Allied Blenders & Distillers Limited (ABD), India's largest domestic spirits company by volume, has announced a significant surge in profitability for the first quarter, despite relatively flat revenue growth.

Strong Profit Growth

ABD reported a remarkable increase in net profit for Q1, reaching ₹609.00 million, compared to ₹122.00 million in the same period last year. This represents a substantial year-over-year growth of nearly 400%, highlighting the company's improved operational efficiency and cost management.

Revenue and EBITDA Performance

While the company's revenue remained relatively stable at ₹17.72 billion, compared to ₹17.70 billion in Q1 of the previous year, ABD demonstrated notable improvements in its operational metrics. The EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) rose to ₹1.54 billion from ₹1.34 billion year-over-year, indicating enhanced operational efficiency.

Margin Improvement

The EBITDA margin saw a significant improvement, increasing to 8.72% from 7.60% in the previous year. This expansion in margin reflects the company's ability to manage costs effectively while maintaining revenue levels.

Volume Growth and Portfolio Premiumization

ABD delivered strong volume growth, with overall sales reaching 8.50 million cases in Q1, a robust increase of 17.2% compared to 7.30 million cases in Q1 of the previous year. The company also reported an accelerated premiumization of its portfolio, with the Prestige & Above (P&A) volume salience increasing to 46.2% in Q1, up from 36.9% in the same quarter last year.

Brand Performance

The company's flagship brand, ICONiQ White, continued its strong growth momentum across all markets in India. Recognized as the world's fastest-growing Millionaire Spirits Brand in CY2023 and CY2024, ICONiQ White's performance reflects its growing popularity among consumers.

Expansion and New Launches

ABD has been actively expanding its product range and market presence:

• Launched Golden Mist, marking the company's entry into the fast-growing prestige brandy category in Karnataka and Telangana.
• Introduced Russian Standard Vodka in key markets of Maharashtra, Goa, and West Bengal.
• Expanded the presence of super-premium brands like Zoya Gin and Arthaus Blended Malt Scotch Whisky to multiple states and international markets.

International Expansion

The company has significantly broadened its international footprint, expanding from 14 countries in the previous fiscal year to 27 countries currently. ABD has secured approvals for exporting its products to Canada and key markets in the European Union, signaling potential for further growth in international markets.

Management Commentary

Alok Gupta, Managing Director of ABD, commented on the results, stating, "This quarter marks our fourth consecutive quarter of strong performance, validating our strategy of prioritizing profitable volume growth, premiumization of portfolio, and agile investments in backward integration to enhance margins."

The company's focus on portfolio premiumization, expansion into new categories, and international market growth appears to be yielding positive results, as reflected in the substantial profit growth despite flat revenues. ABD's strategic initiatives position it well for sustained growth and value creation in the coming quarters.

Allied Blenders & Distillers Limited (ABDL), India's largest domestic spirits company by volume, has received a significant boost to its credit profile. India Ratings and Research (Ind-Ra) has upgraded the company's bank facilities rating to 'IND A' from 'IND A-', with a positive outlook, reflecting ABDL's robust financial performance and strategic growth initiatives.

Financial Highlights

ABDL demonstrated impressive financial growth:

The company's revenue grew by 5.77% year-over-year, primarily driven by an increase in Indian Made Foreign Liquor (IMFL) sales volume to 33.07 million cases. This growth was further supported by the liberalization of the Andhra Pradesh market following retail privatization in October 2024.

Operational Improvements

ABDL's EBITDAR margin saw a significant improvement, jumping to 12.23% from 7.28% in the previous year. This enhancement was largely attributed to:

1. A 512 basis point improvement in gross margins
2. Downsizing of lower-margin products in certain markets
3. Improved operational efficiencies
4. Renegotiation of raw material prices with vendors
5. Increased contribution from higher-margin prestige and above (P&A) segment

The company's net leverage reduced substantially to 1.86x from 3.26x, despite an increase in overall debt. This improvement was partly due to the successful completion of its IPO in July 2024, which raised INR 9,759 million.

Strategic Initiatives

ABDL is undertaking several strategic initiatives to enhance its market position and operational efficiency:

1. Backward Integration: The company is investing in three major projects in Telangana and Maharashtra to increase its backward integration for raw materials like extra neutral alcohol (ENA), PET bottles, and malt spirits.

2. Capacity Expansion: ABDL plans to increase its ENA production capacity to 121 million liters per annum (mlpa) by FY27, up from the current 71 mlpa.

3. Premiumization: The company is focusing on its higher-margin prestige and above (P&A) segment, which contributed 40.4% of overall sales volume in FY25, up from 37.3% in FY24.

4. Luxury Portfolio: ABDL launched its luxury portfolio in FY25, aiming to tap into the high-margin luxury segment and expand its international presence.

Challenges and Outlook

Despite the positive developments, ABDL faces some challenges:

1. An elongated working capital cycle due to extended receivables from the Telangana government
2. Large contingent liabilities, including a new income tax demand of INR 6,181.9 million
3. Potential competition in the luxury segment from established brands

Alok Gupta, Managing Director of Allied Blenders and Distillers Limited, commented on the rating upgrade: "We are pleased with the second consecutive credit rating upgrade from Ind-Ra, which signifies strong endorsement of the progress we have made in terms of disciplined execution and improvement across all key financial performance indicators."

The positive outlook from Ind-Ra reflects expectations of further improvement in ABDL's profitability in the medium term, supported by ongoing capex towards enhancing backward integration in raw materials and packaging materials. The rating agency expects ABDL's net leverage to remain below 2x in the medium term, backed by sustained improvement in internal accruals.

As ABDL continues to strengthen its market position and financial performance, investors and industry observers will be keenly watching the company's ability to navigate challenges and capitalize on growth opportunities in the dynamic Indian spirits market.