GLOBUS SPIRITS

GLOBUS SPIRITS –

Globus is a company which has diverse presence in the sector right from manufacturing, marketing and sale of country liquor, branded Indian Made Foregin Liquor, industrial alcohols and taking up contract bottling to cater to renowned Indian branded IMFL players. This strategy places the company in an envious position to take advantage of the full spectrum of the market and maximise earnings in a variable market scenario 

PLANTS:  Globus Spirits  has two modern distilleries, one at Behror, Rajasthan and another at Samalkha, Haryana. Both are state of the art plants which can produce alcohol from grains or molasses, which gives the company flexibility in the use of raw materials depending upon their prices. Currently the company only uses grains as raw materials.

EXPANSION:

The company’s two plants are operating at full capacity currently and hence it has embarked upon expansion plan to raise its capacity (of bulk alchohol)  from current levels of around 29.6 BL to 70 BL. (Earlier the plan was to hike the capacity to around 48.8 BL but the company’s engineers with some clever engineering have managed to plan the capacity hike to 70 BL with minimal  extra cost.)

The expanded capacity is slated to start contributing to the company’s revenues from the end of Q2 FY 11 and so full benefits will be reflected in the second half results.

FUNDING of the expansion is through funds raised through IPO—around 65 crores, loans of around 12 crores and internal accruals of around 13 crores which amounts to a total of 90 crores. This is not going to put too much pressure on the healthy balance sheet the company has.

LAUNCH OF ITS OWN BRAND OF WHISKY – County Club Whisky is the brand the company has launched in Haryana, Punjab, HP, Chandigarh, Rajasthan and plans are afoot to launch it on a national level and strengthen the brand through advertisements and other promotional activities. The company has met with a good initial response and expects to achieve sales of around 10 lac cases of the product in FY 11. This brand has been launched in competition with the top brands of United Spirits and Radico with equivalent pricing.

Currently Globus has some brands like Samurai Whisky, GR8 Times-Whisky and Rum, Academy & delum rum and brandy, 20-20 Whisky, Hannibal rum, White lace Gin.

FINANCIALS

At the current market price of around 176, market cap is around 350 crores. Promoters own about 60% stake with no pledging.

Book Value is around 82,  debt is around 32 crores,  cash balance 21 crores,

YEAR	05	06	07	08	09	10	Q1FY11
SALES	68	86	116	235	281	384	102
NP	0.24	5.24	8.66	12.64	12.93	28.92	6.29
ROE					24	26

POSITIVES:

Company has shown good growth till now and expected to continue it ahead due to benefits of expanded capacities kicking in in second half of FY 11.

Inspite of expansion, there is no stretching of balance sheet.

Promoters are in this business since almost fifty years.

Success of its own brands could lead to higher margins.

Ethanol mixing with petrol if allowed by the govt could be a huge plus for the company.

NEGATIVES:

Raw material price volatility could impact earnings

Volatility in prices of spirits could affect profitability

CONCLUSION:

Looking at the above synopsis, Globus Spirits looks like a company at an inflection point of its growth story and likely to show strong growth over next few years.

The stock according to me has the makings of a good portfolio bet for the medium to long term.

Recently the stock has run up and is in an acceleration channel as shown in the charts.

Globus looks like a good stock for accumulation on declines as a portfolio bet.

Disc: I have made an initial entry at current price. 

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