Query: Lanco Infratech, Deccan Chronicle, SKF India, SRF, Thinksoft, Globus Spirits, Videocon, : Business Line : Business Line

Technicals: Lanco Infratech, Deccan Chronicle, SKF India, SRF, Thinksoft, Globus Spirits, Videocon, : Business Line

Globus Spirits Ltd. Initiating Coverage – BUY :Dugad

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Investment Rationale
Globus Spirits Ltd (GSL) is Delhi based diversified beverage alcohol
company with its presence in nine states and an only company in the
domestic markets with a unique 360 degree business model.
Capacity expansion to drive volume growth
GSL has completed the capacity expansion programme at its two state of
the art distilleries at Samalkha, Haryana & Behror, and Rajasthan from
28.6 mn BL to 70 mn BL. Further the merger of demerged undertaking of
ADL with the company adds another 14.4 mn BL of capacities. Thus the
total installed capacity of GSL currently stands at 84.4 mn BL. Bulk
alcohol & franchisee bottling are the direct beneficiaries post the capacity
expansion and increased volumes in the these two segments is expected
to drive growth for GSL.
Market leader in the IMIL space in North Indian markets of Haryana,
Delhi & Rajasthan
GSL has been able to sustain its leadership position in North India in the
IMIL space through its flagship brand “Nimboo” This has resulted in the
company’s market share increasing to 27% from 20% in Haryana. GSL has
a leadership position in the states of Delhi and Rajasthan with a decent
market share at 25% & 24% respectively.
New product launches and entry in new states on the cards
During FY13 GSL is all set to launch new products and make its
presence in newer states. It is planning to launch new products in the
IMFL semi premium brand segments for Whisky & Brandy. Also the
company is looking to make its entry in the 2-3 newer states in the
Eastern region. GSL has also bagged the license in the state of
Jharkhand.
Valuation
GSL is currently trading at 6.1x & 3.8x its FY12E & FY13E earnings of Rs
18.1 & 28.9 respectively. On P/B it is trading at 1.0x & 0.8x its FY12E &
FY13E book value which is very attractive. We recommend “Buy” on the
stock as it has got tremendous potential to scale up further heights from
the current levels.

Globus Spirits (GSL): Add / Buy on dips to the Rs. 93.5 – 107 band:: HDFC Securities

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In our Q2FY11 update dated November 26, 2011, (CMP Rs.100.55) we had recommended buying/adding the stock to dips of Rs. 87 for
a target of Rs. 120. The stock achieved our target of Rs. 120 on February 6, 2012 and made a high of Rs.129.40 on Feb 10, 2012. It is
currently trading at Rs. 121.00
GSL recently declared its Q3FY12 results and reported net sales of Rs. 152.6 cr. - up 38.0% Y-o-Y and up 15.6% Q-o-Q. The
Operating Profit for the quarter was Rs. 19.7 cr in Q3FY12 vis-à-vis Rs. 19.4 cr in Q3FY11 and Rs. 17.3 cr in Q2FY12. OPM for the
quarter was 12.8%, 450 bps down YoY and 10 bps down QoQ. The fall in OPM can be attributed to the 81.2% increase in “other
expenses” YoY and marginal increase in raw material expense QoQ. The Net Profit for the quarter was reported at Rs. 11.7 cr vis-à-vis
Rs. 11.4 cr in Q3FY11 and Rs. 9.7 cr in Q2FY12. Interest expense has risen largely due to capitalization of new capacity and an
increase in working capital loans due to higher sales volumes. Increase in depreciation costs YoY is due to capitalization of new
capacity since Q3FY11.

Macquarie Research:: Globus Spirits- Play on spirit industry volume growth

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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.

JM Financial: Globus Spirits Ltd: A walkthrough

Globus Spirits Ltd: A walkthrough
 360 degree presence, interesting opportunity: Globus Spirits (GBSL IN) is
predominantly a North India centric liquor company with a 360 degree
presence across the sector and is involved in: (a) manufacturing, marketing
and sale of liquor, and (b) dealing in country liquor, IMFL, industrial alcohol
and also does contract bottling for renowned Indian branded players. The
company’s business model appears interesting, given that: (a) Country liquor
in existing pockets is unlikely to lose relevance in the near-term, considering
the duty-led price gap between it and IMFL (details inside), (b) Globus is
looking at increasing its presence in the IMFL space; its existing network and
relationship in the industry will aid the initial transformation, in our view.
 FY06-10 revenue, EBITDA and adjusted profit CAGR of 32%, 44% and 42%:
Globus had raised `750mn through an IPO in Sep’09 (at `100/share). Its FY10
net sales, EBITDA and adjusted profit were `2650mn, `367mn and `211mn
respectively; revenue included 42%, 32%, 13% and 7% share from country
liquor, franchisee IMFL business, industrial alcohol and IMFL branded
business respectively. See inside for description of each business segment.
Globus’ management expects to clock a c.30% net sales growth in FY11 with
EBITDA margin at c.15% level. As per management, growth in the 30%-range
is achievable over the next 2-3 years, based on which the stock at current
market price appears to be trading at a forward PE of sub-10x.
 Growth drivers: Enhanced IMFL presence, capacity expansion: (a) Though
country liquor accounted for a sizeable chunk of Globus’ revenue (42% in
FY10), the company’s current focus is to enhance presence in the fastergrowing
higher-margin IMFL category. Globus recently launched ‘County Club’
in the regular whisky segment (Jul’10), targeted at the Northern markets
(Haryana, Rajasthan, Punjab, Himachal, UP) and is planning a brandy launch
(semi-premium category) in the Southern markets. The company is targeting
1mn cases of IMFL volume in FY11 (FY10: 0.26mn), (b) Globus is currently
also on the look-out for opportunities for registering with the Canteen Stores
Department (CSD), which is the nodal purchase agency for the Indian Army
and is the largest institutional buyer of alcoholic beverages in the country, (c)
Globus is currently expanding its alcohol manufacturing capacity (28.8mn BL
p.a. to 70mn - expected to be fully operational by Dec’10). Alongside higher
volumes, commissioning of the new capacity would also lead to substantial
savings in power costs and reduce wastage as it eliminates the intermittent
process of separately making rectified spirits and produces ENA directly.
 Country liquor unlikely to lose relevance in existing pockets: Country
liquor commands the largest volume share in the Indian alcohol segment and
accounts for the biggest chunk of revenue for Globus (42% in FY10). As per
management, higher IMFL growth notwithstanding, country liquor is unlikely
to lose significance, given the huge retail price differential between it and
IMFL. Significant part of the price differential is on account of a steeper
statutory levy on IMFL, implying that it is difficult for IMFL players to narrow
the price-gap. Typical country liquor consumers include agri-workers in rural
India, construction and industrial workers in towns/cities etc, and hence,
pricing plays a crucial role. Management is exploring opportunities for
geographic expansion to achieve a higher growth rate. However, given the
requirement of setting up manufacturing facilities in each state of operation,
funding tie-up for expansion would be critical.