Target: ₹1,755

CMP: ₹1,070.95

We initiate coverage on Associated Alcohols & Breweries Ltd (AABL), a thinly researched stock with a Buy and a TP of ₹1,755. Building on its strong legacy as a contract manufacturer for marquee brands, AABL is now entering a new chapter, expanding beyond a B2B supply model into a robust, consumer-facing franchise.

Its expansion into premium whiskies, tequila etc. and an accelerated pan-India rollout aligns AABL to India’s growing appetite for premium spirits. The company’s strategic advantage lies in its integrated manufacturing base in the grain belt, ensuring cost competitiveness and flexibility across liquor and ethanol production.

The newly commissioned ethanol facility supports the government’s ethanol blending initiatives which further fortifies the growth narrative. We see a substantial re-rating potential as AABL invests in premiumization, diversification, and expanded distribution as seen in the case of Radico Khaitan’s journey over FY00-24.

We expect a revenue CAGR of 26 per cent over FY24-FY27E, driven by increase in geographical presence and launch of new products in the premium and super premium segments. Our estimates factor in 371 bps expansion in EBITDA margins to 13.8 per cent driven by better operational efficiency, cooling of raw material prices and improvement in revenue.

Key risks: Delayed launches and low brand penetration in new market.