“Bisleri dena bhaiya” is a common conation when asking for Mineral Water. Such is the power of brand “Bisleri” that its become synonymous with Mineral water. As they say, one of the best investments is to invest in the power of brands and Bisleri is one such power brand. Bisleri is catering to the sunrise sector of pure drinking water. Mr Ramesh Chauhan – the man behind this power brand is known as “Water King” in corporate circles. Unfortunately Bisleri is not listed, but, there is one company which owns the license of manufacturing and selling Bisleri Water in eastern india, notably West Bengal, Orissa and Jharkhand and Chhattisgarh. Furthermore, they plan to extend their services to Bhutan, Nepal and Sikkim. This company is Orient Beverages. Orient Beverages has set up its own manufacturing facilities at Domjur (Howrah) and Dankuni (Hooghly) in the state of West Bengal. But there are many more reasons to buy Orient Beverages.
The company’s main business is linked with Bisleri Inc. fortunes as it is a license holder of the brand. Bisleri itself, is growing at a very brisk pace and this pace would increase with its entry into soft drinks business. Remember Bisleri Inc, in its earlier avatar as Parle Agro, was the owner of brands like Thumbs Up, Maaza, Limca etc. which was later sold to Coca Cola (by the way Thumbs Up is still the No. 1 brand in India). Coca Cola stopped Thumbs up for a few years to promote its own brand, but later realized that instead of Coca Cola, pepsi was gaining ground. Coca Cola realized its mistake and re-introduced Thumbs Up. Since then Thumbs Up remains the No. 1 soft drink brand in india. This is what Mr Ramesh Chauhan can create.
Orient Beverages revenues have grown from 7.99cr in 2010 to 21.99cr in 2014 and PAT has grown from 0.25cr to 1.26cr. The promoters are holding has increased from 43.22% in 2010 to 50.23% in 2014. The company is paying around 10% (of bottled water sales, not gross earnings) as trademark fees . The company is generating very good free cash flows. This is what a powerful brand gives you.
The earnings are going to get a major fillip, starting this year because of the following reasons:
- The company had just one plant till now. A new plant of similar capacity has started production since May 14. The demand was always great but with doubling of capacities, the growth will go in a different trajectory altogether.
- As per the latest AR, Estimated amount of contracts remaining to be executed on capital account is rs 11,22,76,870, i.e. more than 11cr (previous three years it had been 26,52,688 /35,73,986/2,45,000). Clearly, this year the company has started the year with a massive increase of order book . This is a sign of things to come.
- The company is entering soft drinks business along with Bisleri Inc. Given what Mr Chauhan had done with Thumbs up, Golds spot, Mazaa etc, this is going to be again, a terrific thing.
- Company has a good real-estate portfolio that it rents out. One portion of its real-estate is still vacant and its looking to fill it up. Once its done, it will give a strong boost to its bottomline, since the real estate business of Orient works with a margin of around 50% (as evident from their AR) and given a tiny equity base the EPS accretion will be substantial. What more, the rents are increased every year.
- Company paid its maiden dividend this year. This is good indication of the confidence the management has for future profit growth.
It is also important to note that promoters have 75% stake as pledged, although I would not worry about it as the stock price has literally doubled from its last disclosure, and I am extremely sure that the investors would be lapping up the share, so the risk of these pledged shares getting sold is highly minuscule, but still worth a disclosure.
Valuation: If Fevicol(Pidilite) and Jockey (Page Industries) can trade at 45-50 PE with market cap to sales ratio of 5-10 times, I do not see a reason why Bisleri should quote at a ridiculous PE of just 8 and market cap to sales ratio of just 0.5 times. Given the fact that earnings itself could easily double in next couple of years, one could see a huge re-rating taking place in the counter. Even if the stock price is to quadruple from here, it would still means a PE of 32 and that too trailing. Coupled with high growth that we are seeing, I believe the stock price should multiply multi-fold in the short to medium term.
The stock has broken out after two decades of consolidation and now at a price of 53rs and market cap of just 11cr, the stock can go up multi-folds in next couple of years. Given a small equity base, the stock price can easily fly from here.
As usual, this stock is for people with very high risk appetite.