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Buy This Liquor Stock With A 32% Upside, Says ICICI Direct

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With a capacity of 160 million litres, Globus Spirits (GSL) is India's largest grain-based ENA producer. In India, the company also sells Indian-produced Indian liquor (IMIL) and premium IMFL.

 

ICICI Direct is bullish on Globus Spirits' stock and expects significant gains. The upside potential in the liquor company is roughly 32% based on the current market price.

Globus Spirits: Key triggers for future price performance

Globus Spirits: Key triggers for future price performance

  • GSL's capacity is scheduled to more than double in the next two years, from 16 crore litres in FY21 to 33 crore litres. Once commercialised, the management's objective of establishing capacity in ENA deficient areas (West Bengal, Bihar, Jharkhand, etc.) would allow for faster utilization at the greater realization.
  • Following the commercialization of capabilities, management plans to expand its consumer business in the states (which accounts for 50% of FY21 revenues) by supplying items at various price points and enhancing its range of offerings to appeal to a variety of tastes.
  • Consumerization of its ENA capacity enhances asset turnover as well as per-unit volume realization, offering a strong boost to return ratios.
  • The government accelerated the 20 percent blending objective to 2025, resulting in increased ENA diversion to ethanol and creating structural support for ENA prices by drying up surplus capabilities.
  • GSL has seen high FCF inflow as a result of changing dynamics in the liquor business.
Target Price & Valuation
 

Target Price & Valuation

"Globus Spirits has benefited from changing dynamics in the liquor industry (inflation in ENA prices and growth in the IMIL area due to greater quality, higher strength, and attractive product positioning). The management has been on the cutting edge of seizing chances.

We remain bullish on the stock and continue to suggest BUY.

Target Price & Valuation: On FY23E EPS, we value the stock at Around 1750, or 17x P/E," the brokerage has said.

According to ICICI Direct, the IMIL segment accounted for 42 percent of consolidated revenues, with bulk alcohol (45 percent) and others accounting for the rest. Rajasthan accounts for 80% of all IMIL sale.

Key Risk

Key Risk

Below are the two key risks, according to the brokerage;

(i) Hardening of raw material prices,

(ii) Extension of state lockdowns

Despite the record yield, management has reverted to allocating incremental capital to its core strength of building newer ENA capacities and gradually expanding its consumer portfolio, rather than being swayed by ambitions to allocate more capital to the premium portfolio.

Disclaimer

The above stock is picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Please consult a professional advisor.

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