ICICI Direct's research report on Globus Spirits
Globus Spirits (GSL) reported strong results owing to continued improvement in margin profile, in spite of weaker operating leverage. Revenues fell mere 22% YoY to Rs 230 crore, compared to the liquor industry, in general (fell closer to 45-55% levels), mainly owing to stronger IMIL performance due to better state mix (Haryana performed well), higher bulk realisation (up 14%) and better-than-expected performance of newer product launches. EBITDA grew 46% YoY to Rs 39 crore mainly due to strong expansion in EBITDA margin (clocked highest ever EBITDA margin of 17.1% vs. 9.1% in Q1FY20, led by higher gross margins, lower fuel, freight & power cost). Subsequently, PAT grew 1.6x to Rs 19 crore.
We expect margins to be rangebound at 14-15% for FY21E, FY22E. Also, GSL is planning to lower debt, which should reduce interest cost and aid in improving profitability. Subsequently, FCF yield is expected to remain elevated. We maintain BUY rating on the stock with a target price of Rs 220, valuing the business at ~6x FY22E EPS.
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