoholic beverages industry. IMFL market is growing rapidly due to several factors like overall economic growth, larger young population, easier availability of liquor at growing no of retail outlets, rise of female participation, product innovation etc. IMFL is expected to maintain growth tempo of 12-15% for years to come. According to a recent survey, India's alcoholic drinks marekt is estimated to grow at 62% to about 93000 crores by 2014 from around 57,000 crores in 2009 and with at least half of Indian population under 25 years of age, industry has huge potential in first-time consumers for years to come. Looking at huge potential of IMFL, Piccadily has much brighter future.
FUTURE OUTLOOK:
2010-11E 2011-12E
Net Sales 220.00 280.00
Net Profit 24.00 30.00
Equity 23.59 23.59
EPS Rs 10.15 13.15
PE RATIO 3.55 2.75
Stock is available at just;
- 3.55xFY11E Eps
- 2.75xFY12E Eps
In alcoholic beverage industry, companies get PE Ratio of 15-30 and Piccadily is undoubtedly the cheapest scrip in the segment. BUYING STRONGLY RECOMMENDED.Scrip has almost bottomedout from recent high of Rs 54, fall of 33%. Investors may buy big quantity and hold on for MEDIUM/LONG term. We advise not to get tempted to exit at small profits in short term. Medium/Long term investors should gain fabulous/multibagger appreciation. One of the best picks in smallcap segment for almost sureshot multibagger returns. Scrip can be Rs 150/ in less than 2 years
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