Globus Spirits

[Jose]

Q3 results

Consumer business share improved to 47 % from 42 %

Sold a total of 3.8 mn cases in Q2’22 against 3.77 mn cases in Q4’21. Capacity utilization came in at 90% vs 98 % in Q4’21 vs 99 % in Q1’22. Flood in Bihar and maintenance shutdown at Haryana Plant reduced overall utilization levels.

Company started talking about value plus segments. And the company talked about close to 40 % market share in Rajasthan in value plus segment.

Value plus has contributed to around 1.3 mn cases which is an improvement of 63 % YoY and 19 % QoQ.

Opportunity cost of closure since August 15 of bihar plant 20 crores , Haryana 5 crores. Revenue from bulk alcohol was seen lower on a Qo Q basis.

OPM margins reduced to 23 % from 26 % on a QoQ basis. As per the concall there was a fuel inflation of 20-25 %. And slight seasonal increase in broken rice prices.

A similar reduction in gross margin was seen in Radico too, which the company attributed to inflationary pressure on PET resin and other packing materials.

Ethanol opportunity

Company also received a 10 year volume contract from OMCs for supply of ethanol for units at Jharkand, Haryana, Bihar, Odisha and West Bengal giving assuring volume offtake.

Govt announces prices for molasses based ethanol, The Cabinet Committee on Economic Affairs (CCEA), headed by Prime Minister Narendra Modi, raised the price of ethanol extracted from sugarcane juice to Rs 63.45 per litre from the current Rs 62.65 per litre for the supply year beginning December 2021.

The rate for ethanol from C-heavy molasses has been increased to Rs 46.66 per litre from Rs 45.69 per litre currently, and that of ethanol from B-heavy to Rs 59.08 per litre from Rs 57.61 per litre. However, prices on grain based ethanol are fixed by OMCs and are yet to be revised

Outlook for Q3’21

Planned maintenance shutdown of Haryana Plant for 30 days in Q321.

Bihar plant may not be operational at all for Q3’22. West Bengal expansion to be completed by Nov’21. Expects to have 25% capacity utilization in Dec’21. And 100 % capacity utilization by Q4’22.

We may see lower capacity utilization as well as volumes for Bulk alcohol / ENA for Q322 and lower revenues. However, the sales from value and value plus segment will be interesting to watch out for. Currently the market share in WB is only around 2 %. The company plans to start local production of its brands in WB and cater to a wider market in WB. It needs to be seen whether this will help the company improve its volume/market share in WB.

Company expects to have full utilization of its expanded capacity in WB in Q422. Bihar plant is also expected to be fully back in Q4’22. So we may see some good revenue growth in Q4’22.

Key positive is that company mentioned that they expect Jharkand capacity to be fully operation by Q1’23.( I will take that with a pinch of salt considering the progress of WB expansion). Plans for Odisha are underway and a third site is under consideration by the management.

Discl: Invested and biased

[rshankv]

85668f31-6816-4874-a4b6-6cf80cf7cbd6.pdf (bseindia.com)

[rshankv]

some analysis please correct me if my assumptions are off

How could they serve the new requiremnents? 9.6 Crore litre this is pretty big.

Their existing cacpacity is 14 Crore ltrs, out which 4 crores is for the internal consumption (alocohol cutomer segments-Value and vlaue plus) another 4 Crores for ENA sales to other liquor companies within India and exports and the remaining 6 crore was Ethanol.

They need 3.6 crore litlres more capacity which comes form the new expanded plant in WB 140 KLP and this will translate to 4 crore ltrs of Ethanol per year. (Calculation 140 KLPD0.8 Utilization365Days=4.08 Cr ltrs)

The Company has ealier received 10 years long term volume commitment of Ethanol for the states of Haryana, Jharkhand, West Bengal and Odisha for ~260 KL, so this could be met by there new expansion coming from Jharkhand Facility : New capacity of 140 KLPD to become operational in Q1 FY23 and Odisha Plant : Work on land acquisition in progress which will take another 6 qrts .

For Ethanoal the margins are @25% (minimum) , the total demand for next 1 year is 9.6 Crore (new deal) + 7.cr (Long term contract) .lets round this to 16 crores Ethanol at the rate of 50 Rs per litre gives a revenue of 750 rs and EBITA of 200 crores.Plus they will make some money throug captive power consumption and sales of waste products to poultry

Even if Globus shows 100% efficicency they can’t meet the new demand

Invested (15% of PF) could be biased

Sources:
GLOBUSSPR_24062021122116_GSLConcallTranscriptQ4FY21.pdf (nseindia.com)

[AKV]

Globus Spirits Ltd resumes operation at Bihar unit

[Jose]

Finally expansion at its west bengal unit is completed and is running at enhanced capacity of 260 KLPD per day. With Bihar capacity also back on stream Q4 will be interesting.
globus WB expansion.pdf (249.8 KB)

[fundoo]

Very bad results mainly due to non availability of capacities and RM inflation which has now been passed upon. Announced more capacity expansions (2x in 3years).

Not sure how much of the bad results are factored in the recent price fall.

[rshankv]

Audio recordings of the concall.

www.globusspirits.com/documents/GSL_Q3FY22_Earnings_Call_Audio.mp3

[hamir_asher]

It would be a good idea to read through the investor presentation. The quarter was affected for 40 days of plant shut down in bihar due to floods and for for a major planned overhaul of power plant at Haryana. Because of this they had to buy raw material at higher rates from market to meet supply commitments. They have also been awarded a contract for supply of 86 Mn litres p.a. for supply of ethanol for 10 years from 4 states. There are so many positives in the presentation which need to be noted for Q4 and next FY onwards.

Disclosure : Invested and may be biased

[rshankv]

Globus Spirits (icicidirect.com)

[manoopatil]

Promoters and directors picking up stakes for over 2 Cr. and 24 Lakhs respectively from open market

[sivaram]

conf call

ICICISec-JagranPrakashan-1530-ram-10-30.doc (bseindia.com)

[Jose]

As expected QoQ revenue fell by approximately 9 %. Company did disclose in the past quarter itself that Bihar facility will take time to reopen post flood damage and maintenance planned at Haryana Plant. However, EBITDA margins fell more than expected.

Regarding EBITDA margins company clarified that they had to procure ENA from outside for their consumer business in Haryana( I didn’t consider this earlier) Also there was broad inflation in everything from raw materials to fuel cost. As per concall fuel cost inflation was near 18 % at its peak and there was price increase in broken rice as well

So I just went through radico concall to see the raw material cost

Radico also talks about the inflationary trend in raw materials. But they were able to maintain the QoQ margins due to their higher presence in premium brands.
Globus on the other hand had to face higher ratio of fixed costs due to reduced capacities. While there was a slight QoQ increase in ENA prices they had to purchase ENA for consumer business in Haryana.

Moving to consumer business, company was able to sell 3.73 mn cases down from 3.80 mn cases in Q2. It could be seasonal as the company mentioned in concall, but seeing the great prospects it had, I don’t understand why they can’t increase the sales.
In Rajasthan, it is good to see that company could wrest back lost market share in consumer business to 32.5 % share, and value plus segment moving to 45 % of market share. Launched black lace rum in Rajasthan.
In Haryana, they have 9 % market share and launched metro liquor brand in Q3.
In West Bengal Company has 2 % market share, company has always maintained that there is huge headroom for growth in WB. In such a scenario, I don’t understand what’s ailing the company in improving consumer business in WB. I have read reports where WB is said to be supporting sale of country liquor to improve excise revenue of the state as well as preventing people from resorting to illicit liquor. Company did mention

Capex
Company has always maintained and reiterated that they were never interested in ethanol surplus states. This took a U turn when they announced 140 KLPD greenfield project in UP. UP was always something the company stayed away from. What has changed the company’s perception or is the risk worth it?
As per concall, Shekhar Swarup mentioned that UP is the largest consumer business in India and they need to somehow find a foothold in the state. So far what we saw was Globus entering a new state or expanding their capacities in a state and sold those capacities through bulk alcohol or ENA and slowly improving their consumer business. But In UP I think company will find it tough to sell its ethanol / ENA unless consumer business picks up.

For some time UP has been a very lucrative business as far as Radico’s consumer business was considered and incidentally in the same quarter radico announced ENA capex at Rampur

It also mentions UP govt policy mandating grain alcohol in 42.8 % category.

The other major points mentioned regarding capex in radico concall are

And both the companies are talking about a payback period of 3 to 3.5 years. So I think the risk is worth taking

Outlook
There is a lot of hype and talks surrounding the ethanol policy currently. The current ethanol policy ensures optimum capacity utilization for all the plants and as such ensures better EBITDA margins. As for Q4 and in the short term Bihar and Haryana plants are at optimum utilization in addition to completion of additional capacity in WB. Ethanol prices were increased by Rs.1.37/- from December. Also there has been increase in ENA prices as per reports. Also there has been an increase of Rs. 4/- per litre for value segment and Rs10/- per litre for value plus segment in Rajasthan. All of this points to a higher revenue and margin for Q4. Also, company expects Jharkand facility to be operational by Q1’FY23. There are a lot of triggers lined up for the company in the short term unless inflation of raw materials play spoil sport.
I will however keep a close eye on their consumer business as for the long term company needs to improve the consumer business so that the cyclical tag attached to it gets removed. With more and more ethanol capacities coming up in many states the ethanol arbitrage will eventually stop and we will see excess capacities.
It will be a great help if anyone can help with the following details
Is there anyone who has an idea of the sales growth of country liquor in West Bengal . I couldn’t extract any detail from the state’s excise website.
Secondly, company was mentioning about moving to surplus rice from damaged/ broken rice as raw material if the price for damaged rice increases further. Is there any price differential for ethanol produced from surplus and damaged rice . I remember that it was procured at different prices earlier. Is that differential still there?? Or is it just because of the fixed price availability of surplus price from FCI.

Discl: Invested and biased as it is one of my largest holding. Have added in the recent fall

[rshankv]

@Jose

Secondly, company was mentioning about moving to surplus rice from damaged/ broken rice as raw material if the price for damaged rice increases further. Is there any price differential for ethanol produced from surplus and damaged rice . I remember that it was procured at different prices earlier. Is that differential still there?? Or is it just because of the fixed price availability of surplus price from FCI.

As per my understabing, Ethoal being ethonal their is no diffference in price, if Ethonal is made of broken rice or surplus rice. But Shekar did mention that if the price of broken rice increases so will the price of there by product, so that gave me some relief.
Invested and biggest holding at 15%

[rshankv]

Continous purchase from mgmt and promoter group

[Wizard_apprentice]

Seems to be some good buying happening by the promoter group.This quarter results could be block buster.

[Vineetjain111]

I find the market’s reaction to the numbers very interesting. There has been a margin compression, yes, but that is not unexpected at all, and is transitionary as fixed price FCI rice buying is increasing and fuel costs will peak sooner rather than later. The top line has expanded aggressively and upcoming capex is on track. Globus walking the talk in terms of ability to scale.

One negative is a bit of a drop in value plus cases sold. Not sure why there has been aa drop and hope it gets answered in the concall. All said and done, a 15% drop when the top line has grown 40% is completely unjustified IMO, and is an opportunity to add.

Disclosure: Invested and biased. Not a recommendation

[Wizard_apprentice]

It seems the markets are discounting higher cost pressures to persist for the coming year at least.
That is what I think would validate such broad based selling across most categories also …investors are trying to price in stagflation scenario in the coming year. Which is low growth and high inflation. Any stock unable to defend their bottom line seems to be getting butchered despite good improvement in topline…invested in the stock.
I do hope some data or govt measures will help negate the possibility of a stagflation scenario .Otherwise we are in for a huge macro headwind.

[Vineetjain111]

So long as the business is moving in the right direction, I am happy to hold and keep adding on major dips.

Attended the concall for a while and Shekhar Swarup said multiple times that they have no control and visibility on how long the inflationary environment will last, but steady state EBITDA margins of 25% is what they will aspire for. He repeated the FCI rice purchase at fixed price going forward as well. Capacity will grow 1.5 times by end of FY 23 and more than double a year or so after that. Most of their existing manufacturing facilities and all future expansions will be completely fungible between ENA and ethanol, so they can maximize margins. Ethanol price has been increased, consumer alcohol price increases have also come in for some states from 1st April.

It is now trading at 15 times trailing, which for the certainty of growth that Globus offers is very cheap IMO.

Invested from lower levels. Added some more today.

Portfolio details Vineet Jain portfolio

[robertpoddar]

Have been having this stock in my watchlist for a very long time. Ay reason why the price price has breached 950 (LTD 949)… is the fall due to market forces or due to some other issues?

Is this stock good for long term? Today’s price is like a low hanging fruit and i am tempted to pick it, but would like to know if it’s still good for long term.

[hamir_asher]

Concall link