GLOBUS SPIRITS : attractively priced issue for the medium term

Globus Spirits ltd was incorporated in the year 1993. The company is in the business of manufacturing and marketing IMFL (Indian made foreign liquor), industrial alcohol and country liquor. The company has two manufacturing and bottling plants at Behror and Samalkha with a licensed and installed capacity of 1,44,00,000 bulk litres per annum at each plant. The company has a capability to make alcohol from grain and also molasses. It supplies rectified spirit or ENA (extra neutral alcohol to almost all the leading liquor manufacturers in the country. The company has a decent presence and market share in Haryana, Delhi and Rajasthan in the country liquor segment and has launched its IMFL brands additionally in Uttar Pradesh and the four Southern states of Karnataka, Kerala, Tamil Nadu and Andhra Pradesh.

Market and earnings

The company is promoted by Mr Ajay Swarup, an IIM graduate from Kolkatta and his investment company Chand Bagh Investments Ltd. The demand for liquor or the growth in the sector is a fact of life with factors such as rising population, the wider acceptance of liquor being a part of life and no longer a social taboo and of course the average age of people being initiated into drinking coming down. At the same time it may also be relevant to know that the per capita consumption in India is 2 litres against 3.5 lts in Thailand, 5 lts in USA and 9 lts in Russia. The company had gross sales of Rs 235.26 crs in 07-08 and Rs 281.40 crs in 08-09. They have shown a further growth in the first quarter of the current year with sales rising to Rs 92.35 crs. The profit after tax has been Rs 12.64 crs and Rs 12.93 crs showing that margins have been under pressure. The margins were under pressure and the same have been reflected in numbers primarily on account of rising costs. In the current quarter Globus Spirits did get a price increase and the same resulted in a jump in net profits to Rs 6.77 crs for the first quarter. The EPS for 07-08 is Rs 10.58 and for 08-09 Rs 10.55. The annualised EPS for 09-10 is Rs 22.12 and actual for the quarter Rs 5.53

The profits look sustainable simply for the reason that traditionally the first half sales in the liquor industry account for 40% while the second half accounts for 60%.

Issue Details
Issue Size 75,00,000 equity shares of the face value of Rs. 10 each
Employee Reservation
Up to 50,000 equity shares
QIBs Portion Up to 37,25,000 equity shares
NIBs Portion Not less than 11,17,500 equity shares
Retail Portion Not less than 26,07,500 equity shares
Price Band Rs. 90.00 – Rs. 100.00 per equity share
Paid up capital Pre-Issue – Rs.12.26 crs. Post-Issue – Rs. 19.76 crs.
Market Capitalization At lower band – Rs. 177.84 Crore At upper band – Rs. 197.60 Crore
Promoter holding Pre-Issue- 96.41% Post-Issue – 59.81%
Grading “CARE IPO Grade 3” from CARE
Issue Program Issue Opens on – 31st Aug 2009 Issue Closes on – 2nd Sept 2009
Listing BSE & NSE
BRLM Srei Capital Markets Limited & Keynote Corporate Services Limited

The objects of the issue are as follows:-

  1. Multi-Pressure Distillation Plant to produce 35,000 litres/day of ENA at Behror Unit.
  2. Multi-Pressure Distillation Plant, including Slurry mixing and Liquefaction,
    Saccharification cum-Fermentation along with auxiliaries etc. to produce 35,000 Litres/day of ENA, at Samalkha Unit.
  3. Brand Development for Marketing of IMFL Brands
  4. Acquisition of Canteen Stores Department registered IMFL Brands
  5. IMFL Bottling Section at Samalkha Unit
  6. IMFL Bottling Section at Behror Unit.

The total cost of all the above and other aspects of the project are estimated to cost Rs 89.3 crs.

Growth and Valuations

The main drivers going forward would be to increase the company’s presence in the IMFL segment and with a brand acquisition of a Canteen Stores Department (CSD) approved/registered brand increase sales in the premium segment.

The share is attractively priced at 4.07 times and 4.52 times at the lower and upper price band respectively of its first quarter EPS on an annualised basis. As mentioned earlier the EPS for the quarter was Rs 5.53 and on an annualised basis the same was Rs 22.12

I recommend investors to subscribe to the issue for medium term gains.  

SEBI Disclaimer:- I intend to subscribe to the issue 

NHPC lists under pressure

NHPC listed at the BSE at a well attended listing ceremony held at the convention centre. The IPO had received a huge response during its road shows and was oversubscribed over 23 times. The issue price was Rs 36. The listing price at the BSE was Rs 39 while on the NSE it listed at Rs 42. 

Details at 10.45 am are as follows:-

Exchange Open High Low Current Avg Price Volume
BSE 39.00 39.75 36.75 38.00 37.46 98279614
NSE 42.00 42.00 36.75 38.00 37.47 265130693

The total volume traded is already 36.33 cr shares which is roughly one fifth of the shares issued. More on it during the day.

Jindal Cotex Ltd IPO

Venturing into value addition products based on core competence – subscribe only if you have patience. 

Jindal Cotex Limited has entered the capital markets and the issue is currently on. After attending the broker/analyst meet in Mumbai and reading the red Herring Prospectus (RHP), lot of confusion arose about the issue. On speaking to the management I realised that the best thing would be to take time out and visit the facilities of the company in Punjab and ascertain for myself the reality and take a call on the company. Accordingly I visited the facilities over the weekend to see for myself. This article is post the visit and therefore the delay in writing about the issue.

Clearly a very bad job of presenting the company, and some inadvertent errors in the document have created confusion and made many investors confused. The company was set up in 1998 as a spinning unit with 6912 spindles. This capacity has been steadily expanded and by 2006 had reached a level of 23,472 spindles. The company is in the process of expanding its capacity further by more than doubling the same by adding 28,800 spindles under Phase I of expansion. The construction of the building for the same is almost complete and machinery installation is under progress. This unit is expected to commence production by October 2009.

In Phase II the spinning capacity is being further expanded by 21,600 spindles adjoining the phase I expansion and work on this would begin in September 2009 and is likely to get commissioned by early 1st quarter of 2010-2011. The expansion of Phase one and two would treble the capacity from the existing 23,472 spindles to 73,872 spindles. Side by side the spindles expansion in Phase II, the company is also setting up 6 tons per day dyeing plant and a 3,000 pcs per day garment unit.

The company was set up and is being managed by a first generation technocrat Mr Sandeep Jindal and the promoters include Mr Sandeep and his family.   

Objects of the issue  

The money being raised from the public is for investing in the equity of two 100% owned subsidiaries of the company M/s Jindal Medicot Limited and M/s Jindal Speciality Textiles Limited.  M/s Jindal Medicot Limited is setting up a project to manufacture Medical Textile Products such as absorbent cotton wool and its products, cotton crepe bandage like stretch bandage and crepe bandage cloth. The capacity of this plant is 5000 tons per annum.  

M/s Jindal Speciality Textiles Limited is setting up a facility to manufacture PVC laminated products for applications like frontlet banner fabric, backlit banner fabric, inflatable fabric for boats etc, tent fabric, tarpaulin fabric and truck siders etc. This facility is being set up with a capacity of 60 million square metres per annum. 

Both these projects are being set up in district Una, in Himachal Pradesh. The cost of these projects is Rs 88 crs and Rs 151 crs respectively. The total cost therefore comes to Rs 239 crs with an equity contribution of Rs 81 crs. It is primarily for this equity contribution that the money is being raised.

Equity Shares offered: 
Fresh Issue by the Company   1,24,53,894 Equity Shares  
Price Band  Rs. 70 to Rs. 75 per Equity Share 
Promoters Contribution in the Issue  12,03,894 Equity Shares 
Net Issue to the Public  1,07,50,000 Equity Shares 
Of which:  
Qualified Institutional Buyers  (QIBs)  53,75,000 Equity Shares 
Non-Institutional Portion  16,12,500 Equity Shares  
Retail Portion  37,62,500 Equity Shares 
BID/ISSUE OPENS ON   August 27, 2009 
BID/ISSUE CLOSES ON   September 1, 2009 
IPO Grading   “3” / 5 by Brickwork Ratings India Private Limited  
BRLM   Saffron Capital Advisors Private Limited   
Syndicate Members  Saffron Global Markets Private Ltd., Enam Securities Private Ltd.
Issue Size Public offer Rs 75.25 crs to Rs 80.63 crs

Business

In the present spinning business there is roughly 17-18% wastage during the process of carding and combing which is sold at roughly Rs.30,000 per ton. This would be used as raw material in Jindal Medicot and the entire requirement of 5000 tons per annum would be met from the present and enhanced spinning capacity of the company. Similarly the fabric manufacturing requires yarn and the entire requirement of the same would also be met entirely.

Valuations

The valuations of the company based on March 2009 numbers are certainly not comparable with industry peers in any way. This as of today is a spinning unit which is trebling its capacity in roughly six to eight months without using IPO proceeds and then setting up two value added, high technology products which have 5 years exclusive contracts with the technology partners in place. To compare with spinning peers and investing on historic earnings is strictly not desirable.

Any project involves risk and this project is no exception. The risk is not in the execution and completion of the spinning expansion but the two new projects being set up. I believe there can always be a delay in completion, but the project is for products which already have a ready market and are widely accepted. It is only that there are no large manufacturers as of today and no listed companies in the space. Investors, who are prepared to wait for a twelve month period and are looking for substantial appreciation after the waiting period, only should apply.

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