In the Q4 concall, I remeber Globus managemebt saying that margin will improve from Q2 onwards, especially because of Maize vs Rice.
Agree that management’s guidance hasn’t been great. Be it margins or completion of capex. I will like to point out a couple of things wrt margins. Raw materials prices esp rice prices has been the biggest dampener so far. This was the first quarter of increasing margins after a long time.
Rice prices and maize prices would be 2 major factors deciding margins. International rice prices have already started coming down. There may be a disconnect between the indian and International prices. Good monsoon along with increased acreage under paddy cultivation would mean lower prices after Kharif harvest( Oct to Dec). We may see some decrease in food inflation this year.
Discl: Invested and biased
After a lot of quarters of declining margin globus showed an increase in the margin for the first time. Even though, the margin increased only slightly its still good to see positive developments.
The company completed expansion of Jharkand and West Bengal facilities but couldn’t reach the same amount of volume as rice was replaced by Maize. The reduction in volumes is because the amount of maize that can be processed is lower than raize. The company is trying to increase this efficiency and may take a couple of quarters.
The company expects the margin currently to be at lower end and doesn’t expect the margins to go any lower. And expects the margin to trend upwards with the Kharif season harvest (end of Q3).
As for the consumer business, Rajasthan remains strong with 29% market share in country liquor and 68% market share in RML with a cumulative share of 35.5%.
Entered UP in the regular and other segments. UP is a very large market in terms of country liquor and for IMFL. As per management good traction to sales in UP.
Bottling unit in UP commenced production. Entire production for state is from the Unit. Started construction of an 80 KL distillery in UP at a capex of 120 crores. Can be run on either grain or molasses. Expected to be completed in 12 to 16 months.
Management expects loss for the P& Above division to be within 15 crores this year. Its launched in 7 states now, no additional state this year. Hoping for 2 out of 5 states where P& A was launched initially to break even this year.
Launching new products in the P& A division. Snoski and Mountain Oak was well received. Another Gin seems to be planned.
Not Out was launched in delhi.
Expected launch of Carib beer to be in Q1’26. Production to be outsourced.
Planning to improve byproduct recovery by producing corn oil and biodiesel expected to be completed by end of year.
Regular and others
As per management bottling costs reduced by Rs.0.17 per bottle effective August.
Discl: Have purchases in last 30 days. biased
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[Reason for yesterday’s jump. ] (https://indianexpress.com/article/india/ethanol-distilleries-can-buy-23-lakh-mt-rice-from-fci-govt-9540644/)
They can shift to rice from maize in a day! (but i dont think they will)
but Gain of around 5/- kg comparing Q1 Pur rate of rice.
Disc: Invested
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The Food Corporation of India had tightened supply of broken rice which has now been reversed. However earlier FCI was providing broken rice for ethanol @ Rs. 2250 /qtl flat where as now it will be acutioned as per latest circular base price is @ Rs. 2873/ qtl and will have a cap of 23 LMT for ethnol distillers.
News of FCI
New Circular -
My concern is regarding the offtake cap. We need to check with management whether FCI rice will cover the entire raw material requirement or only a part of it.
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At this price distilleries are not going to improve margins. I am not sure if distilleries would be even interested in purchasing at this price. If the auction cannot go down the reserve price then I believe no takers for the broken rice at this price. My two cents.
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any idea on the operating metrics for rice and maize - how many litres of ethanol/ ENA produced from 1 kg of grain.
Rice yield 450 ltr per ton
Maize yield 380 ltr per ton
(approx fig for ethanol only)
Note: Till last qtr globus was procuring rice at 27/28.
then cost of production is higher than sale price of ethanol… with price of maize ~Rs. 26/ kg and rice Rs. 29/ kg ethanol is loss making business.
As crude prices are falling and expected to fall further, Govt will not be able to increase ethanol price.
Entire ethanol industry has gone for toss - there will be many plant shut down…
sugarcane based ethanol is marginally positive…
We will see many grain based ethanol plants and sugar mills closing down this year.
Earlier, rice was supplied at Rs 20 per kg for ethanol production by FCI. Its a good news that FCI is starting e-auction of rice again under Open market sale scheme. Even though, it may not be significant for the distilleries, it surely points to improving supplies. International prices for rice has already starting come down.
Also, the area under rice cultivation is good this year. India is second largest producer of rice and the largest exporter.
Yield on ethanol production is higher for rice than maize as management mentioned in the last concall. I don’t think management has given a clear picture of the yield from different feedstock.
This article gives an idea of the yield
Rice - 400 -460 l/mt
Maize - 370 - 380 l/mt
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Globus Spirits: A Trailblazer in India’s Liquor Industry
When you think of the world of spirits, it’s easy to get lost in a haze of brand names and labels. But amidst the sea of choices, one name stands out with a story that’s as rich and intriguing as its products: Globus Spirits. This beloved Indian brand has not only carved out its place in the industry but has also set new standards with its commitment to quality, innovation, and sustainability. In this blog let’s take a closer look at what makes Globus Spirits standout in the world
Industry dive In-
The Government of India aims to blend 20% ethanol with petrol by 2025. To achieve this, it’s estimated that 1,700 crore liters of ethanol production capacity will be needed by then, assuming an 80% operational efficiency.
Rice and maize price war- In the past six months, the price of broken rice has surged from Rs 22-24/kg to Rs 27-29/kg, and supplies are tight. Similarly, maize prices have jumped from Rs 22-23/kg to Rs 26-27/kg, with limited stock available.
Talking about Globus spirit, the main raw material which are used to produce Ethanol and ENA are broken rice and maize. The volatility in the price of broken rice and maize could impact gross profit of the company if they rise.
Q01FY25 con-call discussion- Management acknowledges the headwinds from raw material pricing volatility, particularly maize. The company is optimistic about the future. They are expecting margin recovery as maize cultivation increases driven by good monsoons and a normal paddy crop which will improve operational efficiencies.
Brand Development and Market Expansion- A new distillery is under construction in Lakhimpur, UP, with an investment of ₹120 crores aimed at ensuring consistent production and supply. The company has launched three brands: “Great Times” and “Brothers & Co.” in Uttar Pradesh, and “Not Out” in Delhi, which is managed as a separate legal entity. With plans to enter the Goa market soon, expanding their reach to seven states, the company continues to focus on innovation and is preparing for more brand launches in FY25.
Outlook- The company’s focus on deficit states in the ENA grants it strong pricing power and profit opportunities. Despite inflation affecting margins, shifting to maize for ethanol production and implementing cost-saving measures are expected to improve profitability in the medium to long term.
Price Movement- In July 23, the Food Corporation of India (FCI) suddenly stopped the supply of rice for ethanol production. Because of this, the share price of Globus spirit saw a downturn, and this affected the profitability and significantly reduced the margin of the business.
As an alternative they shifted its feedstock from surplus rice to alternative raw materials such as broken rice and maize. These raw materials can be used for production of extra neutral alcohol (ENA) and ethanol.
Government Initiatives to increase Ethanol Production- According to the Ministry of Consumer Affairs, Food and Public Distribution, “Sugar mills and distilleries are allowed to produce ethanol from sugarcane juice/sugar syrup, B-Heavy molasses as well as C-Heavy molasses during ESY 2024-25 as per the agreement with OMCs.” The government is making some changes to help increase the use of renewable energy and cut down on fossil fuel reliance. They’ve given distilleries the green light to buy up to 2.3 million metric tons of rice from the FCI for making ethanol. This move is all about ramping up ethanol production and supporting their wider plan to blend more ethanol into fuels
Major Development by Government: On 30th Aug 24, the center allowed the FCI to sell rice to distilleries for ethanol production. A maximum of 23 lakh metric tonnes of rice may be allowed for ethanol distilleries.
The stock currently is in a bullish mode. The current price is Rs. 1215 (as of 14:30, 13.09.24) This is a major resistance as per the chart shown below. The price is now expected to go upwards and can reach levels of 1300-1700. If the stock corrects, it will definitely be an opportunity to buy.
In summary, Globus Spirits has shown impressive adaptability despite facing challenges with rising raw material costs. The recent government move to allow rice supplies for ethanol production has given the company a boost, helping its stock price recover. With new investments and strategic shifts, Globus is well-positioned to navigate these hurdles and continue its growth in the liquor industry.
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This effect can be fully seen in Globus’s results as well. Q4 OPM even with consumer business was 4 %. The current prices are not viable for long term. This would definitely be one of the reasons why they had to postpone the capex for Orissa. The least efficient producers will find it even more difficult. Probably, we may be at cyclically lowest levels. And the margins may slowly start to improve with food inflation slowly coming down.
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Totally agree to your point that globus will trade at cheaper valuation in comparison to its peers. More than valuation re-rating, a cyclical reversion is what I am looking at here. Higher contribution from consumer business is something that may happen. Company is doing well on the sales front. So raw material prices has been the major spoiler.
We may see softening of food prices this year, which should aid margins.
Estimated rice production for the year in India is expected to increase by 3 million tons
estimated production india 2024.pdf (458.2 KB)
Also, find attached USDA estimates
rcs-24i.pdf (1.2 MB)
What as an Investors looks at Q3 & Q4 - FY25
- usually the time when raw material prices are lower
- Seasonal stocking of raw materials also possible
- Upgradation / Capex work
- Average cycle margin ~ Rs 7/- per liter
Closely watch all the above matrix.
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Found an interesting investment thesis article on Globus
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Government reduces price of FCI rice for distilleries producing ethanol to Rs 2,250 per quintal
An interesting analysis covering these aspects
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The net selling price per unit for their Regular and other brands in Rajasthan will
increase by 4.35% starting April 1, 2025. -
The price adjustment is based on the FY25 TTM volume mix.
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