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Profitability lifts with all-time high margins…

About the stock: Globus Spirits (GSL) is the largest grain based ENA manufacturer in India with a capacity of 160 million litre. The company is also a supplier of Indian made Indian liquor (IMIL) and premium IMFL in India.

* IMIL segment comprised ~42% of consolidated revenues, with the rest contributed by bulk alcohol (45%) and others (botting and by-products)

* Total 80% of IMIL sales occurs in Rajasthan (32-33% market share).

Q1FY22 Results: GSL reported margin expansion driven by IMIL and ethanol sales.

* Net revenues grew 4% QoQ (66% YoY) to | 371 crore

* EBITDA grew 12% QoQ (150% YoY) to | 98 crore with margins at 26.5% (vs. 24.7% in Q4FY21)

* Subsequently, PAT grew 10% QoQ (2x YoY) to | 56 crore.

What should investors do?

Globus Spirits has been a beneficiary of the changing dynamics in the liquor space (inflation in ENA prices and growth in IMIL space due to better quality, higher strength and attractive product positioning). The management has been at the forefront to capture the opportunities.

* We remain positive on the stock and maintain our BUY recommendation

Target Price & Valuation: We value the stock at | 1050 i.e. 11x P/E on FY23E EPS

Key triggers for future price performance:

GSL has a product range across these two ends of liquor segment (hour glass shaped consumption), including manufacturing extra neutral alcohol (ENA) to contract bottling of Indian made foreign liquor (IMFL), to marketing, selling IMIL, several by-products.

* Capturing premium price points in IMIL space via higher strength liquor.

* Government expedited 20% blending target to 2025, leading to higher diversion of ENA towards ethanol

* Nearing net-debt free status with return ratios reaching 25%+ levels.

Alternate Stock Idea: Apart from GSL, we remain positive on United Spirits (USL)

* USL is India’s leading alcoholic beverage company and subsidiary of global leader Diageo plc. It manufactures, sells premium liquor brands such as Johnnie Walker, Black Dog, Black & White, Vat 69, Antiquity, Signature, Royal Challenge, McDowell’s No 1, Smirnoff and Captain Morgan

* We have a BUY rating on the stock, with a target price of | 770

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