Market Cap- 2,900 cr

CMP- 1,007

Business Segments

Manufacturing Segment

1. Bulk Alcohol:

• Backbone of the 360 degree business model.
• Globus is the largest grain based Extra Neutral Alcohol (ENA) manufacturer in India with a capacity of 19.5 cr litres. FY21 capacity was 16 cr ltrs
• Reputed IMFL players are major customers for Bulk Alcohol.
• Presence in Rajasthan, Haryana, Bihar and West Bengal.

• Franchisee Bottling:

• Strong relationships with pedigreed players ensures steady offtake.
• 20 year old relationships with ABD and USL / Diageo.
• Proxy play on growth in IMFL industry Ramp up expected in West Bengal.

• By-Products Process:

• Efficiencies lead to zero discharge and incremental revenues.
• Animal Feed Supplements (AFS) o Major by-product from distillation process is Animal Feed Supplements with Solubles & AFS
• Used as food for the animal feed industry o High protein (min 45% ) and energy (~3500 K/cal) o Provides excellent animal health, performance, and food product quality
• CO2 o Commercially available as high pressure cylinder gas, relatively low pressure refrigerated liquid, or as dry ice o Commonly used as a raw material for production of various chemicals; carbonation of soft drinks; freezing of food products such as poultry, meats, vegetables and fruit. Contributing 15-20% of Operating Income.

Consumer Segment

Value Segment – GSL is One of the Largest IMIL Players Product innovation and focus on brand building has enabled growth.

The value-added segment is a game changer for Globus Spirit especially since the launch of Value Plus segment.

This segment priced at INR 80-100 for 180 ml is 2x premium than the Value Segment (Desi Daru). Value plus segment is perfectly placed to challenge the dominance of the likes of bagpiper & Mcdowell which are at same quality but priced at INR 140-150 for a 180 ml.  

It is interesting to note, VALUE PLUS segment launched 2 years ago, already contributes 40% of Consumer Segment’s revenues.

Investment Rationale

• GBSL is a leading manufacturer and distributor of Indian Made Indian Liquor (IMIL). The company is the market leader in the Rajasthan IMIL market, and supplies IMIL to Haryana and West Bengal.
• GBSL as one of the key beneficiaries of the government’s Ethanol Blending Programme (EBP). The company is expected to add 14cr litres to its ENA/Ethanol capacity to achieve 30cr litres (almost double) by FY24E.
• The Manufacturing segment produces and sells Extra Neutral Alcohol (ENA) and Ethanol to bulk customers (Liquor manufacturers and Oil marketing companies).
• Plants be it ENA or ETHANOL are totally fungible, can be used according to the demand trends in each segments. 
• Manufacturing sales increase was driven by new capacity expansion at West Bengal and higher realisation of ENA and Ethanol in the quarter. The average utilisation was ~90% in the quarter.
• The value-added segment is a game changer for Globus Spirit especially since the launch of Value Plus segment.  This segment priced at INR 80-100 for 180 ml is 2x premium than the Value Segment (Desi Daru). Value plus segment is perfectly placed to challenge the dominance of the likes of bagpiper & Mcdowell which are at same quality but priced at INR 140-150 for a 180 ml. 
• Prices of Ethanol for blending is increased by INR1.37 per litre from Dec-21 will aid margin improvement while Raw Material prices is going towards stability post FCI procurement.
• Company is switching to FCI rice to protect margins where both price of ethanol and raw material (FCI rice) is fixed. Fixed price is 20-25 per kg.
• Last two quarters margin pressure was mainly due to RM pressure, high fuel prices & plant shutdown in bihar due to floods.
• To mitigate high fuel prices, GBSL plans to procure Coal directly from the coal fields subject to coal availability to non-Power applications.
• During Q4FY22, DDGS prices were ~INR34 per kg, falling by ~10-15% from INR36-37 per kg in previous quarter.

The ethanol story- Industry Analysis

Currently, production capacity of ethanol in India is 426 cr ltr via molasses-based distilleries and 258 cr ltrs  via grain-based distilleries, which is proposed to be expanded to 760 cr ltrs and 740 cr ltrs, respectively by FY25. This is sufficient to produce 1016 cr ltrs of ethanol required for the Ethanol Blending. Programme and 334 cr ltrs for other uses.

This needs 6mmt of sugar and 16.5mmt of grains per annum in FY25 for producing ethanol.

GSBL is the largest grain-based distiller in India and is embarking on massive capacity expansion going ahead.  Not only does GSL benefit from the ethanol story but it leads in grain-distilling segment as well, which has greater leg room to grow.

Issues with molasses based ethanol vs Rice procured from FCI

1. Sugar & Rice are water guzzling agriculture crops. Agriculture uses 60% of domestic water per year while industries are at 30%.
2. Beyond a certain point, sugarcane has to be used for captive consumption and retail purposes and not only Ethanol.
3. Rice based ethanol doesn’t need perfect quality, it can be derived from stale or not fit for human consumption.
4. FCI contracts with Globus Spirit can be a game changer, FCI wastage of grains in the last 10 years is a whopping 1.1 lac tons. Creates margin visibility since the Gov is offering fixed price at 20 rs per kg and rice based ethanol selling price is also fixed. Annual wastage is around 8,000 tons and cost comes to 30k cr.
5. Recent hikes in Grain Based Ethanol by GOI was 4.2 rs vs 2.5 rs per kg in Molasses based ethanol. GOI also realizes the scope of penetration in GRAIN BASED ETHANOL.
6. Brazil produces 335 bn ltrs of ethanol per year & blending penetration has crossed 30%.

62,000 tonne: Foodgrain wasted by FCI (dnaindia.com)

Fresh Capex

New capacity of 140 KLPD added in West Bengal operated at normal capacity during Q4FY22, which supported the increase in contribution of Manufacturing segment to overall revenue to 56% in Q4FY22.

Plans are on track for Greenfield capacity addition of 140 KLPD at Jharkhand by end Q1FY23. Work started on capacity expansion of 60 KLPD in West Bengal and Jharkhand each with a total investment outlay of INR60cr. This is expected to be commissioned by Q4FY23.

In Odisha, land acquisition of 25 acres for new capacity addition of 200 KLPD for Ethanol and ENA and bottling plant is completed. The construction is expected to start later in FY23. 

Land acquisition process in Uttar Pradesh is underway for new capacity addition of 200 KLPD for Ethanol and ENA. Construction will start in FY24.

Total Capacity will increase to 30 cr ltrs from 16 cr ltrs by FY24.

Conclusion

• Fresh capex in Ethanol Blending from 16 cr ltrs to 30 cr ltrs will increase profitability significantly.

• Government’s massive focus on Ethanol procurement, especially on grain based Ethanol unlike the sugar cos that produce molasses based product.

• Value Added segment ie Value Plus segment will be a game changer since its realizations are 2x vs the Value Segment.

• Globus Spirit is adding huge capacities without onboarding any significant debt, all capex is being internally funded through Cash Flows.

• Valuations: We expect the EBIDTA to double at 600-650 cr by FY24-25, at 3000 cr EV the stock is available at a highly attractive valuation of 5x EV/EBIDTA.