- Domestic brokerage firm Systematix Institutional Equities has initiated coverage on Tilaknagar Industries with a ‘buy’ rating and a target price of ₹317, indicating a potential upside of 41% from the current stock price.
- The company’s shares have seen a significant surge in recent years, with an impressive gain of 1081% over the past five years.
- Despite this surge, the brokerage believes the stock is trading at reasonable valuations considering the current business metrics and scale of operations.
Systematix Institutional Equities has initiated coverage on Tilaknagar Industries with a ‘buy’ rating and a target price of ₹317, indicating a potential upside of 41% from the current stock price.
Rapid Growth in the Indian-made Foreign Liquor (IMFL) Segment
Tilaknagar Industries is a leader in the Indian-made foreign liquor (IMFL) brandy segment, contributing to 93% of its total volumes. The company has secured approximately 20% of the market share in this segment. In the Prestige & Above (P&A) segment within the brandy category, the company commands around 28% market share. Its flagship brandy, Mansion House Brandy, is the largest-selling brand in India and the second largest globally.
Exemplary Volume Growth
The company is currently scouting for multiple initiatives in premiumisation and expanding its portfolio and geography. The company has been achieving remarkable volume growth in the brandy segment for several reasons: it holds a leadership position in the category, faces limited competition, experiences relatively low premium salience, and is witnessing increasing penetration. The company achieved a 33% volume CAGR during FY21–FY23, primarily driven by robust growth in the brandy segment.
Debt-free Balance Sheet
With a virtually debt-free balance sheet and limited capex plans, the company is expanding its share of brandy by aggressively stepping up marketing and promotion spending to build the category and further solidifying its share in the South. Stable input costs, continued premiumisation and improving state and brand mix should aid margin expansion.
Financials and Valuation
Systematix projects a CAGR of 13.3% for revenue, 18.6% for EBITDA, and 29.9% for profit before tax (PBT) from FY24 to FY26E. This growth is primarily driven by a 12.3% CAGR in volumes, excluding any contribution from new non-brandy segments. “The stock holds significant re-rating potential, considering its debt-free balance sheet, 20%+ RoE, and above-industry growth. We initiate coverage with a ‘Buy’ and target price of ₹317, based on 35x FY26E earnings, which we find reasonable for the current business metrics and scale of operations,” said the brokerage.
Conclusion
Considering the rapid growth, exemplary volume growth, debt-free balance sheet, and promising financials and valuation, Tilaknagar Industries presents a promising investment opportunity. The ‘buy’ rating and target price of ₹317 set by Systematix Institutional Equities further solidify this outlook.
