Sowmay Jain

Pincon Spirit Limited: Can be a Multi-Bagger

Sowmay

Hello! Everybody,

I’ve been tracking Pincon Spirit for a long time and now I’m trying to pour it out everything I got all over the web.

PSL was established in 1978, headquartered in Kolkata, West Bengal.  It is promoted by Mr. Manoranjan Roy who was awarded Outstanding Entrepreneurship Award for outstanding and exemplary achievements in Entrepreneurship from Enterprise Asia at the Asia Pacific Entrepreneurship Awards 2015. So I think there are no remaining ends to doubt the management of the company.

It is the only company having its business line in 2 sectors:–

It operates 4 divisions with their respective heads:

It is listed in both prime exchanges – BSE and NSE. BSE listing was executed on 14th November 2014 and NSE listing on 15th June 2016 (recent).

The company is aggressively making its brand. It had also planned to invest in Tetra-pack to curb adulteration as refilling is not possible in tampered packages.

This year company had announced a bonus share of 1:1 i.e. one equity share for every one held. The company had also started many online promotion channels like YouTube to build their company brand.

The company is doing its best to build 3 critical elements on which the enterprise risk management framework is build – creating a clear direct line of sight from risk management to investor’s value, implementing a process to protect investor’s value; and building the organizational capability to ensure strategic risk management.

You can access every information of their company on their investor’s relation page on their official website. (http://www.pinconspirit.in/investor.htm). Also, screener would be a great place to track information of company’s stats and announcements.

A growth in alcohol industries is seen in India due to rising income level and changing drinking habits of Indians which even attracted many foreign breweries companies like United breweries to set-up plants in India.

South contributes 60% whereas North amounts to 30% of consumption in India. 10% is from rest other parts of India.

India’s annual per capita consumption of beer is 1 litre whereas in the US, it is 80 litres. Europe and China have 74 and 22 litres respectively.

The low consumption and the growth in consumption show great opportunities in the beer market. Some leading players in this sector are as follows:

However, Pincon is not able to get a place in top 5 breweries companies when segregated with the market cap but its tremendous growth shows that it is likely to top the list in coming 2-3 years.

Its sales and profit growth are just awesome:

Compounded Sales Growth:

Compounded Profit Growth:

And its Return on Equity (ROE) stood at 34.25%.

Sales of Pincon Spirit in the year ended 2010 stood at 55 crores whereas in 2016 it stood at 946 crores. It’s a 17 times growth in sales in 6 years.

Same as the Net profit of Pincon Spirit in the year ended 2010 stood at 1.42 crores whereas in 2016 it stood at 24.86 crores. It’s also a 17 times growth in profit in 6 years.

Company had outperformed the sector in 2015-16:

Recently, Pincon Spirit Ltd recorded a rise of 59.6% in its net profit at Rs.9.1 crore for the quarter ended June 30, 2016, as compared to Rs.5.7 crore for the quarter ended June 30, 2015. The company’s total income has increased by 33.7% at Rs.309 crore for the quarter against Rs.231 crore in the corresponding quarter of the previous year. (source)

However, the company is having a high debt to equity ratio of 2.8 and also having a quite low-interest coverage of 3.24 which could be a warning sign for retail investors but until and unless the company is reporting growth trend, there’s no worry.

Remember, debt element is helpful to increase the return to company’s shareholders as it carries fixed interest rate charges. However, a slight decrement in sales and profit will affect the shareholder in a negative way as the company still had to pay interest costs. Pincon Spirit is reporting a growth trend in profit and sales so we can ignore debt element in the capital structure to some extent.

Still, increasing input cost and high-regulated market are the major concerns for the industry.

Corporate Milestone

The company is giving a good year on year growth with many acquisitions and expansion plans. All the milestones since 2005 are highlighted as follows:

2016

2015

2014

2013

2012

2011

2010

2005-2009

One of the major concerns investors are having with regards to Pincon is that it have 0% holding of promoter’s stake.

That’s not the problem. There are many companies like…. Who had declassified them as promoters.

However, they hold shares by way of FII & DII.

Like Monoranjan Roy, Chairman and Managing director of the company is holding 6,986,786 numbers of shares which are around 30% of company shares and 30% is retained by other management members. So overall the company’s 60% shares are held by the promoters of the company who had declassified them as promoters.

So it’s just the accounting method of showing 0% promoters but in reality, they are holding shares by another way.

Overall, I can see a bright future of Pincon Spirit. Currently, at 74 (dated 21 July) it looks as a great opportunity. High growth companies attract expensive PE ratings. Company’s current PE ratings are around 14 as compared to industry PE which is at 39.

Updated:

Company is having a negative cash flow from operation? Does it mean that the company is loosing money in their core operation of the business?

Negative cash-flow is due to 2 reasons:

Later is the case with Pincon. It is now borrowing/issuing funds and putting it for operational activity.

I would like to add more from a discussion help on the forum – Valuepickr. (Link to the discussion)

One should try to understand the reason behind the negative cash flows.

Is it because the business is bad?

Is it because the accounts are manipulated?

Or is it because the growth Y-on-Y is such that they need to continuously pump in more and more money in working capital?

When you are planning to invest in a company, you always tend to invest with a 5 year horizon.

Do you see operating cash flows getting positive at the end of 5 years?

Yes, I do feel.

Over next 5 years the growth in the business will start tapering off.

Less working capital will be needed y-on-y.

Operating cash flows will automatically turn out to be positive.

I personally like companies generating negative operating cash flows if the reason is growth !!

Disclaimer: I’m holding 6% of my holdings in this stock so above analysis can be biased. You should invest with your own due diligence.

Source Links:

Updated:

Pincon Spirit Ltd:

Source: Reuters

Image of the Company Notification to BSE, NSE and Calcutta stock exchange: