GLOBUS SPIRITS LIMITEDGLOBUS SPIRITS LIMITED 6 Source - ResearchonIndia report, DSPL Research Alcohol Industry India is the 3rd largest liquor market in the world, with an overall

GLOBUS SPIRITS LIMITED

1


Globus Sprits Limited (GSL) is engaged in manufacturing, marketing and sale of

Indian Made Indian Liquor (IMIL), Indian Made Foreign Liquor (IMFL), Bulk Al-

cohol and contract bottling for established IMFL brands. The company has a

well-established presence in the IMIL segment and set to become Pan-India IMIL

leader with launch of distilleries in Bihar and West Bengal.

Rationale for Investment

Strong Presence in High Margin IMIL - The alcohol industry in India comprises

of Beer, Wine, Brandy, IMFL and IMIL/ Country Liquor (CL). IMIL segment con-

tributes maximum revenue to the turnover of GSL and contributed about 47% of

the total income in FY17 (~51% in FY16). GSL is number 1 private player and

number 4 private IMIL player in Rajasthan and Haryana, respectively as of

FY2018. GSL’s market share in Rajasthan increased from 30.9% in FY2017 to

32% in FY2018.

Strong Presence across the alcohol value chain - GSL has unique 360 degree

model straddling across the entire alcohol value chain. The company ensures

high quality maintenance with control on entire value chain. GSL derives reve-

nue from manufacturing and consumer centric business.

Healthy Capacity Utilisation & Volume Growth - GSL has successfully increased

operating capacity utilisation from 74% in FY2014 to 93% in FY2018 on the

back of its diversified 360 degree business model. We expect GSL’s bulk alco-

hol segment to attain ~94% & ~96% capacity utilisation in FY19 E & FY20 E

after the start of Bihar plant in mid-year of FY19. We estimate GSL’s to clock

revenues of around INR 987.9 cr and INR 1,112.1 cr in FY19 E and FY20 E,

respectively and EBITDA margin to improved by 20 bps to 7.9% & 30 bps to

8.0% in FY19 E & FY20 E respectively. We expect EBITDA to grow by 13.5%

CAGR during the FY 17 – 20E.

Outlook & Valuation

We believe GSL will grow at a faster pace with restart of Bihar facility. GSL also

enjoys strong brand value in Rajasthan & Haryana. Incremental revenue growth

with negligible capex, better cost management and margin focus, will lead to

better profitability and improve return ratios going forward. At CMP of INR

152.9, the company trades at P/E of 37.9x (FY19E) & 22.6x (FY 20E) EPS of

INR 4.0 (FY19E) & INR 6.8 (FY20E). Thus, we initiate a HOLD rating with target

price of INR 203, valuing the company at 30x FY20E earnings which gives an

upside of 10% from current levels.

Financials: (Standalone) (In INR Cr.)

RATING : HOLD Target : 203 Upside : 10% CMP : 184.2 (01/09/2018) Reuter Code : GLOS:NS Bloomberg Code : GBSL:IN

Sensex and Stock Movement

Dinesh Gupta

+91 22 30272867

[email protected]

Lohit Bharambe

+91 22 30272866

[email protected]

Market Data

Face Value (INR) 10

Equity Share Capital (INR cr.) 28.8

Share Outstanding (cr.) 2.9

Market Cap (INR cr.) 530.4

Book Value / share 131.7

Daily Avg. Volume 5,41,093

52 W High 199.9

52 W Low 70.0

Shareholding %

Promoter 54.2

Foreign 18.9

Institutions 0.1

Public & Others 26.9

Particular FY2016 FY2017 FY2018 FY2019E FY2020E

Net Sales 706.7 789.1 969.0 987.8 1,112.1

Op. EBDITA 69.9 56.2 69.4 72.6 82.3

PAT 12.5 9.0 7.0 11.6 19.5

EPS 4.4 3.1 2.5 4.0 6.8

PE 15.0 24.4 47.8 37.9 22.6

Source - Company, DSPL Research

mailto:[email protected]

mailto:[email protected]


2


Globus Sprits Limited (GSL) is engaged in manufacturing, marketing and sale of Indian Made Indian Liquor

(IMIL), Indian Made Foreign Liquor (IMFL), Bulk Alcohol and contract bottling for established IMFL brands. The

company has a well-established presence in the IMIL segment and set to become Pan-India IMIL leader with

launch of distilleries in Bihar and West Bengal.

GSL currently operates three modern and fully integrated distilleries at Behror, Rajasthan; Samalkha and Hisar,

Haryana. It is one of the largest and most efficient grain based distilleries in India with highest alcohol recovery

per unit of grain.

GSL mainly derives revenue largely from two business segments viz. Manufacturing and Consumer.

Company Overview

Globus Spirits

Manufacturing

Industrial/Bulk Alcohol

Brand Franchisee

Others (Spent Grain, CO2,

DDGS(Distillers Dried Grains with

Solubles)

Consumer

IMFL IMIL

Sale of Services –Bottling charges


3

GSL has the largest grain based Distilleries in India with five manufacturing facilities located at Haryana Organ-

ics, Haryana; Distillary Hisar, Haryana; Globus Spirits Ltd, Rajasthan; Dist. Vaishali, Bihar and Dist. Burdwan,

West Bengal. The company’s Haryana and Rajasthan plants uses latest distillation technology and zero discharge

plant and highest grain recovery in the industry.

The company has total installed manufacturing capacity of Industrial/bulk alcohol about 14.90 crore bulk litre

per annum as of FY2018. However, the company has current operating capacity of Industrial/bulk alcohol of

about 12.30 crore BL per annum as closure of Bihar’s facility of 2.6 crore BL per annum due to pending license

renewal by Bihar State excise department.

Apart from manufacturing facilities, the company has tie-up with IMFL and IMIL bottling partners. It has IMFL bot-

tling partners such as Himalayan Gold Beverages Pvt Ltd, Shimla; Malbros International Pvt Ltd, Punjab; Kapitan

Distillery Ltd, Hyderabad and SDF Industries Ltd, Kerala. GSL also have IMIL bottling partners such as HH Bot-

tling Plant, Sri Ganga Nagar, Rajasthan; Golden Bottling Plant, Alwar, Rajsthan; Vijeta Beverages Pvt Ltd, Jaipur,

Rajasthan and Shree Mahamaya Liquor, Udaipur, Rajasthan.

The company has distribution network spread across seven states namely Himachal Pradesh Punjab, Haryana,

Rajasthan, Telangana, Andhra Pradesh and Kerala.

Manufacturing Locations



4


Manufacturing Process

GSL’s process of manufacturing alcohol involves three fundamental ingredients namely grain, water and yeast. The

company manufactures core products such as bulk/industrial alcohol and IMIL/IMFL. Besides, it also manufactures by

products such as Spent Grain, DDGS and Carbon dioxide.

The Spent Grain that remains in the tank at the end of the Mashing process is collected in separate containers and

dried in a special process and sold as cattle feed. The company processes left over material from distillation process

through drying process called Distillers Dried Grains with Solubles (DDGS). Lastly, the Carbon dioxide generated is

purified & bottled and then sold to carbonated drinks manufacturers.


5


Brands

Source - Company, BSE, DSPL Research

Key Management

Name Designation

Ajay Kumar Swarup Managing Director

Shekhar Swarup Executive Director

Dr. Bhaskar Roy Executive Director & COO

Ruchika Bansal Director

Vijay Kumar Rekhi Executive Director

Sunil Chadha Non Executive & Independent Director

Ajay Kumar Goyal CFO

Santosh Kumar Pattanayak Company Secretary & Compliance Officer


6

Source - ResearchonIndia report, DSPL Research

Alcohol Industry

India is the 3rd largest liquor market in the world, with an overall market size of INR 2.5 trillion in 2016. A glob-

al study by Economic Cooperation and Development (OECD) has found that alcohol consumption in India has

risen by 55% over a period of 20 years, from 1992 to 2012. The consumption of alcohol in India is expected to

grow at a CAGR of 7.72% between FY2016 and FY2026, to reach a value of INR 5.3 trillion. Though India is

one of the largest consumers of alcohol in the world owing to its huge population, the per capita alcohol con-

sumption of India is very low as compared to the Western countries.

The states of Andhra Pradesh, Telangana, Kerala, Karnataka, Sikkim Haryana and Himachal Pradesh are

amongst the largest consumers of alcohol in India. With the minimum drinking age varying from 18 to 25 across

states, India had approximately 485 million people of legal drinking age in 2013. This is more than the popula-

tion of the United States and Mexico combined. Another 150 million are predicted to join this group by 2018.

Industry Overview

2.52.7 2.8

33.2

3.53.8

4.14.4

4.8

5.3

0

1

2

3

4

5

6

FY2016 FY2017E FY2018E FY2019E FY2020E FY2021E FY2022E FY2023E FY2024E FY2025E FY2026E

Alcoholic beverage market size in India in INR trillion

Structure of Alcohol Industry in India

Type of Industry Market Share Pricing Geographical

Consumption Population Target

IMFL 36% Affordable and

competitive Mostly South India Above 35

Country Liquor 48% Cheap prices Large in small

town & tribal belt Above 35

Beer 13% Expensive Urban cities 18-40 years

Imported Liquor 3% Luxury Metropolitan Cities Above 35

Source - Industry, DSPL Research

http://indianexpress.com/article/india/india-others/alcohol-consumption-rising-fast-in-india-oecd-report/


7

Alcoholic beverage market is broadly divided in three groups namely Spirits, Beer and Wine. Spirits segment has

the largest share of about 74%, Beer with 25% and Wine approximately 1% market share. Branded Country Liq-

uor and Indian Made Foreign Liquor (IMFL) contributes about 7% & 67%, respectively. In Beer segment, more

than 85% market is dominated by Strong Beer and remaining 15% by Mild Beer.

Source - Radico Khaitan July 2018 Investor Presentation, DSPL Research

Integrated Alcohol Manufacturing Process

Source - ResearchonIndia report, Som Distilleries Q4FY18 Investor Presentation, BMI Research, DSPL Research


8

Source - Crisil Report, DSPL Research

Alcohol Industry by Volume

The Indian alcohol industry in terms of consumption stood at approximately 900 million cases in FY2017. The

Indian alcohol industry is broadly segregated into three segments namely Beer, Distilled Spirits and Wine. Fa-

vourable demographics, higher disposable income and increase in social acceptance of alcohol is expected to

support the industry growth over the medium term.

1. Indian Made Foreign Liquor (IMFL)

The maximum permissible limit for alcohol content in spirits made under Indian Made Foreign Liquor (IMFL) seg-

ment is 42.8 per cent v/v (volume to volume). The Indian IMFL industry is estimated to have recorded sales of

~329 million cases in FY17. IMFL includes whisky, brandy, rum, gin and vodka. The domestic consumption of

IMFL is expected to grow at a CAGR of 4.5% up to 372 million cases during the period FY2018-FY2021.

225

254280

295 305319 326 329 326

372

0

50

100

150

200

250

300

350

400

FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017P FY2018P FY2021P

Domestic Comsumption of IMFL in mn cases



9

2. Indian Made Indian Liquor (IMIL)

The average alcohol content in Indian Made Indian Liquor (IMIL) or country liquor is 33% volume to volume. It is

produced in local licensed distilleries and is made of cheap raw material, primarily rectified spirits of grains or

molasses.

As per GSL estimate based on a combination of data from state excise departments and other necessary growth

assumptions; IMIL’s domestic consumption stood at approximately 240 mn cases in FY2017, with reduction of

9.1% due to prohibition of liquor in Bihar; on a like to like basis the growth would otherwise have been low sin-

gle digit (~2%.)

The growth in IMIL segment is expected to be driven by growing consumer base, rising rural incomes and con-

sumption, conversion from illicit/ toddy to IMIL with increasing awareness about health & quality, conducive reg-

ulatory policies and aided by growth in population.

Source - Company, Four-S-Research report, DSPL Research

184198

215229

245.00 249.06 264.00

240.00

0

50

100

150

200

250

300

FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017

Domestic Comsumption of IMIL in mn cases

Factors to cater growth for Alcohol Industry

Rise in disposable income

India’s disposable income boosted on the back of strong economic growth over the years. Increasing disposable

income enhanced the affordability of alcoholic spirits, especially for the middle class segment. This, in turn, has

driven up discretionary spending on items such as alcoholic beverages.

Increasing social acceptance

The percentage of alcohol drinking female population has increased from 0.4% in 2006 to 1.3% in 2011. Also,

the concept of women drinking alcohol is increasingly being considered socially acceptable, especially in cosmo-

politan cities. Such a shift in lifestyle is expected to drive consumption.


10


Favourable demographics

India’s population stood at 120.02 crore in 2011 and 5% of total population were drinking alcohol. Currently,

about 65% of the country's population is young, which is the key target market for alcohol. Going forward, the

percentage of population within this age group is expected to increase. Consequently, by 2019-20, more indi-

11.70 11.40

9.80

8.30 7.80 7.20

6.34 5.70

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

RussianFederation

UnitedKingdom

UnitedStates

Thailand Brazil China World India

Per capita alcohol consumption (2016)

(liters of pure alcohol, projected estimates, 15+ years of age)

Source - Worldbank, DSPL Research

Lower per capita consumption

Total per capita alcohol consumption in India is at 5.7 litres in 2016, which is considerably lower than the World

average 6.34 litres and among other major countries across the globe. India is one of the most under-

penetrated markets, indicating ample scope to grow further.


11

Indians spend on booze

India’s population spend on an average INR 20.3 per head on alcohol in a month. People from Arunachal Pra-

desh and Sikkim states spend more than INR 100 per head on alcohol. Meanwhile, Andhra Pradesh, Himachal

Pradesh, Kerala, Punjab, Tamil Nadu and Delhi people spend more than INR 50 per head on alcohol.

Source - Associated Alcohols Breweries AR2017, DSPL Research


12

Strong Presence in High Margin IMIL

GSL’s consumer focused segment is divided into IMIFL and IML. The company produces IMFL and IMIL through conver-

sion from industrial/ bulk alcohol which is produced in its well established backward integrated manufacturing facilities.

The alcohol industry in India comprises of Beer, Wine, Brandy, IMFL and IMIL/ Country Liquor (CL). IMIL segment con-

tributes maximum revenue to the turnover of GSL and contributed about 47% of the total income in FY17 (~51% in

FY16). GSL is number 1 private player and number 4 private IMIL player in Rajasthan and Haryana, respectively as of

FY2018. GSL’s market share in Rajasthan increased from 30.9% in FY2017 to 32% in FY2018.

GSL’s IMIL sales volume increased from 0.79 crore cases in FY2014 to 1.29 crore cases in FY2018. The company’s

IMIL segment sales volume stood at 1.29 crore cases in FY2018 against 1.18 crore cases in FY2017 with a growth of

9.3%. The company’s IMIL sales volume in Rajasthan increased by 20.5% to 0.97 crore cases in FY2018. Its Haryana

& Delhi sales volume witnessed 0.22 crore cases & 0.05 crore cases in FY2018 respectively. GSL’s newly commis-

sioned facility at West Bengal enable company to garner sales volume of 0.05 crore cases in FY2018.

Apart from IMIL segment, GSL also has a presence in the bulk alcohol segment which contributed around 26% of the

net sales in FY17 (25% in FY16). Though the margins from this segment are lower than the CL segment, it provides a

steady source of revenue for the company.

Source: State Excise departments, Company, *Delhi – FY2016, DSPL Research

Investment Rationale

Particulars IMIL Industry Sales

volume in crore cases (FY2017)

GSL IMIL Sales volume in crore cases (FY2017)

GSL Market share (%)

Rajasthan 2.61 0.81 30.9% Haryana 2.11 0.22 10.4% Delhi* NA 0.07 25.0% West Bengal 3.19 0.05 1.7%


13

Strong Presence across the alcohol value chain

GSL has unique 360 degree model straddling across the entire alcohol value chain. The company ensures high quality

maintenance with control on entire value chain. GSL derives revenue from manufacturing and consumer centric busi-

ness.

Manufacturing: The company earned 53% of net revenue from Manufacturing - Industrial/Bulk Alcohol, Franchise IMFL

Bottling, Others segment in FY2017.

Distillery - The company has large, efficient grain based distillery manufacturing operations in India with approximately

14.9 crore bulk litres of distillery capacity. It has backward integration enabled manufacturing facilities. In FY2017, GSL

utilised 45% of produced Industrial/Bulk alcohol for captive consumption and remaining 55% sold in open market.

Bottling - GSL has dedicated blending and bottling facility for India’s top IMFL companies namely United Spirits Ltd and

ABD India.

Others - GSL is well placed to benefit from the fuel Ethanol blending opportunity in India. The company has presence in

Distillers Dried Grains with Soluble (DDGS) – a high potential co-product used in animal feed.

Consumer - GSL has consumer business through IMFL and IMIL brands across the country. The company’s high utilisa-

tion and assured captive off-take from its distilleries provide growth to its consumer centric business. GSL earned 47%

net revenue from Consumer - IMFL, IMIL segment in FY2017.


Distillery

Bottling

IMIL

IMFL 360o model


14

Augmentation of new segment - Ethanol would be new source of revenue

The Central Government approved National Policy on Biofuels encourages the use of renewable energy resources as

alternative fuels. In a bid to renew its focus and implement the ethanol blending programme, the Central Government

recommended a 10% mandatory blending of ethanol with gasoline across all states for which 313 crore litre of ethanol

is required, according to industry body ISMA. Until now, ethanol produced from molasses and new generation feed-

stock was used for blending with fuel. Citing to cater demand recently, Government has allowed grain based ethanol

for blending with fuel.

According to latest OMCs tender for ethanol requirement from December 2018 to November 2019, bidding adminis-

tered price as INR 43.46 per litre for Ethanol derived from C Heavy Molasses and INR 47.13 per litre for Ethanol de-

rived from B Heavy Molasses, Sugar Cane Juice/Damaged Food Grains. There is total requirement of ~66 crore litre

ethanol derived from B Heavy Molasses, Sugar Cane Juice/Damaged Food Grains and ~263 crore litre ethanol de-

rived from B Heavy Molasses. The premium pricing for ethanol derived from Food Grains over B Heavy Molasses would

benefit company like GSL.

Being the largest grain based distillery in India, GSL will have an advantage and start generating revenue from ethanol

blending programme in the country. The company has capex plan for ethanol compliant manufacturing facilities with

INR 8-10 crore in FY2019. GSL is aiming to have improved EBITDA margins after company getting revenue from new

segment - blending of ethanol with fuel on the back of attractive pricing. The company is eager to take part in bidding

process for required ethanol from Oil marketing companies going forward.


15

Financials

Healthy Capacity Utilisation & Volume Growth

GSL has the largest grain based Distilleries in India with capacity of approximately 14.90 crore BL per annum. GSL has

ramp up installed capacity from 9 crore BL per annum in FY2016 to 14.9 crore BL in FY2017 by expanding capacity by

2.6 crore BL per annum at Dist. Vaishali, Bihar and 3.3 crore BL per annum at Dist. Burdwan, West Bengal in FY2017.

GSL has successfully increased operating capacity utilisation from 74% in FY2014 to 93% in FY2018 on the back of its

diversified 360 degree business model.


We expect GSL’s bulk alcohol segment to attain ~94% & ~96% capacity utilisation in FY19 E & FY20 E after the start

of Bihar plant in Q3 of FY19.

GSL’s Industrial/Bulk alcohol manufacturing sales volume increased from 3.8 crore BL in FY2014 to 7.4 crore BL in

FY2018 on the back of augmenting company’s operating capacity and capacity utilisation over the years. The compa-

ny’s Franchise IMFL sales volume also increased from 0.24 crore cases in FY2014 to 0.34 crore cases in FY2018.



16

GSL’s net sales grew by 14.4% (5 year CAGR) during FY2014-FY2018 whereas IMIL over the same period grew by

7.5% (5 year CAGR). The company’s net sales increased by 22.8% to INR 969.0 crore in FY2018 on the back of

strong growth from Manufacturing segment.

GSL’s segment wise net sales mix stood as 53% & 47% from Manufacturing & Consumer segment in FY2017, respec-

tively. The company’s Manufacturing segment net sales rose by 20.8% to INR 418.2 crore in FY2017 on the back of

better realisation during the year. Its Manufacturing segment net sales increased by 23.5% CAGR in period of FY2013-

FY2017. The company’s Consumer segment net sales increased by 2.9% to INR 370.9 crore in FY2017 on the back

of better realisation during the year. Its Consumer segment net sales increased by 5.8% CAGR in period of FY2013-

FY2017.

GSL’s EBIDTA increased by 23.5% to INR 74.9 crore in FY2018, meanwhile the company’s EBITDA margin remained

stable at 7.7% in FY2018 as compared to previous fiscal year. The company’s PAT declined by 22.1% to INR 7.0 crore

in FY2018. Its PAT margin contracted by 40 basis points to 0.7% due to rise in finance cost from 7% to 11.2% in

FY2018. GSL’s profitability remained under pressure due to non-utilisation of Bihar facility from the start of FY2017.

Recently, Bihar government has permitted manufacturing of Extra Neutral Alcohol (ENA) in the state post orders of the

state High Court. Positive development for Bihar manufacturing capacity, implying that the company can now recom-

mence plant and export ENA to neighbouring states. It is expecting to recommence Bihar plant by mid FY2019. We ex-

pect GSL’s bulk alcohol segment to attain ~94% & ~96% capacity utilisation in FY19 E & FY20 E after the start of Bi-

har plant in mid-year of FY19. Thus, with utilisation levels expected to remain above 90%, we estimate GSL’s to clock

revenues of around INR 987.9 cr and INR 1,112.1 cr in FY19 E and FY20 E, respectively and EBITDA margin to im-

proved by 20 bps to 7.9% & 30 bps to 8.0% in FY19 E & FY20 E. We expect EBITDA to grow by 13.5% CAGR during

the FY 17 – 20E.



17


For FY19E and FY20E, we expect a gradual increase in net profit margin to around 1.2% and 1.7% respectively. In ab-

solute terms, we estimate net profit of around INR 11.6 cr and INR 19.5 cr in FY19E and FY20E, respectively.

GSL has successfully controlled its debt to equity ratio over the years; which stood at 0.6x in FY2018. The company’s

long term debt stood at INR 143.5 crore in FY2018 and it has planned schedule for repayment. Its total debt will re-

duce by INR 35 crore and INR 27.5 crore in FY2019 E & FY2020 E respectively.



18

Going forward, we expect GSL to generate healthy free cash flow i.e. average ~ INR 41 crore in FY 2019E & FY

2020E due to operating efficiency.

Particulars in INR crore FY2017 FY2018E FY2019E FY2020E

Net Cash from Operating Activities 101.7 42.4 77.3 75.9

Less - Capex -110.2 -8.7 -10.0 -20.0

Less - Interest Cost -17.5 -27.1 -22.5 -19.2

Free Cash Flow -26.0 6.6 44.8 36.7

Free Cash Flow Yield (%) -11.8% 1.9% 10.2% 8.3%


Q1 FY2019 Result Update

Globus Spirits Limited’s (GSL) net sales stood at INR 231.51 crore in Q1FY2019, in-line as compared to Q1FY18

due to improved realisations in key states despite marginal decrease in volume. The company’s IMIL price hike in

Rajasthan led to increase in IMIL realisation in the state by 9% YoY in Q1FY2019.

The company’s EBITDA boosted by 49.39% YoY to INR 27.16 crore in Q1FY2019. Its EBITDA margin expanded by

391 basis points to 11.73% on YoY basis in Q1FY2019 on the back of company’s operating efficiency. GSL’s op-

erating Expenses as a % of net sales contracted by 603 basis points to 58.86% in Q1FY2019.

GSL’s PAT increased more than 4 times to INR 7.54 crore in Q1FY2019 as compared to same period in last fiscal

year. The company’s PAT margin expanded by 258 basis points to 3.26% on YoY basis in Q1FY2019.

GSL has excluded Brand Franchisee segment from its statement of Profit & Loss due to change in revenue recogni-

tion under Indian accounting standards 115 – ‘revenue from contracts with customers’, effective from

Q1FY2019. There is no impact on company’s total equity and profit.

Key updates

GSL retained number 1 position in IMIL category with market share of 30% in the state of Rajasthan.

The company has also retained number 4 position in IMIL category with market share of 9% in the state of

Haryana.

GSL’s wholly owned subsidiary Unibev has launched premium and super premium whiskeys in Karnataka in

June 2018. The company’s Oakton, Governor’s Reserve and L’affaire Brandy have received phenomenal

response from trade and consumer.

Government had earlier approved grain based ethanol for fuel blending which was until now restricted only

to molasses and new generation feedstock.


19



20

Key Risks

Heavy tax on alcohol industry

Change in state policy

Government regulation

Outlook & Valuation

India is the third largest liquor market but also one of the lowest per capita consumption of liquor among most of

the nations across globe, there is a scope to grow consumption of liquor. With economic activity picking up, up-

coming state and national elections and normal monsoon, we expect the overall demand scenario to remain very

healthy going forward.

Indian Made Indian Liquor (IMIL) is an attractive consumer play into India’s large and growing bottom of pyramid

consumers. GSL is the prominent player in liquor industry with backward integrated 360 degree business model.

The company has an advantage as it sells each and every product produced from the process of alcohol manu-

facturing such as bulk alcohol, IMIL, IMFL, Spent Grain, DDGS and CO2. GSL has a huge presence in north

India for IMIL and IMFL. It is especially known to be an undisputed leader in the IMIL or country liquor section in

this region. A large part of its revenue comes from the sale of country liquor as it does not face much competition

in the market. GSL is no.1 private player in Rajasthan IMIL with 30% market share & no.4 player in Haryana with

9% market share. The company has already commissioned West Bengal facility and stabilizing operations at the

facility. It has strategically located where severe alcohol deficit exist. Further GSL has planned to restart Bihar fa-

cility by Q3 of FY2019.

We believe GSL will grow at a faster pace with restart of Bihar facility. GSL also enjoys strong brand value in Ra-

jasthan & Haryana. Incremental revenue growth with negligible capex, better cost management and margin fo-

cus, will lead to better profitability and improve return ratios going forward. At CMP of INR 152.9, the company

trades at P/E of 37.9x (FY19E) & 22.6x (FY 20E) EPS of INR 4.0 (FY19E) & INR 6.8 (FY20E). Thus, we initiate a

HOLD rating with target price of INR 203, valuing the company at 30x FY20E earnings which gives an upside of

10% from current levels.


21

Financials – Standalone (in INR Cr.)

Source - DSPL Research

Ratios Analys is FY2018 FY2019E FY2020E

Per Share Value

EPS (Rs) 2.5 4.0 6.8

BVPS (Rs) 131.7 135.8 142.5

DPS (Rs) - - -

Turnover Ratio

Inventory Days 27 27 25

Debtors Days 16 19 19

Creditors Days 38 38 38

Cash Conversion Cycle 5 8 7

Asset Turnover Ratio 1.2 1.3 1.4

Pro fi tabi l i y Ratio

EBITDA Margin 7.7% 7.9% 8.0%

PAT margin 0.7% 1.2% 1.7%

ROA 0.9% 1.5% 2.5%

ROE 1.9% 3.0% 4.7%

ROCE 5.4% 5.6% 6.5%

Solvency Ratio

Debt / Equity Ratio 0.6 0.5 0.4

Current Ratio 0.6 0.6 0.6

Quick Ratio 0.3 0.3 0.3

Interest Coverage Ratio 2.8 3.5 4.6

Valuation Ratios

PE (x) 47.8 45.7 27.3

P/B (x) 0.9 1.4 1.3

EV/EBITDA (x) 7.4 9.0 7.5

Mcap/Sales (x) 0.3 0.5 0.5

Earning Yield (%) 2.1% 2.2% 3.7%

Dividend Yield (%) 0.0% 0.0% 0.0%

Free Cash Flow Yield (%) 1.9% 8.4% 6.9%

Cashflow Statement FY2018E FY2019E FY2020E

PBT 11.5 19.1 32.0

Depreciation & Amortization 36.2 36.6 37.4

Finance Cost 27.14 22.47 19.17

Others (0.4) - -

(Incr)/Decr in Working Capital (27.6) 6.6 (0.2)

Tax Paid (4.5) (7.5) (12.5)

Cash Flow from Operating 42.4 77.3 75.9

(Incr)/ Decr in Gross PP&E (8.7) (10.0) (20.0)

Others - - -

Cash Flow from Inves ting (8.7) (10.0) (20.0)

Proceeds from issue of Shares & Warrants - - -

(Decr)/Incr in Debt (27.0) (34.8) (27.5)

Interest Paid (27.1) (22.5) (19.2)

Others - - -

Dividend Paid - - -

Cash Flow from Financing (54.1) (57.3) (46.7)

Incr/(Decr) in Balance Sheet Cash (20.4) 9.9 9.2

Cash and cash equivalents at the Star t o f the Year 22.8 2.4 12.3

Other Bank Balances

Cash and cash equivalents at the End of the Year 2.4 12.3 21.6

Balance Sheet FY2018 FY2019E FY2020E

Share Capital 28.8 28.8 28.8

Reserves and Surplus 350.6 362.2 381.6

Shareholders Fund 379.4 391.0 410.4

Minority Interest - - -

Total Loan 222.1 187.2 159.7

Deferred Tax Liailities 25.9 25.9 25.9

To tal Liabi l i t ies 627.3 604.1 596.0

Net Fixed Assets 609.0 582.4 565.0

Deferred Tax Assets 3.19 3.19 3.19

Goodwill - - -

Inves tments 4.9 4.9 4.9

Sundry Debtors 48.4 54.1 60.9

Cash & Bank 2.4 12.3 21.6

Loans & Advances 9.4 9.6 10.8

Inventories 73.0 73.1 82.3

Other Current Assets 36.5 37.2 41.9

To tal Current Assets 169.6 186.3 217.4

Sundry Creditors 96.2 108.3 121.9

Provision 3.2 3.2 3.7

Other Current Liabilities 60.1 61.3 69.0

To tal Current l iabi l i t ies & Provis ion 159.5 172.8 194.5

Net Assets 10.1 13.5 22.9

To tal Assets 627.3 604.1 596.0

Pro fi t & Loss Statement FY2018 FY2019E FY2020E

Net Sales 969.0 987.8 1,112.1

To tal Revenue 969.0 987.8 1,112.1

Raw Material Cost 564.3 577.9 650.6

Gross Pro fi t 404.7 410.0 461.5

Employee Cost 22.8 23.2 27.8

Other Manufacturing Cost 312.5 314.1 351.4

Operating EB ITDA 69.4 72.6 82.3

Op. EBITDA Margin (%) 7.2% 7.3% 7.4%

Other Income 5.5 5.6 6.3

Deperication 36.2 36.6 37.4

EB IT 38.7 41.6 51.1

EBIT Margin 4.0% 4.2% 4.6%

Finance Cost 27.1 22.5 19.2

Exceptional Item - - -

PBT 11.5 19.1 32.0

Tax 4.5 7.5 12.5

Share of minority & Associate - - -

PAT 7.0 11.6 19.5

Share O/S (in cr) 2.9 2.9 2.9

Basic EPS (INR) 2.5 4.0 6.8

Diluted EPS (INR) 2.5 4.0 6.8

Cash EPS (INR) 15.0 16.7 19.8

DISCLOSURE

22

We/I, Dineshkumar Gupta, B.com, M.Sc, Lohit Bharambe, B.E., PGPM, as author / the name subscribed to this report, hereby certify that all of the views expressed in

this research report reflect my / our personal views about the subject or securities and no part of my / our compensation was / is, or will be directly or indirectly related

to the specific recommendation(s) or view(s) in this report.. We / I or my / our relative(s) or Research Entity does not have any financial interest in the subject company

other than disclosed.

Business activity of the research entity Stock Broker, Merchant Banker, Depository Participant, Mutual Fund Distribu-

tor

Disciplinary history of the research entity Nil

Terms & Conditions for offering Research Report by research entity On principal, we do not sell our research reports. The Research Report should be kept confidential. The Research Report is published with honesty and in good faith. The Research Report is prepared after thorough analysis of the Stock Market. Research analyst or research entity shall effectively address conflict of interest which may affect the impartiality of its research analysis and research report and shall make appropriate disclosures to address the same. Research analyst or research entity or any employees will not engage in insider trading or front running or front running of its own research report. Research analyst or research entity shall comply with all regulatory requirements applicable to the conduct of its business activities. Research analyst or research entity or its employees engaged in research analysis shall observe high professional standard while preparing research report.

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Dalmia Investmart

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DISCLOSURE OF INTEREST: Whether the research analyst or his relative or research entity or his associate has any financial interest in the subject

company and the nature of such financial interest. □ Yes √ No

Whether the research analyst or research entity or its associates or relatives, have actual / beneficial ownership of one per

cent or more securities of the subject company, at the end of the month immediately preceding the date of publication of

the research report;

□ Yes √ No

Whether the research analyst or research entity or its associates have received any compensation from the subject compa-

ny in the past twelve months; □ Yes √ No

Whether the research analyst or research entity or its associates have managed or co-managed public offering of securi-

ties for the subject company in the past twelve months; □ Yes √ No

Whether the research analyst or research entity or its associates have received any compensation for investment banking

or merchant banking or brokerage services from the subject company in the past twelve months; □ Yes √ No

Whether the research analyst or research entity or its associates have received any compensation for products or services

other than investment banking or merchant banking or brokerage services from the subject company in the past twelve

months;

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Whether the research analyst or research entity or its associates have received any compensation or other benefits from

the subject company or third party in connection with the research report; □ Yes √ No

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Whether the research analyst or research entity has been engaged in market making activity for the subject company. □ Yes √ No

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The definition of the terms used in making recommendations are available at http://www.dalmiasec.com/Pdf/Abbreviation.pdf. These terms have been consistently used throughout the Re-

search Reports contained herein.

Trading Rating Expected return (less than1 year)

Buy > 5%

Hold > -5% to 5%

Sell < - 5%

Investment

Rating Expected return (Over 1 year)

Buy > 15%

Hold > -10% to 15%

Sell < -10%

Not Rated We have forward looking estimates for the stock but we refrain

from assigning recommendation

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DISCLAIMER

DISCLAIMER

This report has been prepared by M/s Dalmia Securities Pvt. Ltd. (hereinafter referred as DSPL, SEBI Registered Research Analyst) and is

meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at,

based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified

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23

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GLOBUS SPIRITS LIMITEDGLOBUS SPIRITS LIMITED 6 Source - ResearchonIndia report, DSPL Research Alcohol Industry India is the 3rd largest liquor market in the world, with an overall