Allied Blenders and Distillers IPO : Should you subscribe? Know all about it here

The initial public offer (IPO) of Allied Blenders and Distillers, which popularly manufactures Officer’s Choice whiskey, is set to close today. The company aims to raise around Rs 1,500 crore from anchor, institutional and retail investors combined, with its share priced between Rs 267-281.

Allotment of shares to successful investors will take place by 1st July, while the listing is set for 2nd July, 2024. Retail investors can invest a minimum of Rs 14,893 and a maximum of Rs 1,93,609 in this issue. If you are mulling whether or not to invest in this IPO, here’s all you need to know about it:
About Allied Blenders and Distillers
Allied Blenders is the largest home-grown brand and a leading exporter, when it comes to Indian-made foreign liquor, also known as IMFL. Between FY14 and FY22, the company’s annual sales volume ranked third in the country. And as of FY23, Allied Blenders commands about 11.8% share in the Indian whiskey market.

Their most famous offering, the Officer’s Choice whiskey, was launched in 1988. Amongst its other products are Sterling Reserve, Officer’s Choice Blue and ICONiQ Whisky. As of December 31st, 2023, the company had earned a net profit of Rs 4.2 crore.

The company wants to raise funds in order to repay, and prepay some of its loans, and for other general corporate purposes as well. While the company is well-placed within the IMFL segment and has a strong, pan-India distribution network, it has its own share of risks as well.
What are the risks?
The company is excessively reliant on sales of its whiskey products, and particularly that of Officer’s choice. As of December 31, 2023, the company’s total revenue from all its products was Rs 5,751.29 crores. Out of this, revenue exclusively from its whiskey offerings stood at a staggering Rs 5,575.82 crores, or 94.33%. Sales of brandy products brought in 123.34 crores, while rum and vodka earned around Rs 43 crore and Rs 4 crore, respectively.

Not just whiskey, their heavy reliance on the Officer’s Choice brand can also spell trouble in the future, if the brand name is adversely affected in any manner. As of December 2023, 73.02% of the company’s total sales stemmed from Officer’s Choice.

Other than that, its promoters are also engaged in similar businesses, which could mean loss of potential opportunities for the company. Moreover, most of the company’s revenue stems from just3 states, namely Uttar Pradesh, Telangana and West Bengal. Such significant concentrations in almost every domain leave the company very vulnerable to all kinds of risks.

The company owns and operates nine bottling units, while being in a non-exclusive agreement with 18 others. This makes it heavily reliant on third-party bottling facilities. At present, Allied Blenders is embroiled in 31 trademark infringement cases, which means it will direct a significant amount of revenue towards meeting legal fees, not to mention the financial costs, should it lose a case.

In comparison to its peers, United Spirits limited, whose annual income in FY23 stood at Rs 27,888.5 crore, and Radico Khaitan Ltd, which earned Rs 12,753 crores, its annual income was far lower, at Rs 7,116 crores.
What are the experts saying?
It's a mixed bag, but experts are advising staying away from the issue. As per stock analyst Dilip Dawda, “based on the company’s annualized FY24 earnings, the issue appears aggressively priced. While the management is hopeful that it will level its net profit margins with its listed peers within 2 years, it appears to be a long-term story. There is no harm in skipping this exorbitantly priced bet".

On the other hand, Mastertrust broking and investments advise subscribing to the IPO, but from a long-term view. Per them, “the company is looking to raise Rs 1,000 crore from the public, most of which will be utilized to pare down the debt and the company will then become almost debt free. This will result in massive cost savings for the company, as they pay a significant amount in interest costs. The IPO is priced at a lower valuation relative to its listed peers. Hence, we advise subscribing to the IPO keeping a long term view".