A small-cap Stock in the breweries and distilleries sector saw a significant drop in the past three months, after it reached its all-time high of ₹ 1326.25 apiece on July 05, 2023, on the Bombay Stock Exchange (BSE). The stock has witnessed selling pressure and has fallen by 32 percent from its all-time high to trade at ₹ 902.00 apiece. 

Experts believe that this can 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. 

However, the stock Delivered Multibagger Returns of 265 percent in the past three years, as its share price increased from ₹ 247.15 apiece to ₹ 902.00. Moreover, it delivered multibagger returns of 391 percent in a span of 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. 

The company reported a revenue of ₹ 750.98 crore in the June quarter of 2023, up 9.96 percent compared to ₹ 682.95 crores reported in the corresponding quarter of the previous year. Its profit came in at ₹ 38.78 crores in the latest quarter, up 4.05 percent compared to ₹ 37.27 crores reported in the same quarter a year earlier. 

The alcoholic beverages manufacturer reported revenue of ₹ 203 crores in the consumer segment, for the June quarter, marking a 5 percent YoY (year-on-year) and a 14 percent QoQ (quarter-on-quarter) increase. The volume declined by 10 percent YoY but increased by 10 percent QoQ. 

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, believes brokerage firm Nuvama. 

It added that bulk alcohol volumes increased by 27 percent 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. 

In terms of capacity expansion, the company’s management aims to nearly double the ethanol/ENA capacity to 1,344 klpd by FY25 from the current 765 klpd. Notably, they have successfully increased the Jharkhand capacity to 140 klpd in Q2FY23 and added a 60 klpd capacity in West Bengal. Expansions in Jharkhand, Bihar, Odisha and Uttar Pradesh are in the pipeline.

Nuvama anticipates a subdued operating performance in Q2FY24 (September quarter) 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 said. 

The brokerage has maintained a ‘tactical buy’ rating on the stock with a target price of ₹ 1146 apiece, translating to an upside of 27 percent as compared to its share price of ₹ 902.00. 

With a market capitalization of ₹ 3,585 crores, Globus Spirits is a small-cap company. It has a high return on equity of 30.24 percent and an ideal debt-to-equity ratio of 0.24. Its shares were trading at a price-to-earnings ratio (P/E) of 20.17, which is significantly lower than the 

industry P/E of 64.80, indicating that the stock might be undervalued as compared to its peers. 

The company’s promoters hold a 51.01 percent stake in it, followed by retail investors with 39.89 percent, foreign institutions with 4.76 percent and mutual funds with 4.34 percent. 

Written by Simran Bafna 

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