Monday, July 9, 2012

Globus Spirits - Buy

Globus Spirits - Buy .
Cmp /LTP 117 +20%
Market Cap 271 crores.

BUY -Target 200 in 1 to 2 years.  i.e 2x upside
Today -High  volumes traded of 9 lacs today at BSE ( 36x the two weeks avg. volume) on block deal - Franklin Templeton has sold and I suspect existing DII  IDFC Premier Equity Fund -already holding 8% has bought this stake) . Shareholding pattern as on March 2012 here

Just a quick and brief update.

This stock has been on my buy watchlist for at least past 1 year. And I believe time has come to enter.
Gone through my checklist. All looks `Green` i.e ok to go for investing.
Will come up with detailed post later.
  • Domestic Consumption play. 
  • Business - IMIL, IMFL , country `affordable` liquor
  • On FY12 - Sales 557 crores, EBITDA 75 crores, Net Income of 40 crores. 
  • FY12 Debt at 110 crores  ( Long term debt 60 crores -up 3x YoY) for capex. that will lead to 50% growth in expansion. No big capex seen in FY13.
  • FY12 EBITDA Margin fell to 13.5% from 17%. Link here
  • PE 7x, PSR of 0.5x,EV/ EBITDA of 5x with ROCE / RoE of  ~20%
  • From Sep` 2009 IPO price of 100 , doubled to reach all time high of 191 in July 2010. ( had raised ~70 crores in the IPO)
  • Stock has fallen back to Sep`2009 IPO price of 100. ( intraday low of 88 on 1-Jun-2012 , close to low of post IPO of 75 in Oct`09 i.e double bottom)
  • Annual report is not yet out so cant see cash flows /CFO but based on B/Sheet and past CFO`s , seems will to be fine. 
  • From Management Conference Call ( Q4 FY12 , held on 29 May 2012)
  • Management has guided for 20% growth in revenue & EBITDA Margin growth to 15% from 13.5%.
  • Recently tied up bottling agreements with UB United Breweries / United SpiritsUS ( in addition to existing ABL & Jagajit)
  • No big capex seen in FY13. Expects debt to reduce by 15-20 crores next year FY13.
  • New IMIL brands launched in June 2011 in Haryana - ` Nimboo` doing very well.It is now market leader in Haryana
  • Half of new capacity will be online in FY12 . Incremental revenue addition due to increased capacity will be ~150 crores.
  • Technicals - good Contra buy also as stock has already corrected (54%) to near lifetime low. So good entry timing now.After today's +20% upper circuit , Globus Spirits is above both 50 and 200 DMA`s. 140 -150 should be next resistance area and I think only good Q1 FY13 results would help breaking above this resistance. Still I think that 110-130 zone is also good zone to initiative some positions. Interactive chart here
  • Risk factors- needs to post better results in FY13 for re-rating trigger / gain momentum and needs to reduce debt. Not sure where the 70 crores funds raised via IPO has gone.Would need to assess this factor in greater detail..Margins expansion could remained strained by (1) Raw material inflatin - molasses / grain (2) India states increasing excise taxes
  • Valuation wise IFB Agro is much much cheaper by at least 40% as compared to Globus Spirits and even debt free. I already hold IFB Agro. I plan to buy more IFB Agro & also initiate a new position in Globus Spirits.

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