Buy Globus Spirits; target of Rs 180: Sunidhi Securities

“Incorporated in 1993, GSL is one of the leading players in the Alcohol industry in North India. It is engaged in the manufacture, marketing and sale of Industrial Alcohol comprising Rectified Spirit and Extra-Neutral Alcohol (ENA), Country Liquor (CL) and Indian Made Foreign Liquor (IMFL). GSL has two distilleries, one at Alwar in Rajasthan and the other at Panipat in Haryana. GSL tapped the market with an IPO of 75 lakh shares in September 2009 priced at Rs100 aggregating Rs75 crore for part funding the expansion and modernization costing Rs89 crore. The distilleries have modern bottling facilities, which cater to its own production of CL and IMFL brands.”

“GSL has launched its own IMFL brands in Haryana, Rajasthan, Chandigarh, Uttar Pradesh, Andhra Pradesh, Kerala and Karnataka. It proposes to launch the brands in two states and Union territory in north India and Union territory in south India. It has entered the Delhi market with Hannibal Rum and Goldee whisky. GSL has a brand portfolio of their own in the country liquor segment such as Rana, Rajasthan No 1, Ghoomar, Samalkha No 1, Samalkha ki Saunfi and in IMFL segment, such as White Lace Gin, White Lace Vodka, Samurai Gold Extra Rich Blend Whisky, Samurai Premium Whisky, 20-20 Premium Whisky, GR 8 Times Whisky and Hannibal Legendry Rum. It also caters to the Indian brands in the IMFL segment, such as Officer's Choice Prestige Whisky, Officer's Choice Classic Whisky, Officer's Choice No 1 Brandy and Officer's Choice XXX Rum. GSL wants to reach 25% of its revenues from its own brands over the next two years. The capacity expansion to enhance existing capacity to 70 million BL from 28.6 million has been completed and the impact of which will be felt from FY12 onwards. This is expected to drive up the volumes in the bulk alcohol & franchise IMFL businesses significantly. The new plants are technologically superior and would allow manufacturing ENA directly without going through the process of manufacturing rectified spirits resulting in greater operational efficiency. It will drive economies of scale, leading to lower production costs.”

“Overall, with various initiatives in hand while increasing its reach to other parts of the country, we believe, the GSL is well poised to report a sustained performance going forward.  At the CMP of Rs136, the share is trading at a P/E of 6.3x on FY12E. We recommend BUY with a target of Rs180 in the medium-to-long term,” says Sunidhi Securities research report.  

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