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Message: <blockquote data-quote="sherlock" data-source="post: 10851062" data-attributes="member: 106046"> Distilleries Company Distilleries Company of Sri Lanka (DIST: LKR179.00) is currently the 10th largest market cap stock listed on the Colombo bourse. Despite being a conglomerate it is mainly a consumer play having 75% market share in the hard liquor industry. Further the company has diversified interests in plantation, telecommunication, and insurance and textile businesses. Through its 28.0% stake in Aitken Spence PLC (SPEN: LKR140.10) one of the largest conglomerates in Sri Lanka, DIST indirectly has interests in tourism, power sector and future port operations.·         The group’s net revenue increased by 21% YoY to LKR6,537.0 mn in 1QFY12 whilst gross profit increased 20% YoY. EBITDA stood at LKR2,428.7 mn recording a an impressive growth of 33% YoY, whilst net earnings grew by 49% YoY to LKR1,367.3mn.·         Revenue growth was mainly driven by 37% YoY increase in liquor segment to LKR12,733.8 mn mainly driven by volume growth of circa 15% coupled with upward price revisions carried out during FY11 whilst diversified sector witnessed an impressive revenue growth of 293% YoY in 1QFY12 to LKR702.7 mn. Plantation sector revenue also grew by 11% to LKR774.7 mn on the back of the escalating rubber prices. Earnings growth was further triggered by a 59% YoY dip in finance expenses to LKR37.2 mn, which is an outcome of the low interest rate environment.·         DIST’s core business, the liquor segment would grow rapidly upon rising income levels, opening up of war torn areas, increase in domestic and inbound travel with further backing from impediments on illicit liquor. With the growing global demand for rubber, the plantation sector is also expected to propel in the foreseeable future. Having business interests in tourism, insurance, textile printing and automotive repairs, the conglomerate’s outlook appears to be further appealing given the high growth potential of those sectors.·         Against this positive backdrop we maintain forecast FY12E earnings at LKR5,524.7 mn (up 23% YoY) and forecast a profit of LKR6,397.5 mn for FY13E (up 16% YoY). Bestowed with a cash rich core business and having SPEN as an associate, coupled with the entrance to the hotels and leisure sector DIST augurs further upside trading at 9.7X forecast FY12E earnings and 8.4X forecast FY13E earnings. Further the counter trades at 1.5X FY12E PBV and 1.3X FY13E PBV.</blockquote>

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