Shares of Globus Spirits have been on a downward trend since January 2022, primarily due to challenges such as rising raw material and power costs over the past two years.
During this period, the stock has decreased from its all-time high of ₹1,719 to the current level of ₹858.40, marking a 50% drop. Despite these headwinds, the company continued to expand its capacity.
Now, with raw material and power costs stabilising, Globus Spirits is experiencing positive momentum, especially with its expansion into key whisky segments, including single malt, which is expected to enhance the company’s growth prospects, according to domestic brokerage firm Incred Equities.
Given the anticipated P/E re-rating, the brokerage has revised its target price for the stock to ₹1,599, indicating a potential upside of 86.27% from its previous closing price. It continued with its ‘Add’ rating on the stock.
Firing on All Cylinders
Globus Spirits operates in three key segments: Extra Neutral Alcohol (ENA), which includes ethanol; Indian Made Indian Liquor (IMIL); and Indian Made Foreign Liquor (IMFL). The ENA and IMIL segments are the primary contributors to both revenue and profit, while the IMFL segment currently has a negative impact on the bottom line, according to the brokerage.
With raw material and power costs normalising, IMIL selling prices have seen a healthy increase, and spreads have improved. Consequently, the EBITDA margins for ethanol/ENA and IMIL are approaching 10% and 20%, respectively. The negative contribution from the IMFL segment is expected to turn positive by FY28.
Expansion into the Whisky Market
The IMFL segment is dominated by whisky, which holds approximately 65% of the market share.
Globus Spirits has entered the mid-segment of whisky, covering major price points and segments, including the regular and single malt categories.
Earnings Estimates
The brokerage has adjusted its PAT estimates for Globus Spirits, reducing them by 8.7% for FY25 and increasing them by 2.3% for FY26, reflecting the faster ramp-up in IMFL business volume. The projections do not yet include the beer and ready-to-drink (RTD) segments, as the capital layout for the beer segment has not been disclosed.
Once it is, the brokerage will incorporate both the beer and RTD segments into its projections. RTD sales have already commenced, but the decision to consider these sales will be made after assessing the internal manufacturing efficiency versus outsourcing.
Key Risks
While the outlook is positive, the brokerage also identified several key risks:
- The price of broken rice and maize, which are primarily used to produce ENA/ethanol, could impact gross profit if they rise.
- Final product prices are determined by state or central governments and oil marketing companies, affecting profitability based on the prices they set.
- Power, a crucial component of product economics, is mainly generated from coal, so any adverse movement in coal prices could negatively impact Globus Spirits.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
