Thread by @aditya942000

How Ethanol Policy changed the fortunes of GLOBUS SPIRITS❓

👉So, Globus spirits is one of the largest grain based distillers in India.
👉They sell country liquor in the markets of Rajasthan ,Haryana,West Bengal and Delhi.
Have 30% mkt share in Rajasthan in IMIL segment.

👉They enjoy around 30%+ Ebitda margins in IMIL segment (earlier they were 20%+)
👉So, the co. decided to enter Bihar market and set up a distillery there.

👉And when all the capex was completed,they faced a huge setback from the state govt.

👉After Nitish Kumar was sworn in as C.M., he declared Bihar a Dry state,as a result of which their plant was shut down.

👉After all the legal struggles and battle they received an order from High Court in oct 2019 whch allowed them to operate d plant in order to produce ENA.

👉And with the change in Govt. policies allowing Grain based Ethanol to be included in blending with the fuel, they got shot in the arm.

👉Now wat happened is the Grain Based distilleries which were earlier producing ENA , started diverting their supplies towards EThanol to OMCs

👉As a result of which supplies of ENA got impacted & realizations started to improve.

👉Earlier it ws buyers market & distillers were at d mercy of beverage mfg. but after the supply of ENA dried up, the buyer's mkt hv totally changed to seller's mkt.

ecoti.in/1PPcMZ16

👉ENA realizations earlier used to be in the range of Rs.45-47 but now they have improved to Rs.51-52 & they are revised annually on 1st dec of every year by the govt.

👉GS enjoy even higher ethanol prices in the range of Rs.57 in deficit states such as W.B & Rajasthan.

👉Though IMIL is far more profitable buss. but in W.B. due to scarcity of ENA, they enjoyed better profitability than IMIL, though IMIL margins has picked up now.

👉So, due to favorable govt. policies their margins have picked up in the ENA and Ethanol space.

👉Presently they sell very lil quantity of Ethanol & majorly ENA cz its more profitable to do.
And out of Total Capacity of 500KLPD about 160KLPD is fungible.

👉Since demand for Ethanol is about to inc further due to 20% blending program by 2025, they have decided to almost

👉Double their capacity to 920KLPD within next two years.

Now the question is whether they will be able to sustain these margins? 🚨

👉RM prices right now are 25% lower than what they usually are. Since all their RM is broken rice which is waste product from the mills.

👉The prices are determined by the mills and it all depends upon paddy production every year and obviously the MSP inc by the govt.

👉Rise in RM prices might effect d margins but unlike last few years, now sellers determine the prices in ENA buss. and they can easily pass it on.

👉And Ethanol prices are revised annually in order to adjust any inflationary pressure on the RM side.

👉In IMIL buss the prices are revised yearly or within 2 years by the state govts.

👉Going forward, looking at the major push by the govt. towards ethanol blending and

👉Soaring crude prices ,it's unlikely that govt. will back out on this program.

👉In order to meet 20% blending target by 2025, India need 1500cr ltrs of yearly ethanol supply vs current 600-700crs ltrs.
And that is evenly split between 50% for sugar based ethanol and 50%

for Grain based ethanol.

👉Therefore, we can confidently say that it's not a hyped story, rather a Structural Change for Ethanol or ENA mfgs.

Even after current run up the stock still trades at 12x P.E. (TTM) and operating with healthy return rations of 25%+

👉With 30% inc in capacity by Q3 onwards and doubling by next year, it feels like story has just begun.

👉Not to forget , they r also planning on a 3year Strategic plan to grow their IMIL & IMFL (Unibev) further.

@nid_rockz @pd_log @mmvRavindra

Unroll @threadreaderapp