This Small Cap Stock Gave More Than 400% In 3 & 5 Yrs, Buy For 30% Returns, Says ICICI Direct

Leading brokerage firm ICICI Direct is optimistic about Globus Spirits Limited. The brokerage sees 30% upside in the shares price in 12 months from its current level with the target price of Rs 1000 per share. It is a small cap Beverage- Alcoholic sector company with a market cap of Rs 2,223.43 crore.

Globus Spirits (GSL) is the largest grain-based ENA manufacturer in India with a capacity of 250 million litre. The company is also a supplier of Indian made Indian liquor (IMIL) and premium IMFL in India. Consumer segment comprised ~34% of consolidated revenues, with the rest contributed by bulk alcohol (66%). Total 80% of IMIL sales occurs in Rajasthan (32-33% market share).

Stock Outlook & Returns Over The Years

Globus Spirits' Current Market Price (CMP) stood at Rs 771.95 per share on NSE, gaining 2.29% as compared to its previous close. 

The stock's 52-week high is Rs 1,759.50 on January 14, 2022, and its 52-week low is Rs 721.50 on November 15, 2022, respectively.

The stock in a week has given 4.74%. In 1 and 3 months, the stock has given 4.46% and 13% negative returns, respectively. In 1 year, it has given 33.31% negative returns. The stock has given multibagger returns in 3 & 5 years, it gave 448.45% and 466.15% respectively. 

Q2FY23 Results

Higher power and fuel costs negatively impacted margins. Net revenues remained flattish QoQ at Rs 480 crore. EBITDA fell 35% QoQ to Rs 45 crore with margins at 9.4% (13.4% in Q1FY23). Subsequently, PAT de-grew 58% QoQ to Rs 22 crore.

Buy stock for Rs 1000 Target Price

Margins are expected to improve, going forward, led by higher rice procurement from FCI (40% in Q2), better product mix (IMIL is expected to claw its lost MS). However, higher usage of rice straw as power source and availability of coal at better prices remain key monitorables on margins front. "We remain positive on the stock and maintain our BUY recommendation. We value the stock at | 1000 i.e. 11x P/E on FY24E EPS," the brokerage has said.

Key triggers for future price performance

With doubling of the current capacity by FY24 to ~900 KLPD, GSL plans to capitalise the changing dynamics in the liquor space. Further, growing opportunities in IMIL space (better price points and growing aspirations) would lead to higher asset turnover and return ratios in the long run. 

• Capturing premium price points in IMIL space via higher strength liquor.
• The government expedited 20% blending target to 2025, leading to higher diversion of ENA towards ethanol.
• Net debt expected to decline with return ratios reaching 30%+ levels.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.