Allied Blenders & Distillers Downgraded to Hold Amid Mixed Technical and Valuation Signals

Quality Assessment: Strong Fundamentals but Balanced Outlook

Allied Blenders continues to demonstrate commendable operational efficiency and profitability, underpinning its quality rating. The company reported a return on capital employed (ROCE) of 17.47%, signalling effective utilisation of capital resources. This figure remains attractive within the beverages sector, where capital intensity is significant. Furthermore, the firm has maintained positive results for six consecutive quarters, with the latest nine-month profit after tax (PAT) reaching ₹199.51 crores and quarterly net sales peaking at ₹990.06 crores.

Operating profit growth has been particularly impressive, registering an annualised rate of 38.70%, which highlights sustained expansion in core earnings. These metrics affirm Allied Blenders’ strong management efficiency and operational resilience. However, despite these strengths, the overall quality grade remains steady without an upgrade, reflecting the need to weigh other factors such as market dynamics and valuation pressures.

Valuation: Attractive Yet Approaching Cautionary Levels

The company’s valuation remains compelling, with an enterprise value to capital employed (EV/CE) ratio of 7.2, which is considered attractive relative to industry peers. This metric suggests that Allied Blenders is reasonably priced given its capital base and earnings potential. Additionally, the stock’s market capitalisation grade stands at 3, indicating a mid-tier valuation status within its sector.

Despite this, the recent downgrade from Buy to Hold signals a more cautious approach. The stock price currently trades at ₹602.00, close to its recent high of ₹615.10 for the day, but still below the 52-week peak of ₹719.95. The price appreciation over the last year has been substantial at 42.76%, significantly outperforming the broader market benchmark, the Sensex, which returned 7.62% over the same period. This strong price performance, coupled with a high profit growth rate of 2224% over the past year, suggests that some of the valuation upside may already be priced in, warranting a tempered outlook.

Financial Trend: Robust Growth Amid Market Outperformance

Financially, Allied Blenders has exhibited a strong upward trajectory. The company’s net sales and profitability have consistently improved, with the latest quarterly net sales reaching ₹990.06 crores, the highest recorded to date. The PAT for the first nine months of the fiscal year stands at ₹199.51 crores, underscoring sustained earnings momentum.

Over the past year, the stock has delivered a remarkable return of 42.76%, vastly outperforming the Sensex’s 7.62% gain. Year-to-date returns also stand at 40.1%, compared to the Sensex’s 8.39%. This market-beating performance reflects strong investor confidence and the company’s ability to capitalise on favourable industry trends within the breweries and distilleries sector.

However, shorter-term returns have been less encouraging, with the stock declining 3.82% over the past week and 7.93% over the last month, compared to the Sensex’s more modest declines of 1.02% and 1.18%, respectively. This recent underperformance may be signalling a near-term consolidation phase or profit-taking by investors.

Technical Analysis: Shift from Bullish to Mildly Bullish Signals

The most significant factor influencing the rating downgrade is the change in technical indicators, which have shifted from a bullish to a mildly bullish stance. The weekly Moving Average Convergence Divergence (MACD) now registers as mildly bearish, while the monthly MACD remains neutral. The Relative Strength Index (RSI) on a weekly basis has turned bearish, indicating weakening momentum, although the monthly RSI shows no clear signal.

Bollinger Bands on the weekly chart suggest a mildly bullish trend, and daily moving averages also support a mildly bullish outlook. However, the Know Sure Thing (KST) indicator on the weekly timeframe is mildly bearish, and the Dow Theory weekly signals have deteriorated to mildly bearish, despite a bullish monthly Dow Theory reading. On-balance volume (OBV) shows no clear trend weekly but remains bullish monthly, indicating mixed volume dynamics.

These mixed technical signals suggest that while the stock retains some upward momentum, caution is warranted as short-term indicators point to potential volatility or a pause in the rally. This technical uncertainty has been a key driver behind the shift from a Buy to a Hold rating.

Market Position and Shareholder Structure

Allied Blenders & Distillers operates within the beverages industry, specifically in breweries and distilleries, a sector characterised by steady demand and premiumisation trends. The company’s market capitalisation grade of 3 places it in a mid-tier category, reflecting moderate size and liquidity relative to larger peers.

Promoters remain the majority shareholders, providing stability and alignment with long-term strategic goals. This ownership structure supports consistent management policies and operational continuity, which is a positive factor for investors.

Conclusion: Hold Rating Reflects Balanced View Amid Mixed Signals

The downgrade of Allied Blenders & Distillers Ltd from Buy to Hold encapsulates a balanced reassessment of the company’s investment merits. While the firm’s quality metrics and financial trends remain robust, and its valuation attractive, the shift in technical indicators towards a more cautious stance has tempered enthusiasm.

Investors should note the company’s strong long-term growth prospects, evidenced by a 42.76% return over the past year and a 38.70% annualised operating profit growth rate. However, near-term price action and technical signals suggest potential volatility or consolidation, justifying a Hold rating until clearer directional cues emerge.

Overall, Allied Blenders remains a fundamentally sound company with solid management efficiency and market-beating performance, but the current market environment and technical outlook advise prudence for new entrants or those considering increasing exposure.

Only Rs. 9,999 - Get MojoOne + Stock of the Week for 1 Year (MRP = Rs. 34,999) Start Today