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basant
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   Topic: UnitedSpirits-Another ITC in the making?
Posted: 17/Jul/2006 at 10:55am |
For years investors have latched on to the Indian demographic story, how valuations of Indian liquor companies are pathetically low compared to their global peers. Well, Mallya seems to be waking up at last his flagship company Mc Dowell reported outstanding results. Top line grew by 14.4%and operating margins were up 1100bps to about 20%. On the whole the company reported an E.P.S of around Rs 6 for the quarter( June 06). There was a change is sales mix with the company phasing out low value products and getting into high value labels.Mallya also announced a couple of acquisitions and the setting up of stores and doing away with the dealer concept. This could push margins higher since a major portion of the revenue is split with the dealers.
If Mallya can look after the shareholders the market will look after him. I heard him say that shareholders wealth needs to be protected and raised but if he continues to behave in his own ways as he has done then there could be trouble. We need to see him more on the business channels compared to the lifestyle channels.
Reliance NRI Fund had recently bought a huge stake in Mc Dowell. Other holders of this stock are Kotak, Birla etc.
Over all with an annualised EPS of Rs 24 the stock trades at Rs 490 while it does not look cheap but the chances of the stock retracing substantially is very remote.It commands more then 50% of the domestic liquor market and post the merger with shaw wallace and herbotson the new company United Spirits could be a liquor ITC of sorts (except for the management part) On the other hand if the czar of Indian liquor continues to move on the right track the stock could cross its all time high also.
Edited by basant - 09/Aug/2006 at 3:13pm
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sajanvm
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Posted: 18/Jul/2006 at 9:45am |
Since Shaw Wallace will be merged with McDowell eventually, does it make sense to buy Shaw Wallace instead ? I have tried to get some information /data on this but have not been succesfull. Any one has any insights ?
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basant
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Posted: 18/Jul/2006 at 9:58am |
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Not sure on which stock one should buy you know the problem is that Mallya's corporate gov needs a lot to be on par with the best in business. SO at the time of merger he might tweal things a bit so asto suit him. from what I know Mallya paid a great deal more for buyingSW then what the price is also his stake in SW is larger so it would make sense for him to have the ratio in favor of sw but since Institutions and MF's are with Mcdowell I would suggest staying there because there is a lot of grey matter around and without the inner story it would be prudent to stay with the big boys (where inst. and Mf have invested) as for now
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basant
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Posted: 05/Sep/2006 at 12:04pm |
Mc Dowell is another big restructuring play . Mallya seems to be getting its act together and if some one can make Mallya realise that Mc Dowell at a current valuation of US $ 800 million could be valued at US $ 3 billion the stock could run up 4 times from here. I woul like to again state that this could be another ITC in the making.The relative advantages that liquor faces vis-a-vis cigarettes are:
1) Liquor is not injurious to health what a person does after drinking is how ever debatable and could be injurious to every one's health but that is a person's fault not the company's.
2) Liquor does not face any ban per se. No threats of law suits; nothing like a Philip Morris could ever be repeated in liquor.
3) Vijay Mallay's corporate governence practices are adequately reflected in the price so any improvement on that front could call for serious rerating. It appears that Mallya knows what he is doing or rather what he was not doing and should mend ways.
4) Liquor is highly regulated in terms of state duty taxes, movements etc so any derugaltion (unlike cigarettes it can happen) should boost the stock up.
Edited by basant - 05/Sep/2006 at 12:06pm
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Ajith
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Posted: 06/Sep/2006 at 12:24pm |
I think medium and high grade liquour consumption will rise tremendously in the coming decade so that even average management will come up with above average financials..Mcdowell will do well after the merger but are they funding Kingfisher Airways?Radico also looks good.
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basant
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Posted: 06/Sep/2006 at 12:27pm |
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Funding for Kingfisher (Mallya's senseless dream) will come from UB not Mc Dowell. But yes, Radico could do better.
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investor
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Posted: 06/Sep/2006 at 12:29pm |
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I agree completely. I am invested in Mcdowell for the last 2 years, and am also in the same view that Mcdowell could become a blue chip company in liqour, like how ITC is to the tobacco industry. Of course Mallya needs to improve the management, and he has been doing that BIGTIME over the last 15 months, major acquisitions, re-structuring, etc and this is already showing results. Look at how he has turned around his flagship beer company United Breweries, after selling 37.5% stake to Scottish and Newcastle. The results since then are astounding.
I am sure he will achieve similar results with UNITED SPIRITS, which is expected to be formed this month(thats the date that he last mentioned)
by merging all his liqour companies with mcdowell.
It is expected to be the third largest liqour company in the world, and after he adds in a global scotch brand, it will be the second largest!!
And if you just compare the valuations of Mcd with Diageo, the worlds largest liqour company, Mcd is going for peanuts...
Edited by investor - 06/Sep/2006 at 12:30pm
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basant
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Posted: 06/Sep/2006 at 12:37pm |
I was basing my argument "if Mallya inproves".
If he finds better use for money then swords and night ouit parties then Mc Dowll could go up 4 times from here. The margins could easily diuble if shareholders are provided with better corporate governence measures and there lies the opportunity!
Doubling of margins means Mallya would get a higher PE and that shall do the trick.
While I cannot argue with you on global valuations we need to examine very closely that the companies with whom we are comparing globally show robust earnings. Once that happens we would not need global valuations to ramp up this stock.
My sense is that he has started to improve. Seems he is slowly understanding the difference between a 50% stake of a Rs 200 crore company and a 50% stake of a Rs 10,000 crore company.
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