Buy GM Breweries; target of Rs 975: KRChoksey

KRChoksey's research report on GM BreweriesGM Breweries Ltd. reported strong Q4FY16 results with Net revenue of INR 917 Mn, growth of 17.72% YoY basis which is below our estimates of INR 935 Mn. The EBITDA stood at INR 225.3 Mn with margin increased to 24.6% from 15.9% YoY which is slightly lower than our estimates of INR 247 Mn, an increase of 865bps YoY. The PAT remained at INR 174.2 Mn with margins at 15.3% in Q4FY16 as against 7.3% YoY, an increase of 799bps YoY.We believe the shift from illicit to branded players provides huge opportunity to grow. The industry has strong entry barriers in the form of licensing and ban on advertisement, in which GMBL enjoys strong brand value in Maharashtra leading to customer loyalty supported by strong distribution network. The incremental revenue with negligible capex, better cost management and margin focus, will lead to better profitability and improve return ratios going forward. We remain positive on GMBL’s business scalability and strong financial health. We have reduced our margins for FY17E on the basis of hike in packaging cost due to change in regulations and higher input prices. At CMP of INR 975, the company trades at P/E of 17.6x its FY17E EPS of INR 55.41. We are downgrading the stock from BUY to ACCUMULATE with a target price of INR 1,108. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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