Thursday, May 9, 2013

GM Breweries Ltd- The right peg !

G M Breweries Ltd  is the largest manufacturer of country liquor in the state of Maharashtra with a sizeable market share. The company is engaged in the activities of manufacturing and marketing of Alcoholic Beverages; primarily Country Liquor (CL).
It was incorporated in Dec.'81 as a private limited company and became a deemed public limited company in Aug.'90. The company was promoted by Chairman & Managing Director Jimmy Almeida. It came out with its initial public offering at a premium of Rs 5, aggregating Rs 8.44 cr, in Sep.'93.

Equity : Rs.9.36 cr
Debt : approx Rs.23 cr ( of which about Rs.5.6 cr is long term & the rest Overdraft)
Current Market price: Rs.66-67
Market Cap: Rs.62-63 cr

P&L for the Year ended March 2013:
Gross Sales : Rs.939 cr of which, (State Excise Duty & Sales Tax paid : Rs.651 cr )
Total revenue including other income : Rs.289 cr
EBIDTA: Rs.27.5 cr
PBT : Rs.20.95 cr
PAT: Rs.12.78 cr
EPS: Rs.14.88
Dividend per share : Rs.2.50 ( current share price is ex-dividend)
Dividend history:
Key Facts:
1)      The company’s Country liquor brands  ( GM Santra, GM Doctor, GM Limbu Panch & GM Dilbahar Saunf) are well entrenched in the company’s Market i.e. Maharashtra.
2)      Sate wide Market share is estimated at about 25%. However market share in Mumbai & Thane is estimated to be in excess of 70%.
3)      The company has 172 employees on its rolls
4)      The company’s manufacturing plant is located at Virar, near Mumbai on its owned free hold land of about 10 acres. Additionally the company has leased approx 15 acres land in Virar. The 15 acre land is not owned by the company and it pays rent on the same.
5)      The company owns another 89 acres of land at Ganeshpuri, Wada which is about 15-20 km from Virar.
6)      The company has a state of the art fully automatic Bottling Plant  with a capacity to produce about 50,000 cases a day.
7)      Trade receivables have always been very very low and for the year gone by were at 0.28 cr which is a miniscule fraction of the company’s gross sales reflecting on the demand strength of the company’s product.
Growth Prospects:
1)      Current bottling capacity is about 13.76 crore litres per annum on a single shift basis.On a double shift basis, naturally, the capacity will be significantly higher. In the year 2012-13, the company utilized only about  48% of its single shift capacity. So, there is significant headroom for growth without much additional capital investment
2)      Keeping the abobe in mind, the company is making concerted efforts to penetrate deeper into other districts of Maharashtra.
3)      The current capex in progress over the last 2 -3 years, pertains to Tank conversion from M.S to Stainless steel and for a faster bottling packaging line. Both these are expected to add to operating efficiencies going ahead.
1)      Rectified Spirit and packing material are the key raw materials and a huge increase in these costs has been affecting the company’s profitability. In order to overcome the problem of wide price fluctuations and breakages in glass bottles, the company is over the last 3 years migrating partly to PET bottles and in 2012-13 approx 43% of the company’s sales were through PET bottles. Moreover, the company’s bottling lines have been designed to handle both glass and PET bottles. In the year gone by, PET bottle prices being linked to Oil prices showed a huge fluctuation.
2)      Currently there is acute water shortage in parts of Maharashtra. This may lead to shortage of alcohol.
3)      Last year LBT was introduced at Virar, where the company’s manufacturing base is located. This resulted in an outgo of around Rs.7 cr, affecting the profits.
4)      High levels of state taxation.

There are no contingent liabilities visible on the balance sheet. On the other hand, the company along with other CL & IMFL manufacturers had contested the ‘Transport fee Liability’ charged by the Govt of Maharashtra and won a favourable order from the Mumbai High Court wherein the Govt was asked to refund the Transport Fee deposited prior the order. Govt of Maharashtra has filed a SLP against the order in the Supreme Court and the same is pending admission.
In case of a favourable order, the company will receive refund of approx Rs.6-7 cr transport fee paid  alongwith interest.

As an interesting aside, the company’s gross revenues are about 100 times its paid up capital. The company operates in a controlled industry where new licenses are not easy to procure. As a safety cushion, it is pertinent to note that the value of the company’s land at Virar & Wada and the residential and commercial premises the company owns is more than the current market cap. At the current market price of about Rs.66-67, the company offers an excellent investment opportunity with a 2 year perspective.

At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock.  This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments. 


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