Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MacVisit – Globus Spirits
Play on spirit industry volume growth
We met Globus Spirits’ management recently in Delhi. We believe it is a good
play on rural consumption due to its large exposure to country liquor (CL).
Globus' IMFL (India made foreign liquor) business is likely to be helped by
consumers’ up-trading from CL to IMFL. In addition, its bulk spirit and bottling
business is a play on IMFL industry volume growth, which we think should
remain strong due to rising income and favourable demography.
New capacities to drive growth; IMFL to expand margin
Globus is expanding its distillation capacity from 29m bulk litres (BL) to 70m BL,
and the expansion impact will start to be seen from the next quarter. Globus also
aims to increase IMFL sales to 1m and 2m cases in FY11E and FY12E from
0.3m cases in FY10. Expansion of the IMFL business is likely to be assisted by
its entry into three new states (currently present in eight states) by next year and
improving its distribution reach to 80% in the existing market.
Management is guiding sales growth of 30% and a 120bp expansion in EBITDA
margins in FY12E. Margin expansion is likely to be aided by higher IMFL sales
and premiumisation of its IMFL portfolio.
No threat to CL business; helped by stiff entry barriers
Globus sells CL in Delhi (20% market share), Haryana (17% share) and
Rajasthan (25% share). The CL business has a high entry barrier due to the
mandatory requirement of a distillation facility to sell CL in a particular state as
well as regulated pricing and sales quotas. Management also feels that there is
no threat to its CL business since it is a big contributor to state exchequers and
the growth of illicit liquor businesses in case of a ban is a sensitive issue.
Management feels that the CL business is likely to increase at a 10–11% CAGR
due to the increase in annual quota by the state government. The company also
expects to maintain its EBITDA margin of 16% in the CL business.
Bulk spirits and contract bottling assure volume growth
Post the capacity expansion to 70m BL, Globus will require 21m BL for its CL
business and 15m BL for its IMFL business. Globus is confident of being able to
sell the remaining volumes as bulk spirits. Globus has existing bulk spirits
contracts with large players like United Spirits and Allied Blenders & Distillers; it
also expects to benefit from ~15% IMFL growth and does not see over-capacity
risk in the distillery space.
Globus also has a bottling contract with Allied Blenders and Jagatjit Industries
and has renewed these contracts for three years. Globus expects sales of 2.7m
cases pa from bottling. Further, Globus expects to maintain its bulk spirits and
contract bottling margin of 11% and 5%, respectively.
Trading at 9x FY11E earnings; valuations attractive
Globus is currently trading at ~9x FY11E PER (Bloomberg consensus), which is
attractive given earnings growth visibility as the capacity increase starts trickling
in. The valuation discount to larger companies in the sector is justified due to a
difference in the size and strength of its brands. The company can also be a
potential acquisition target given its large manufacturing capacities.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MacVisit – Globus Spirits
Play on spirit industry volume growth
We met Globus Spirits’ management recently in Delhi. We believe it is a good
play on rural consumption due to its large exposure to country liquor (CL).
Globus' IMFL (India made foreign liquor) business is likely to be helped by
consumers’ up-trading from CL to IMFL. In addition, its bulk spirit and bottling
business is a play on IMFL industry volume growth, which we think should
remain strong due to rising income and favourable demography.
New capacities to drive growth; IMFL to expand margin
Globus is expanding its distillation capacity from 29m bulk litres (BL) to 70m BL,
and the expansion impact will start to be seen from the next quarter. Globus also
aims to increase IMFL sales to 1m and 2m cases in FY11E and FY12E from
0.3m cases in FY10. Expansion of the IMFL business is likely to be assisted by
its entry into three new states (currently present in eight states) by next year and
improving its distribution reach to 80% in the existing market.
Management is guiding sales growth of 30% and a 120bp expansion in EBITDA
margins in FY12E. Margin expansion is likely to be aided by higher IMFL sales
and premiumisation of its IMFL portfolio.
No threat to CL business; helped by stiff entry barriers
Globus sells CL in Delhi (20% market share), Haryana (17% share) and
Rajasthan (25% share). The CL business has a high entry barrier due to the
mandatory requirement of a distillation facility to sell CL in a particular state as
well as regulated pricing and sales quotas. Management also feels that there is
no threat to its CL business since it is a big contributor to state exchequers and
the growth of illicit liquor businesses in case of a ban is a sensitive issue.
Management feels that the CL business is likely to increase at a 10–11% CAGR
due to the increase in annual quota by the state government. The company also
expects to maintain its EBITDA margin of 16% in the CL business.
Bulk spirits and contract bottling assure volume growth
Post the capacity expansion to 70m BL, Globus will require 21m BL for its CL
business and 15m BL for its IMFL business. Globus is confident of being able to
sell the remaining volumes as bulk spirits. Globus has existing bulk spirits
contracts with large players like United Spirits and Allied Blenders & Distillers; it
also expects to benefit from ~15% IMFL growth and does not see over-capacity
risk in the distillery space.
Globus also has a bottling contract with Allied Blenders and Jagatjit Industries
and has renewed these contracts for three years. Globus expects sales of 2.7m
cases pa from bottling. Further, Globus expects to maintain its bulk spirits and
contract bottling margin of 11% and 5%, respectively.
Trading at 9x FY11E earnings; valuations attractive
Globus is currently trading at ~9x FY11E PER (Bloomberg consensus), which is
attractive given earnings growth visibility as the capacity increase starts trickling
in. The valuation discount to larger companies in the sector is justified due to a
difference in the size and strength of its brands. The company can also be a
potential acquisition target given its large manufacturing capacities.
No comments:
Post a Comment