Over the last one month, Globus Spirits shares have experienced consistent downward pressure, resulting in a significant drop in value by 25%. Further, from their 52-week high of ₹1,372 apiece, the shares have fallen by 30% and are currently trading at ₹928 apiece. This weak performance can largely be attributed to the company's underperformance in the June quarter as well as the disruption caused by the FCI's suspension of rice supplies for ethanol production.
Looking at the long-term performance, the shares have delivered an impressive return of 485% in last 3 years and 566% in last five years.
Globus Spirits is primarily engaged in the business of manufacturing and sale of Indian Made Indian Liquor (IMIL), Indian Made Foreign Liquor (IMFL), Bulk Alcohol, Hand Sanitizer and Franchise Bottling.
In Q1FY24, the company reported a revenue of ₹203 crore in the consumer segment. This marked a 5% YoY and a 14% QoQ increase. The volume experienced a 10% YoY decline but a 10% QoQ growth, totaling 3.56 million cases. The moderation in growth was on account of a slowdown in investment in Haryana.
However, price hikes in Rajasthan and an improving share of premium plus brands led to an improvement in realisation to ₹557 per case in Q1FY24 from ₹540 per case QoQ, said brokerage firm Nuvama Professional Clients Group.
In the manufacturing segment, revenue grew by 22% YoY and 1% QoQ, reaching ₹367 crore. This growth was driven by bulk alcohol sales, despite a planned shutdown of the West Bengal plant for a capacity expansion of 60 klpd.
Bulk alcohol volumes increased by 27% YoY to 49.77 million litres, with an average realisation of ₹60 per litre due to price hikes in ethanol and better extra-neutral alcohol (ENA) realisation, said the brokerage.
On the operating front, the EBITDA margin contracted by 118 basis points YoY and 101 basis points QoQ to 13% due to higher input costs and fixed expenses for the Indian Made Foreign Liquor (IMFL) segment. On the bottom line, the company's profit after tax increased by 4% YoY and 8% QoQ to ₹39 crore, coming in lower than the brokerage estimates of ₹50 crore.
In terms of capacity expansion, the management aims to nearly double the ethanol/ENA capacity to 1,344 klpd by FY25 from the current 765 klpd. Notably, they successfully increased the Jharkhand capacity to 140 klpd in Q2FY23 and added a 60 klpd capacity in West Bengal, anticipated to be operational in August.
Furthermore, an expansion of 79 klpd (60 klpd in Jharkhand and 19 klpd in Bihar) is set to be commissioned by the end of Q2FY24. Additionally, greenfield expansions of 200 klpd each in Odisha (starting construction in Q4FY24) and Uttar Pradesh (undergoing approval) are in the pipeline.
The Odisha facility will require a total capex of ₹160 crore, funded through ₹120 crore in debt and the remaining from internal accruals. This capacity enhancement opens up the consumer market to 100 million cases annually, the brokerage highlighted.
Looking ahead, Nuvama anticipates a subdued operating performance in Q2FY24 due to plant shutdowns in Jharkhand and West Bengal, as well as a lack of grains from FCI starting in July. Post Q2FY24, the positive impact of capacity augmentations, price increases in Rajasthan, and revenue from newer regions will become evident, it noted.
The EBITDA margin for FY24 may remain at 14%, but it will jump over 17% in FY25, bolstered by price hikes, shifts in the product mix and a correction in energy prices, the brokerage stated.
The brokerage maintained a ‘tactical buy’ with a revised price target of ₹1,146 apiece, based on 10x FY25E EPS.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
