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Sunday, October 25, 2009

Globus Spirits Ltd:Future growth prospects and outlook

Scripscan:Globus Spirits Ltd

Story:GSL has its own brands viz. 20-20 Premium Whisky Premium, White Lace Gin, etc under IMFL segment and Rana, Ghoomar, etc under Country liquor segment.It also does job work for other reputed brands such as Officer's Choice Prestige Whisky, Officer's Choice Classic Whisky, Officer's Choice No.1 Brandy, etc. Of the revenue mix in FY09, IMFL and country Liquor contributed 43% and 36.4% respectively and the rest is contributed by industrial alcohol. Its major clients include United Spirits, Jagatjit Industries, etc.Indian Liquor industry is estimated at Rs340bn and has been growing at 12-15% p.a. It is expected to maintain its growth at CAGR of 15%, going forward. It is the largest source of revenue for the state government, generating an estimated Rs300bn p.a. in spite of the fact that per capita consumption of liquor in India ranks among the lowest in the world. It is the only industry where inputs are de-controlled (free market price) and output is controlled (selling price is determined by state excise in most states).The low per capita consumption of liquor in India, changing consumer perceptions of alcohol, high volumes generated by the unorganized cheap segment, with its likely transition into the organized sector and progressive regulatory changes are the key drivers to the growth of this industry.GSL is strategically located, with access to raw materials (molasses and grains), as it is situated in the Northern belt. The plants also have a technological flexibility to use both grains and/or molasses as raw materials, mitigating dependence on any one specific raw material.It has planned for modernization of existing facilities and intends to expand its capacities from 288lakh bulk litres (BL) p.a. to 498BL p.a., revamp bottling section; brand Indian Made Foreign Liquor; set up captive power plant to have costs reductions. The project costs amounts to Rs89Cr which is funded via IPO, debt and internal accruals and is expected to be completed in FY10.In Globus Spirits results, which they have declared recently, Rs 5.5 crore net profit translating into an EPS of Rs 3.5 on expanded equity because that all we have been talking at that time also when the company went public it translates into an EPS of Rs 13 or 13 plus.At present prices it qualifies a very good buy because when the completion of the expansions their debt equity ratio is very low. If I just net off the net current assets, it’s a debt free company, they have been going with expansions having good presence in IMFL and Country Liquor with their own brands and as well as the contracting work, all these things I don’t think honestly that the kind of hammering which we have seen the stock price below or as low as Rs 75 was warranted. The results which have been declared by the company recently, I think will give some confidence and maybe investment buying or people having the view of six months can start buying at these levels.

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