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GM Breweries surges 100% in 9 months; HDFC Securities recommends 'buy', expects further upside. Here's why

According to HDFC Securities, GM Breweries could report 19.1 percent, 26.1 percent and 12.1 percent CAGR in sales, operating profit and PAT, respectively, over FY21-FY23.

December 30, 2021 / 10:46 AM IST
GM Breweries

GM Breweries

 
 
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Shares of GM Breweries edged higher in the morning session on December 30. The stock has surged almost 100 percent in the last 9 months. The scrip was trading at Rs 820, up Rs 2.75, or 0.34 percent at 10:14 hours. It touched an intraday high of Rs 838.50 and an intraday low of Rs 816.25.

HDFC Securities expects further upside in the stock and has recommended "buy" with a target price of Rs 962 per share, an upside of 17 percent from the current market price.

"GM Breweries reported a solid set of numbers in Q2FY22 on the back of reopening of economy and easing of travel restrictions. While H1FY21 was a disaster for the liquor industry, the company did bounce back strongly in H1FY22 and we expect the momentum to continue in upcoming quarters," the brokerage firm said.

"In addition to the revenue momentum, we expect the company to maintain its margins for H2FY22 on stable input prices. This, along with superior balance sheet strength and inexpensive valuation, makes the stock a good case for opportunistic short term investing," it added.

According to HDFC Securities, GM Breweries could report 19.1 percent, 26.1 percent and 12.1 percent CAGR in sales, operating profit and PAT, respectively, over FY21-FY23. The profit growth could be slower due to exceptional investment income in FY21. EPS could rise from 43.8 to Rs.55.1 in the same period.

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It has advised investors to buy the stock in the Rs 811-821 band and add more on dips to Rs 718 for base case fair value of Rs 895 and bull case fair value of Rs 962 over the next two quarters.

"Though the business fundamentals and financial profile of the company have remained robust, questionable capital allocation policy (~ Rs 397 crore in properties and other financial assets as on March’21 which translates into ~27 percent of market cap and ~78 percent of net worth), lower dividend pay-out despite negligible capex requirements and concentrated core business (1-product, 1-region) make the long-term investment case look less clear at the moment," the brokerage said.

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The liquor industry right from the onset of the Covid-19 pandemic, took a heavy blow owing to the subsequent nationwide lockdown and social distancing norms, leaving an adverse effect on the manufacturers. The lockdowns that led to reverse migration of labour had severe impact on GMBL, given that blue-collar workers form the biggest proportion of its consumer base, HDFC Securites said.

"However, with the resumption of operations across industries in and around Mumbai, and opening up of bars and restaurants with easing restrictions have aided the volume recovery in Q2FY22. We expect this to flow into coming quarters as the economic activity traces back to pre-Covid levels," it added.







Moneycontrol News
first published: Dec 30, 2021 10:46 am
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