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McDowell high on renewed buying

Deeptha Rajkumar

THE stock of McDowell, the flagship company of the UB Group, has been in a recovery mode since end-October on the bourses.

From a low of Rs 33 as on March 25 (BSE) the stock has appreciated by almost 73 per cent to its current levels. The stock jumped to a high of Rs 63.90 on Nov 10, only to succumb to profit-taking on November14, and dropped to Rs 55.35.

However, renewed buying interest on the part of operators and funds held the stock firm today on the BSE and NSE. According to market talk, hopes that the company is looking at inducting a foreign partner as a strategic player, is what has been keeping alive market interest in the counter. However, Mr Ravi Nedungadi, CFO, McDowell, told Business Line that the company was not looking at any strategic joint venture at this juncture. "We are, however, not averse to product-or opportunity-related tie-ups on the lines of what McDowell has with Independent Liquor of New Zealand. We could be looking at further such alliances," he said. Independent Liquor is the third largest RTD (ready-to-drink) manufacturer in the world. The company is expected to provide technical knowhow and expertise in manufacturing and bottling its RTD brand Cruiser at McDowell's unit. McDowell has a strong presence in the country with over 52 liquor brands under its belt. "Fundamentally, pricing in the beverage-alcohol industry is severely restricted. For, over 75 per cent of the market, the State Government is the sole buyer. Thus there is zero chance of getting price increase, over an extended period of time. For instance, in Tamil Nadu there has been no price increase over the past 5-6 years. On the other hand, cost push in the economy has to be stomached," the CFO said.

According to him, increasingly, costs of major inputs are in line with prices globally. However, unlike overseas manufactures, retention is but a fraction of the cost here. High input costs, irrational regulations and taxation are other factors that ail this industry.

"The recent consolidation of the glass industry has seen prices of glass go up by 14-15 per cent. This, coupled with the lack of corresponding increase in prices of finished products, has meant that we end up with a price squeeze," he said.

Market concern on profits apart, brokers maintain that the downside from here on is restricted. "The company is likely to face competition from imported liquor. So its more of a buy and hold story," a broker said.

The stock ended the day at Rs 57.50 up 1.14 per cent with around 6.11 lakh shares changing hands on the NSE. On the BSE, the stock ended the day at Rs 57.25 with around 2.86 lakh shares being traded.

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