Liquor stocks extend gains; Globus Spirits, United Breweries up over 5%

Shares of breweries & distilleries companies were trading higher for the second straight day at the bourses on Thursday after the government, in 'Unlock 4.0' guidelines, relaxed the ban on serving liquor at pubs. The guidelines and standard operating procedures (SoPs) in this regard, however, are to be issued by the states.

United Breweries, Globus Spirits, United Spirits, and Radico Khaitan were up 2 per cent to 6 per cent on the BSE. In comparison, the S&P BSE Sensex was up 0.10 per cent at 39,126 points at 10:50 am.

Among individual stocks, United Breweries rose 6 per cent to Rs 1,147 today, and has surged 14 per cent in the past two trading days.

Meanwhile, Globus Spirits was locked in 5 per cent upper circuit, for the second straight day, at Rs 198 on the BSE. The stock was trading at its 52-week high level and has rallied 61 per cent in the past month.

The company reported strong April-June quarter (Q1FY21) results owing to continued improvement in margin profile in spite of weaker operating leverage. Revenues fell 22 per cent year on year (YoY) to Rs 230 crore, despite Covid-19 led disruptions.

The firm's revenue fell at a lower pace as compared to the liquor industry, in general (fell closer to 45-55 per cent levels), mainly owing to stronger IMIL performance due to better state mix (Haryana performed well), higher bulk realisation (up 14 per cent) and better-than-expected performance of newer product launches.

Ebitda (earnings before interest, taxes, depreciation, and amortization) margin grew by 785 basis points YoY to 18.0 per cent in Q1FY21, on account of higher extra neutral alcohol (ENA) realisations and softening raw material and fuel prices. The management expects volume growth in July-September quarter (Q2FY21).

ICICI Securities have ‘buy’ rating on Globus Spirits with a target price of Rs 220 per share.

“Newer brands for IMIL (Goldee, IMIL brand with IMFL like 42.7 per cent alcohol concentration) and newer opportunities for ethanol utilisation would lead to greater usage of captive ENA. We expect margins to be rangebound at 14-15 per cent for FY21E, FY22E. Also, GSL is planning to lower debt, which should reduce interest cost and aid in improving profitability. Subsequently, FCF yield is expected to remain elevated,” the brokerage firm said in Q1 results update.