Tilaknagar Industries gains little from recent acquisitions

The stock of Tilaknagar Industries has nearly doubled in the last six months from its lows in September. The company was in the news recently following five acquisitions that would help in backward integration of the maker of Indian made foreign liquor ( IMFL).

The company is expected to grow its volumes by over 20% in FY12 following its leadership in its key markets in southern states. However, the company needs to manage operating cash flows better, which were negative in FY11 due a higher need of working capital.

The company manufactures IMFL, including brandy, gin, rum, vodka and whisky. Andhra Pradesh, Karnataka, Pondicherry and Tamil Nadu are its major markets. It supplies 75% of its production to these states and the remaining is sold to the defence stores.

In FY11, it produced 10.9 million cases of IMFL, constituting 5% of the industry volume of over 216 million cases (1 case = 9 litres). Following capacity additions and market leadership in semi-premium and premium brands in some of the states, the company's market share has improved from 3% in FY09.

Though the company has made five acquisitions in the past few weeks, their magnitude is insignificant to its current size of operations. It has spent nearly Rs 3 crore to gain control of these companies, which is negligible compared with its addition of gross block of fixed assets worth Rs 197.5 crore in FY11.

In addition, the two acquired companies My Kingdom and Studd Projects do not bring any revenue to Tilaknagar's balance sheet.