April 07, 2022

Som Distilleries & Breweries Limited: Ratings reaffirmed, outlook revised to Stable
Summary of rating action

Previous Rated Amount Current Rated Amount

Instrument* Rating Action
(Rs. crore) (Rs. crore)
[ICRA]BBB- (Stable); reaffirmed, outlook
Fund-based – Cash Credit 28.00 28.00
revised from Negative
[ICRA]BBB- (Stable); reaffirmed, outlook
Fund-based – Term Loans 71.38 44.58
revised from Negative
Non-fund Based 18.00 15.00 [ICRA]A3; reaffirmed
[ICRA]BBB- (Stable); reaffirmed, outlook
Unallocated 0.00 18.74
revised from Negative
Total 117.38 106.32
*Instrument details are provided in Annexure-1

Rationale
For arriving at the ratings, ICRA has taken a consolidated view of Som Distilleries & Breweries Limited (SDBL) and its wholly-
owned subsidiaries—Woodpecker Distilleries & Breweries Private Limited (WDBPL) and Som Distilleries & Breweries Odisha
Private Limited (SDBOPL)—together referred to as the company. The entities have strong financial and operational linkages,
selling product under the same brands and sharing a common management.

While revising the outlook to Stable from Negative, ICRA considers the revival in beer demand in the domestic market from
Q3 FY2022 after two summer seasons of weak performance amid the Covid-19 pandemic. The revival is likely to continue in
the ongoing season supported by its growing footprint in Karnataka. The company’s market position remains healthy in
Madhya Pradesh, significant expansion in distribution network and reduction in excise duties augur well for the company. The
ratings draw comfort from the Group’s established presence in the alcobev industry through its flagship entity, SDBL, its
subsidiaries and other promoter companies in similar business segments.

The ratings, however, are constrained by the modest coverage metrics and working capital intensive nature of operations,
resulting in high utilisation of working capital limits. ICRA notes that the recent rights issue and continued funding support
from the Group aids the company’s cash flow position. The Group’s margins remain exposed to volatility in raw material prices.
The rating is further constrained by the intensely competitive and highly regulated alcohol industry, which might impact the
Group’s growth and margins.

The Stable outlook on the [ICRA]BBB- rating reflects ICRA’s opinion that the Group will continue to benefit from the extensive
experience of the promoters and its established track record in the liquor industry.

Key rating drivers and their description

Credit strengths

Extensive experience of promoters; established track record in industry - The promoters have been involved in the alcohol
business for more than three decades. The Group’s other company, Som Distilleries Private Limited (SDPL), has been involved
in manufacturing extra neutral alcohol (ENA) since 1986. The promoter also has other companies in the same business
segment.

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 Improving geographical diversification – The company has a strong market share in Madhya Pradesh’s beer market, with a
presence for three decades. Further, target markets of Karnataka, Kerala, and Odisha are all-weather markets in terms of liquor
consumption. The company has increased its market share in Karnataka and Odisha’s beer industry over the last one year, thus
strengthening its geographical presence.

Healthy demand outlook – As per the revised excise policy of Madhya Pradesh, effective from April 1, 2022, the state
government has allowed the sale of beer at country liquor shops as well. In addition, the state government has reduced the
excise duty by 20%, which will increase the liquor consumer base. The company was in capex mode during FY2019-FY2021 and
has built up sizeable unutilised production capacity in all the three companies (Madhya Pradesh, Karnataka and Odisha), in
both beer and Indian made foreign liquor (IMFL) segments, which it can ramp up in line with the healthy demand outlook of
beer in the domestic market.

Completion of right issue in February 2022 – SDBL has completed the right issue exercise in February 2022 to the tune
~Rs. 17.50 crore, which would support the working capital requirement in the ongoing peak season. Additionally, the
promoters have a track record of funding support, as when needed.

Credit challenges

Weak revenue and profitability in FY2021 and 6M FY2022 due to pandemic – The Group’s revenues and profitability were
lower in FY2021 and 6M FY2022 due to the impact of the pandemic on demand, inventory write-off (beer has a short shelf
life), heavy discount offered to retailers and substantial under-absorption of overheads. However, the company has reported
improvement in revenue in 9M FY2022 over 9M FY2021 with a gradual demand revival led by a ~21% volumetric growth.

Weak coverage indicators, vulnerability to raw material price increases –Rise in the input cost (barley, packaging, new bottles
and freight) has kept profit margins under pressure for the company. Weaker cash accruals amid sizeable capex related debt
repayments have resulted in modest coverage metrics as reflected by high Debt/EBIDTA and below average DSCR in FY2021.
While part of the input cost rise has been compensated by selling price increase, regular fund infusions by promoters and
Group companies, all through the pandemic as well as when needed, for working capital requirements and repayments, lend
comfort. The company’s working capital requirements are high, led by its requirement to maintain inventory across its plants,
resulting in high utilisation of working capital limits.

Highly regulated alcohol industry - The liquor industry is highly regulated by state governments, who control the sales and
distribution, making the Group susceptible to changes in Government policies. Any change in Government policies with respect
to production, distribution of liquor, taxation, and state excise duty, or any material changes in the duty structure, may impact
the liquor industry and the company.

Liquidity position: Stretched

The company’s liquidity position is stretched on account of high utilisation of working capital limit, low cash accruals from
business and sizeable repayment in the near to medium term. However, there has been a regular fund infusion in the form of
unsecured loan from Group companies and promoters in addition to recent rights issue to fund the working capital
requirement and repayment liability. The company also maintains moderate levels of cash for immediate requirements. There
are no major capex plans since the company has expanded its capacity over the last few years. ICRA expects accruals to
improve, going forward, as beer demand revives.

Rating sensitivities

Positive factors – ICRA could upgrade the ratings if the Group demonstrates a significant improvement in revenues and
profitability, leading to an improvement in credit metrics driven by favourable consumer sentiment and improvement in
liquidity position.

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 Negative factors – ICRA could downgrade the ratings in case of substantial decline in revenue and profitability or a stretch in
liquidity and debt coverage metrics. In terms of specific credit metrics, DSCR of less than 1.2 times on a sustained basis will be
a negative trigger.

Analytical approach

Analytical Approach Comments

Applicable Rating Methodologies Corporate Credit Rating Methodology
Parent/Group Support Not applicable
Consolidation/Standalone The ratings are based on the consolidated financials of SDBL, WDBPL and SDBOPL.

About the company

SDBL, incorporated in 1993, is involved in brewing, fermenting, bottling, canning and blending of beer and IMFL. It is the
flagship company of the Bhopal-based Som Group, with a production capacity of 15.2 mcpa (doubled from 7.5 mcpa in FY2021)
of beer and 0.6 mcpa of IMFL. The company’s shares are listed on BSE and NSE. SDBL has set up WDBPL, a 100% subsidiary, in
Hassan, Karnataka, with a capacity of 3.8 mcpa of beer and 2.8 mcpa of IMFL. The commercial production from the Hassan
unit commenced from June 2018. SDBL has also acquired a beer manufacturing unit in Odisha for the eastern markets of
Odisha and West Bengal. The acquired company, now known as SDBOPL, has a manufacturing capacity of 4.2 mcpa of beer
and commenced commercial production from March 2019. On a consolidated basis, the Group has a production capacity of
23.2 mcpa of beer and 3.4 mcpa of IMFL per annum.

Key financial indicators (audited)

SDBL Consolidated FY2020 FY2021 9M FY2022*

Operating Income (Rs. crore) 463.5 290.2 219.6
PAT (Rs. crore) 15.0 (38.0) (16.2)
OPBDIT/OI (%) 10.3% (2.4%) 3.6%
PAT/OI (%) 3.2% (13.1%) (7.4%)
Total Outside Liabilities/Tangible Net Worth (times) 1.4x 1.5x -
Total Debt/OPBDIT (times) 5.6x (38.8x) -
Interest Coverage (times) 3.1x (0.4x) 0.7x
Source: Company, unaudited

PAT: Profit after Tax; OPBDIT: Operating Profit before Depreciation, Interest, Taxes and Amortisation

Status of non-cooperation with previous CRA: Brickworks has kept the ratings under ISSUER NOT COOPERATING
category at BWR BB (Negative) /A4 via press release dated July 5, 2021

Any other information: None

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 Rating history for past three years
Chronology of Rating History
Current Rating (FY2023)
for the past 3 years
Instrument Amount Amount Date & Rating Date & Rating Date & Rating
Date & Rating in FY2021
Type Rated Outstanding in in FY2020 in FY2019
(Rs. crore) (Rs. crore)* Apr 7, 2022 Feb 23, 2021 Sep 15, 2020 Aug 7, 2020 July 20, 2020 July 7, 2020 April 7, 2020 Feb 27, 2020 Nov 20, 2018
Long [ICRA]BBB - [ICRA]BBB - [ICRA]BBB [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+
1 Cash Credit 28.00 - -
Term (Stable) (Negative) (Negative) (Negative) (Negative) (Negative) (Stable) (Stable)
Long [ICRA]BBB - [ICRA]BBB- [ICRA]BBB [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+ [ICRA]BBB+
2 Term Loans 44.58 44.58 -
Term (Stable) (Negative) (Negative) (Negative) (Negative) (Negative) (Stable) (Stable)
Bank Short
3 15.00 - [ICRA]A3 [ICRA]A3 [ICRA]A3+ [ICRA]A2 [ICRA]A2 [ICRA]A2 - [ICRA]A2+ [ICRA]A2+
Guarantee Term
Long [ICRA]BBB - [ICRA]BBB+ [ICRA]BBB+
4 Unallocated 18.74 - - - - - - -
Term (Stable) (Stable) (Stable
[ICRA]BBB+
[ICRA]BBB+
Long (Stable)# [ICRA]BBB+
5 Issuer Rating - - - - - - - - (Stable)
Term Notice of (Stable)
Withdrawn
Withdrawal
Source: Company, ,* as on , January 31, 2022, #put on notice of withdrawal for 1 month,

Complexity level of the rated instrument

Instrument Name Complexity Indicators

Long Term – Cash Credit Simple
Long Term – Term Loan Simple
Short Term – Bank Guarantee Very Simple
Long Term – Unallocated NA
The Complexity Indicator refers to the ease with which the returns associated with the rated instrument could be estimated. It does not indicate the risk related to the timely
payments on the instrument, which is rather indicated by the instrument's credit rating. It also does not indicate the complexity associated with analysing an entity's financial,
business, industry risks or complexity related to the structural, transactional, or legal aspects. Details on the complexity levels of the instruments, is available on ICRA’s
website: www.icra.in

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 Annexure-1: Instrument details
ISIN Instrument Date of Issuance Coupon Maturity Amount Rated Current Rating and
No Name / Sanction Rate Date (Rs. crore) Outlook
NA Cash Credit - - - 28.00 [ICRA]BBB - (Stable)
NA Term Loans April 2017 - March 2026 44.58 [ICRA]BBB - (Stable)
NA Bank Guarantee - - - 15.00 [ICRA]A3
NA Unallocated - - - 18.74 [ICRA]BBB - (Stable)
Source: Company

Annexure-2: List of entities considered for consolidated analysis

Consolidation
Company Name SDBL Ownership
Approach
Som Distilleries & Breweries Limited (Parent company) NA Full consolidation
Woodpecker Distilleries & Breweries Private Limited 100% Full consolidation
Som Distilleries & Breweries Odisha Private Limited 100% Full consolidation
Source: Company

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 ANALYST CONTACTS
Shamsher Dewan Kinjal Shah
+91 124 4545 328 +91 22 6114 3442
[email protected] [email protected]

Sheetal Sharad Uday Kumar

+91 124 4545 374 +91 124 4545 867
[email protected] [email protected]

RELATIONSHIP CONTACT
Jayanta Chatterjee
+91 80 4332 6401
[email protected]

MEDIA AND PUBLIC RELATIONS CONTACT

Ms. Naznin Prodhani
Tel: +91 124 4545 860
[email protected]

Helpline for business queries

+91-9354738909 (open Monday to Friday, from 9:30 am to 6 pm)

[email protected]

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Today, ICRA and its subsidiaries together form the ICRA Group of Companies (Group ICRA). ICRA is a Public Limited Company,
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