Monday, December 21, 2009


Company Description:
Incorporated in 1993, Globus Spirits (GSL) is the leading player in the Alcohol industry in North India. It is engaged in the business of manufacture, marketing and sale of Industrial alcohol comprising Rectified Spirit and Extra-Neutral Alcohol, Country Liquor (CL), and Indian Made Foreign Liquor (IMFL). The company has two distilleries; Alwar in Rajasthan and Panipat in Haryana. In January 2009, the company expanded its IMFL range in the state of Rajasthan by launching two new products, namely Hannibal Legendary Rum and 20-20 Premium Whisky.

GSL owns two modern distilleries which are situated at:- Behror, District Alwar, Rajasthan: The production facility is built on an area spread over 18 acres of land. The unit has its own captive supply of water and power.

Samalkha, District Panipat, Haryana:-The production facility is built on an area spread over 16.6 acres of land. This unit too has its own captive supply of water and power. At present both the units are capable of manufacturing alcohol from both molasses and grain.

The total installed capacity of each of the units is 144 lakh Bulk Litres (BL) per annum. The distilleries have modern bottling facilities equipped with bottling machines, which caters to its own production of CL and IMFL brands. GSL has tieups and separate arrangements for bottling IMFL products for other brand owners.

Investment Rationale:

GSL’s units are strategically located near the raw material sources. The plant also has technological flexibility to use both grain and molasses as raw material, insulating from dependence on any specific raw material.

The Company has a brand portfolio of its own in the country liquor segment, such as Rana, Rajasthan No 1, Ghoomar, Samalkha No 1, Samalkha ki Saunfi; and in IMFL segment, such as White Lace Gin, White Lace Vodka, Samurai Gold Extra Rich Blend Whisky, Samurai Premium Whisky, 20-20 Premium Whisky, GR 8 Times Whisky and Hannibal Legendry Rum. It also caters to the Indian brands in the IMFL segment, such as Officer's Choice Prestige Whisky, Officer's Choice Classic Whisky, Officer's Choice No 1 Brandy and Officer's Choice XXX Rum.

GSL has launched its own IMFL brands in Haryana, Rajasthan, Chandigarh, Uttar Pradesh, Andhra Pradesh, Kerala and Karnataka. It proposes to launch the brands in two states and Union territory in north India and one state and Union territory in south India. The company has a well established position in domestic CL segment with significant market share (22%, 17% and 20% share in Rajasthan, Haryana and Delhi respectively) and has made its presence in IMFL segment by taking up contract bottling to cater to the renowned Indian players.

GSL is implementing projects comprising expansion cum modernisation of (capacity increase from 288 lakh BL to 498 lakh BL per annum), setting up of new CPP (captive power plant), revamping IMFL bottling section and brand launching for IMFL, at an aggregate project cost of Rs 89.3 crore with the project debt equity ratio being 0.16 : 1, which was met by IPO proceeds of Rs 75 crore in September 2009 and a term loan of Rs 12 crore from SBI. GSL’s new projects are expected to be completed by March 2010.

India is emerging as the largest global market for whisky with 60% share, registering sales of more than 60 million cases per annum. Other spirits (Brown – Brandy/Rum; White–Gin, Vodka, and Rum) constitute the rest 40% of IMFL market. White spirits, although currently placed at only 5% of the market are growing at a much faster pace of 40% p.a. as against 10% p.a. growth of the overall IMFL market.

The demand for alcoholic beverages has been growing at a steady pace of approximately 10% p.a. and is expected to continue to grow at this rate in the future. Supply is expected to match the demand over the medium term. The overall profitability of the industry would continue to be subject to the prices of molasses and the extent of competition besides the duties levied by State Governments. GSL is in the process of acquiring Canteen Stores Department (CSD) registered brand for Rs 3 crore as it intends supplying to the Defence Services. Thus, the brand will have the requisite presence in the CSD market as well. GSL plans to simultaneously make its presence felt in the civil market too.

At the CMP of Rs 93, the share is trading at a P/E of 7.6x on FY10E and 5.6x on FY11E. We recommend BUY with a target price of Rs 120.

To read the full report: GSL