Political division of Maharashtra

PB above 1.2x When to sell

Excess capex for FY14 & 15
Out of favour

INV theme Growth NOT MUCH DEPENDENT ON ECONOMIC CYCLE

Started in FY13 Globus Spirit Partnership In Maharashtra CATALYST: Correction in sugar prices or Increase in CL prices
PET bottles may be banned
Globus Spirit - aggresive pricing- NIMBOO Risks Rev 9%
Impact of political division of Maharashtra
CAGR [08-13] EBITA -1% [Negative]
Low possibility that promoters are inflating Capex [ Post 2006, FCF NIL
Segment breakup NW 16%
FY 13 = 7%
EBITA margin [TTM]
74.4% Promoters FY08 = 11%
NIL FIIs & DIs
2.5%
HNIs Key Parameters
9 individuals Sh pattern
19.5%
Retail
> 6,700
GM breweries Reasons to BUY
1.55% Corporates

Decline in sugar prices Reasons NOT to BUY

Increase in dividends Why Re-rating
Increase in CL sales
Profitability

NOT more than 2.5% MAX

P&L analysis
Tranport fee
Change in regulations
Keep exposure between 3-4% Maximum Too many moving angle Marginal Inventory
Spike in commodity prices
Working capital Marginal receivables
Political division of Maharashtra
% allocation
BS analysis Marginal trade payables

Study regulations D/E = 0.3x

Debt
leverage = 1.6x
Study sugar cycle Why Not something else
Before increasing to 4%
RM cost decline
Track quarterly
Sales stability

HIGH working capital

Why not IMFL
Distribution controlled by GOVT
Continuous CAPEX
ADVERSE chg in regulation When to sell
PB > 1.5x

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 Good Monsoon Mainly rural consumption
Highly regulated
High summer, Low IMIL Other parameters
Ban on Advertisement VERY DIFFICULT FOR NEW BRANDS TO ENTER
Downgrade to IMIL ENTRY barriers
Capacity expansion controlled DOUBLE CHECK ??
From LOW IMFL Bad times Business [Quaity]
Interstate movement difficult
BUT some of IMIL ALSO DOWNGRADE Growth drivers
Size of opportunity Limited
Ban on issue of retail licenses of CL since 1973-74
White Swans Abillity to scale up Not much
Population of Maharashtra doubled over this period

Current < 50% Increase in capacity utilisation

FY 97 = 5L
Remuneration FY 06 = 12L
Key Parameters Drastic increase
FY13 = 75L
1.4x
PB
Since 2001 = 1.5x IT Search FY03
Negatives
6.2x PE AVG [2007] FY 05 Guidance nil for FY06

Subtopic 1 EV/EBITA MD&A Capex Guidance NOT RELIABLE FY06 Guidance nil for FY07 Nil Guidance, Huge Capex

0.3x DEbt/Equity Valuation [Price] FY 10 Capex guidance for FY11 Nil

AVG ROIC 5 YRS = 15% PB = 0.6x People Property transactions Sale for 0.7 crs FY04

0.3x Debt/E Continous increase in stake

LOW TTM valuation
EV/EBITA = 3.2x No equity dilution since 1994

PE = 5x Consistent div payout

Positives Dividend CAGR = 15% 13 YRS
Dividend Payout AVG 17% 8 YRS AVG
DPS = 2.5
Yield 4% at INR 60

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 Beer
Winsome Breweries ROE 10 Y AVG < 4%
Asset turnover 1.5x
Leverage = 2.2x
IMFL - Puducheery
D/E = 1.2x
Debtors TO = 6x
Distillery = 70% Working capital
Rev Mix Inv TO = 6x
Sugar = 30%
Ravikumar Distilleries Asset TO = 1x
Distillery = 85% Peers in Others
EBITA mix ROCE & ROE AVG = 12%
Sugar = 15% Picadaly Agro
Dividend payout Never
ROCE = 22%
4 Yr AVG Peers Leverage = 1.7x
ROE = 26%
Radico Khaitan IMIL < 5%
Mgt Questionable
PEERS in CL United Breweries
CL started only in 2008
United Spirits
Suspect numbers are cooked up
Tilak Nagar industries
Politically connected
IFB Agro
Never PAID any DIVIDEND
IMFL
D/E = 1.3x
Khoday
< 5% AVG ROE
NEVER IN 8 YEARS Dividend
Globus Spirit

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 States Second highest after SALES TAX
Tax rev
Central

Sudden surge in molasses prices in 2004 Past shocks

> 300

structure No. of Distillaries FY07

Eg. South India Installed capacity
Govt controlled 3,500 ML
Govt is distributor
Bid winner Auction Market
Supply Chain
Distributors Distribution sys
Licensed Retailers Not much govt control
Industry
Open Market
Bars & REstaurants Beers

Eg. Maharashtra Segments IMFL

IMIL

Banned in India
Surrogate adv Advertising Sugar

Cable uplinked OUTSIDE India ENA

RM Molasses Rectified Spirit Ethanol

Price might get impacted by Ethanol pricing
Alcohol production process.png

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 Andhra
Tamil Nadu
Banned in states Govt controlled wholesale Distribution Sys
Karnataka
Kerela

More price controls Chg effective from 1st April

More regulated than IMFL Less Excise duty
IMIL = INR 25 REGIONAL in nature
Lowest Price point
IMFL = 50 Grain [Rice]
RM - Rectified Spirit Molasses [Sugar]
IMIL
10-15% till 2017 Primary distillation
Forecast West Bengal
Globus Spirit North India market size North India IMIL_2010.png
Distilliary MUST be located WITHIN STATE

Size = 35 - 37M Cases 220 M cases

GM breweries UP = 11%

Through Franchisee Maharashtra Maharashtra = 9%

Peers Market [2011]
Nimboo Brand Globus Share of states WB = 8%

Guess ENA based unlike RS by peers

IMIL Bihar = 8%
Punjab = 5%

Quantity
Price Market share 27% Globus S
Controlled by govt Regulation Delhi Ex-distillary price
Wholesale
Govt regulated price
Retail Min retail price
Must purchase 5% from EACH PLAYER
Haryana Regulation
Distributors 40% REGULATED MARKET
50% reserved for Govt entity
Regulation Private players
Purchase of RM from govt co. COMPULSORY 2007 rule Rajasthan
FREE MARKET 60%
Private players Distributors
No. of Players 8

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 Whisky = 55%

product mix Brandy/Rum/Vodka = 40%

United Spirits Wine = 5% Growing at HIGH double digit
Jagjit Industries
80% Market share Players
Seagram
RM > 80-90% = Molasses
ABD - officers Choice

ULTRA low margins Low end MNC < 20%

Segment profitability Market share Indian co ~ 80%
High premium
IMFL Might have chg after recent Mallaya deal

ED in state of manufacture
Import duty in state of sale Taxes Low per capita

Practically distillery & BOTTLING PLANT in SAME state Growth drivers Improving life style
Shift from unorganised to organised
Degulated dist sys in 2009 Rajasthan & MP Regulation
REduce duties on imports
Import and bottled in India WTO Intense competition
Possibilities Negatives
Bottled in ORIGIN country Buyers market

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 Supply Chain

Sugar Cane Grain based

Sugar mills - Molasses Yield

Distillery 240 to 280 BL [fr Molasses] 330 to 440 [Grain based]

Bottled

Own Franchisee

Distribution

Govt Controlled Retail distribution

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 Key parameters India largest producer in world

Sugar

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 FY03 = 165
FY 13 = 172
Cost 14% CAGR
No. Employee
Sales vol 11% CAGR
Provided with inhouse residential accomodation
Free electricity & water supply
P&L analysis
FY05 = 40%
Fy04-09 = 42.5% of Sales
FY08 = 46%

Packing material FY 10-13 = 39%

FY 13 = 35%
Visible impact of capex on PET bottle

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 19% in Maharashtra
MONOPOLY in Mumbai & Thane

HIGH Market share Flat during 1999-2005 at 13%

Sub 13% to 19% fr 2006 to 2012
Never reported DOUBLE DIGIT decline in volumes
Recession proof business 2% pt over 2009-11
Decline in vol < 2% Y/Y

NEGLIGIBLE WORKING CAP

2001 > 50% receivables more than 6 Months Debtors days declined from 45 days to Nil Post 2006

CAPACITY utilisation < 50%

Since 2001 LOSS ONLY ONCE
Major capex of 50crs 2006-08
PROMOTER HOLDING = 75% LOW CAPEX FOR next 5 YRS
MGT remuneration ,< 1cr
Other positives Reasons to BUY Capacity > 3x
Capex of 60crs 2011-13, to manage PET bottles
For every 100 sale, Govt gets 300 as tax

Highly regulated
< 40% 2001
PB = 0.5x Ban on Advertisement VERY DIFFICULT FOR NEW BRANDS TO ENTER
65% 2004 ENTRY barriers
Capacity expansion controlled DOUBLE CHECK
AVG PB = 2.5% 68% 2007
Interstate movement difficult
69.5% 2008 Continous increase in promoter stake
PB = 1.5x
73.6% 2009
74.4% 2010 VERY low Breakeven Sales need to decline by 50% to incur losses

74.4% 2013

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 Commodity product
Water shortage
RM 50%
Revenue shortage
Political problems NO pricing power Since 2011 ASP 15%
RM pricing is constant political tool
EBITDA fr 16% to 10%
Election year NO PRICE INCREASE
Price fixed at start of year Cannot be adj. in between for RM inc

FY 1997 = 20%
Steep decline in margins 1997-2005 EBITA margin 2000-06
FY 2005 = 4%
HIGHLY regulated AVG ROIC = 10%
Liberalised post 2006

Other negatives
Reasons NOT to BUY
Moderate growth VOL CAGR < 5-8%

Till 2011 - 17.5crs bulk ltrs

Till 2011 additional liablity of around 4crs Fee @ 1.25/ltr
Transport fee Contintent liability NANO CAP M CAp < 60crs
Last three yrs AVG = 2.5crs Ltr
Paid 50% during 2010 & 2011

Molasses

50% of packing material = PET Glass

FX risk Volatile RM
Packing material cost = 35% of sales FX
Plastic
Oil prices

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 11% EBITA margin

32% Book tax rate

Tax rate
34% Cash tax rate

4% Net margin
1.6X
Asset turnover
FY06-09 = 2.5x ROE [14 Yrs AVG]
7% RoA

3x
Leverage [Assets/Equity]
FY13 = 1.6 18%
Post 2006 AVG Div Payout ratio
14% FY13 = 20%
ROE AVG
FY13 = 15%
EBITA 9%

EBITA margin = 9% Asset turnover 3X

Post 2006
Tax rate = 32% Pre-tax = 27%
ROIC
Net margin = 6% RoIC Post tax = 18%

Asset turnover = 2.2x [Post 2006 AVG] EBITA 8%

ROE {FY07-13] Asset turnover 3X
RoA Fy06-13 = 13%
TTM
Assets/Equity Leverage = 2x Pre-tax = 24%
ROIC
RoE = 23% Profitability Post tax = 16%

Deb/Equity < 0.4x

Capacity utilisation IMFL 1Cr BL IDLE CAPACITY since 1997

EBITA margin = 8%
Int/Sales = 1%
FCF 14%
Tax rate = 32%
OCF 16% of sales
Net margin = 4%
ROE {FY13] 1999-2005 Capacity expansion = NIL
Asset turnover = 2x
6% of OCF
RoA = 8% Div payout
7% of FCF
Leverage = 1.7x
Cash flow analysis [Post 2006 AVG] Nil
RoE = 14% FCF
14 Y AVG = 4%

OCF 8% of sales
10% of sales All fixed cost Post 2006
Capacity expansion > 3x
For loss, Sales decline > 40% Operating leverage
8% of sales Cash fixed cost
10% of OCF
Div payout
66% of FCF Meaningless, HIGH capex

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