Globus Spirits IPO Analysis

Globus Spirits, promoted by Ajay Kumar Swarup and family, manufactures, markets and sells industrial alcohol comprising rectified spirit and extra-neutral alcohol, country liquor, and Indian-made foreign liquor (IMFL). With steady growth and production of good quality liquor, the company has established its identity in the country liquor and IMFL business. Its brand portfolio in the country-liquor segment includes Rana, Rajasthan No.1, Ghoomar, Samalkha No.1, Samalkha Ki Saunfi, and Kinnu. In the IMFL segments, its brands comprise White Lace Duet Gin, Samurai Premium Whisky, 20-20 Premium Whisky, GR 8 Times Whisky, and Hannibal Legendry Rum. Globus Spirits also caters to reputed Indian brands in the IMFL segment such as Officer's Choice Prestige Whisky, Officer's Choice Classic Whisky, Officer's Choice No.1 Brandy and Officer's Choice XXX Rum. The company has launched its own IMFL brands in Haryana, Rajasthan, Chandigarh, Uttar Pradesh, Andhra Pradesh, Kerala and Karnataka. It proposes to launch the brands in two states and Union territory in north India and one state and Union territory in south India.

The two distilleries of Globus Spirits at Behror in Rajasthan and at Samalkha in Haryana are capable of manufacturing alcohol from molasses as well as grain. The total licensed and installed capacity of both the units stand is at 144 lakh bulk litres (BL) per annum each. The distilleries have modern bottling facilities equipped with bottling machines and cater to jn-house country liquor and IMFL brands. Also, the company has tie-ups and separate arrangements for bottling IMFL products for other brand owners.

To lower the cost of production while continuing to produce high quality spirit, Globus Spirits is modernising and expanding its production facilities, and setting up latest facilities in utility management. The company intends to enter the IMFL market by developing its own brands and/or acquiring existing brands and marketing them across India. It proposes to implement greenhouse gas abatement project by utilising biomass and biogas for steam and power generation to reduce emission of greenhouse gases (GHG) from fossil fuel combustions for equivalent energy generation. This will help in getting the potential benefits of the GHG abatement project under the clean development mechanism of the Kyoto Protocol.

To expand and modernise its existing facilities, Globus Spirits requires Rs 89.28 crore. To raise this amount, the company is entering the capital market with its initial public offering of 75 lakh equity shares of face value of Rs 10 each through a 100% book-building process at a price band between Rs 90 and Rs 100 per equity share. It is also getting a term loan of Rs 12 crore from SBI. The remaining will be through internal accruals.

Strengths

Good financial track record, with consistent growth in sales and profit.

Strategically located with access to raw material (molasses and grains). The plant also has technological flexibility to use both grain and molasses as raw material, insulating from dependence on any specific raw material.

Weaknesses

Products lack adequate awareness, and have limited geographical presence across the country. Dependent on a single customer for bottling of IMFL products

Does not have adequate distribution network for its products in the IMFL segments.

The industry is heavily taxed and regulated by the government.

Valuation

Globus Spirits has set a price band of Rs 90 to Rs 100 per equity share of Rs 10 face value. At the lower band of Rs 90 per share, the P/E will be 13.8 times the EPS for the financial year ended March 2009 (FY 2009). At the upper price band of Rs 100 per share, the P/E will be 15.3 times. In the breweries & distilleries industry, comparable companies such as Tilaknagar Industries and Associated Alcohols and Breweries have P/E around 5.3 and 7.3 times FY 2009 EPS.