Globus Spirits

Update on the Indian Equity Market:

Following global peers, the Indian indices opened higher on Tuesday. The gains were erased by afternoon and NIFTY closed at 15,773, below the intraday high of 15,896. Within the index, MARUTI (+5.2%), UPL (+3.9%), and SHREECEM (+3.3%) ended higher while ASIANPAINT (-1.8%), BAJFINANCE (-1.6%), and NESTLEIND (-1.2%) ended lower. Among the sectoral indices, AUTO (+1.3%), IT (+0.6%), and METAL (+0.3%) ended with gains while REALTY (-0.7%), BANK (-0.4%), and PRIVATE BANK (-0.4%) were the laggards.

Excerpts of an interview with Mr. Shekhar Swarup, Joint MD, Globus Spirits (GLOBUSSPR) with CNBC-TV 18 on 21^st June 2021:

• They have been undergoing a structural change in the organisation in the last 18 months. There has been a higher demand for alcohol from Oil Marketing Companies (OMCs) in ethanol. That has helped increase margins for GLOBUSSPR.
• There has been a structural change in the consumer segment. In FY21, 45% of the sales came from this segment, vs 35% in FY20. The increased sales from the consumer segment have also helped increase margins.
• The lockdowns in April-May 21 have impacted volumes. In Rajasthan and Haryana, there haven’t been widespread lockdowns for alcohol sales. In West Bengal, there were lockdowns for some time. The impact hasn’t been as severe as the same time last year.
• He believes they are in a position to grow the volumes in 1QFY22E.
• As the share of consumer business is increasing, margins are growing. The cost escalation has been passed onto the consumers and he expects margin enhancement in the future.
• They have an expansion project which is expected to be ready for operation in 3QFY22E. This is a 100 percent increase to capacities in West Bengal, which translates to about a third increase in their total capacities. Once these capacities come on stream, ethanol and ENA volumes are expected to grow further.
• Manufacturing (distillery segment) margins were growing in the last 18months and have stabilised in the last 3months.
• The premium segment is a new one for them and there be an investment into it for future growth.
• The majority of the consumer business comes from the value segment. The Indian Made India Liquor (IMIL) and medium liquor segment has done well in FY21. Some new products are expected to be launched in this segment in FY22.

Asset Multiplier Comments

• The company has a presence in 2 segments: Consumer business, marketing, and selling of IMIL and Indian-made Foreign Liquor (IMFL), and bulk manufacturing business of selling ethanol to OMCs and franchise bottling for brands.
• GLOBUSSPR is expected to be one of the beneficiaries of the changing ethanol policy, leading to a growth in revenues and margin expansion. The focus on the consumer segment by addition of new products and distribution network expansion is expected to aid margin expansion.

Consensus Estimate: (Source: NSE website)

• The closing price of GLOBUSSPR was ₹ 595/- as of 22-June-2021. The company reported an EPS of ₹ 48.9/- for FY21.
• The consensus earnings estimate and price target estimates are not available.

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