Political division of Maharashtra PB above 1.2x

When to sell

Excess capex for FY14 & 15

Out of favour

INV theme Started in FY13

Globus Spirit Partnership In Maharashtra

Growth NOT MUCH DEPENDENT ON ECONOMIC CYCLE CATALYST: Correction in sugar prices or Increase in CL prices

PET bottles may be banned Globus Spirit - aggresive pricing- NIMBOO

Risks

Rev

Impact of political division of Maharashtra

CAGR [08-13]

Low possibility that promoters are inflating Capex [ Post 2006, FCF NIL

9%

EBITA

Segment breakup

-1% [Negative]

NW

16% FY 13 = 7%

74.4%

EBITA margin [TTM]

Promoters

NIL

FY08 = 11%

FIIs & DIs

2.5% HNIs 9 individuals

Key Parameters

Sh pattern

19.5% Retail > 6,700 1.55%

GM breweries

Corporates

Reasons NOT to BUY

Decline in sugar prices Increase in dividends

Reasons to BUY

Why Re-rating

Increase in CL sales

Profitability

NOT more than 2.5% MAX

P&L analysis Tranport fee Change in regulations Too many moving angle

Keep exposure between 3-4% Maximum

Marginal Inventory

Spike in commodity prices Working capital

Political division of Maharashtra

% allocation

BS analysis

Marginal trade payables D/E =

Study regulations

Marginal receivables

0.3x

Debt

Why Not something else

Study sugar cycle 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

ContrarianValueEdge.com

leverage =

1.6x

Good Monsoon

Mainly rural consumption

High summer, Low IMIL

Highly regulated

Other parameters

Ban on Advertisement

Downgrade to IMIL From LOW IMFL

Bad times

Capacity expansion controlled

Business [Quaity]

White Swans Population of Maharashtra doubled over this period

Size of opportunity

Limited

Abillity to scale up

Not much

Increase in capacity utilisation

FY 97 = 5L Remuneration

Key Parameters

FY 06 = 12L Drastic increase

FY13 = 75L

1.4x PB

IT Search

Since 2001 = 1.5x 6.2x Subtopic 1 0.3x AVG ROIC 5 YRS = 15%

FY03

Negatives PE

FY 05 Guidance nil for FY06

AVG [2007] MD&A

EV/EBITA DEbt/Equity

Capex Guidance NOT RELIABLE

FY06 Guidance nil for FY07 FY 10 Capex guidance for FY11 Nil

Valuation [Price] People

PB = 0.6x

0.3x

DOUBLE CHECK ??

Interstate movement difficult

Growth drivers

BUT some of IMIL ALSO DOWNGRADE Ban on issue of retail licenses of CL since 1973-74

Current < 50%

VERY DIFFICULT FOR NEW BRANDS TO ENTER

ENTRY barriers

Property transactions

Sale for 0.7 crs FY04

Continous increase in stake

Debt/E LOW TTM valuation

No equity dilution since 1994

EV/EBITA = 3.2x

Consistent div payout

PE = 5x Positives

Dividend CAGR = 15% 13 YRS Dividend

Payout AVG 17% 8 YRS AVG DPS = 2.5 Yield 4% at INR 60

ContrarianValueEdge.com

Nil Guidance, Huge Capex

Beer Winsome Breweries Leverage = 2.2x

ROE 10 Y AVG

< 4%

Asset turnover

1.5x

IMFL - Puducheery

D/E = 1.2x

Debtors TO = 6x Working capital

Distillery = 70%

Inv TO = 6x

Rev Mix Sugar = 30%

Peers in Others

Distillery = 85%

Ravikumar Distilleries

ROCE & ROE AVG = 12%

EBITA mix Sugar = 15%

Picadaly Agro

Dividend payout

ROCE = 22%

Peers

4 Yr AVG

ROE = 26%

Leverage = 1.7x Radico Khaitan

Mgt Questionable

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% NEVER IN 8 YEARS

IMIL < 5%

United Breweries

PEERS in CL

CL started only in 2008

Asset TO = 1x

AVG ROE Dividend Globus Spirit

ContrarianValueEdge.com

Never

Tax rev Sudden surge in molasses prices in 2004

States

Second highest after SALES TAX

Central

Past shocks > 300

structure

No. of Distillaries

FY07 Installed capacity

Eg. South India

3,500 ML

Govt controlled Govt is distributor Bid winner

Auction Market

Distribution sys

Distributors Licensed

Retailers

Not much govt control

Supply Chain

Industry

Open Market Bars & REstaurants

Beers

Segments

Eg. Maharashtra

IMFL IMIL

Banned in India Surrogate adv

Sugar

Advertising

ENA

Cable uplinked OUTSIDE India

RM

Molasses

Rectified Spirit

Ethanol Price might get impacted by Ethanol pricing

Alcohol production process.png

ContrarianValueEdge.com

Andhra Tamil Nadu Govt controlled wholesale Distribution Sys

Banned in states Karnataka Kerela

More price controls More regulated than IMFL IMIL = INR 25

REGIONAL in nature Grain [Rice]

IMIL 10-15% till 2017 Forecast Globus Spirit

Less Excise duty

Lowest Price point

IMFL = 50

Chg effective from 1st April

RM - Rectified Spirit

Molasses [Sugar] Primary distillation

West Bengal

North India market size

North India IMIL_2010.png

Distilliary MUST be located WITHIN STATE 220 M cases

Size = 35 - 37M Cases

UP = 11%

GM breweries Through Franchisee Peers Nimboo Brand

Maharashtra = 9%

Maharashtra

Globus

Market [2011] Share of states

IMIL

Guess ENA based unlike RS by peers

WB = 8% Bihar = 8% Punjab = 5%

Quantity Market share

Price Controlled by govt

Regulation Wholesale

27% Globus S

Delhi

Ex-distillary price Govt regulated price Min retail price

Retail

Haryana

Must purchase 5% from EACH PLAYER Regulation Distributors

50% reserved for Govt entity Regulation Purchase of RM from govt co. COMPULSORY

2007 rule Private players

40% REGULATED MARKET Private players

Rajasthan FREE MARKET

Distributors No. of Players

ContrarianValueEdge.com

8

60%

Whisky = 55%

product mix United Spirits Jagjit Industries 80% Market share

Seagram

Wine = 5%

Growing at HIGH double digit

Players RM

ABD - officers Choice

ULTRA low margins

Brandy/Rum/Vodka = 40%

> 80-90% = Molasses

MNC < 20%

Low end

Segment profitability

High premium

IMFL

Market share

Indian co ~ 80% Might have chg after recent Mallaya deal

ED in state of manufacture Import duty in state of sale

Low per capita

Taxes

Growth drivers

Practically distillery & BOTTLING PLANT in SAME state Degulated dist sys in 2009

Rajasthan & MP

Improving life style Shift from unorganised to organised

Regulation

REduce duties on imports Import and bottled in India

WTO

Negatives

Possibilities Bottled in ORIGIN country

ContrarianValueEdge.com

Intense competition Buyers market

Supply Chain

Sugar Cane

Grain based

Sugar mills - Molasses

Yield

Distillery

240 to 280 BL [fr Molasses]

Bottled Own

Franchisee

Distribution

Govt Controlled

Retail distribution ContrarianValueEdge.com

330 to 440 [Grain based]

Key parameters

Sugar

ContrarianValueEdge.com

India largest producer in world

FY03 = 165 FY 13 = 172

No. Employee

Cost Sales vol

14% CAGR 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

ContrarianValueEdge.com

19% in Maharashtra MONOPOLY in Mumbai & Thane

HIGH Market share Never reported DOUBLE DIGIT decline in volumes Decline in vol < 2% Y/Y

2001 > 50% receivables more than 6 Months

Flat during 1999-2005 at 13% Sub 13% to 19% fr 2006 to 2012

Recession proof business

Debtors days declined from 45 days to Nil

2% pt over 2009-11

NEGLIGIBLE WORKING CAP

Post 2006

CAPACITY utilisation < 50%

Since 2001 LOSS ONLY ONCE PROMOTER HOLDING = 75% MGT remuneration ,< 1cr

Other positives

Reasons to BUY

LOW CAPEX FOR next 5 YRS

Major capex of 50crs 2006-08 Capacity > 3x Capex of 60crs 2011-13, to manage PET bottles

For every 100 sale, Govt gets 300 as tax Highly regulated < 40%

2001

65%

2004

68%

2007

PB = 0.5x

AVG PB = 2.5%

69.5%

2008

73.6%

2009

74.4%

2010

74.4%

2013

PB = 1.5x

ENTRY barriers

Ban on Advertisement

VERY DIFFICULT FOR NEW BRANDS TO ENTER

Capacity expansion controlled

DOUBLE CHECK

Interstate movement difficult

Continous increase in promoter stake VERY low Breakeven

ContrarianValueEdge.com

Sales need to decline by 50% to incur losses

Commodity product

Water shortage Revenue shortage RM pricing is constant political tool

RM 50%

Political problems

NO pricing power

Since 2011

ASP 15% EBITDA fr 16% to 10%

Election year NO PRICE INCREASE

Price fixed at start of year FY 1997 = 20% Steep decline in margins 1997-2005

FY 2005 = 4%

EBITA margin

2000-06

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 Last three yrs AVG = 2.5crs Ltr

Contintent liability

NANO CAP

M CAp < 60crs

Paid 50% during 2010 & 2011 Molasses 50% of packing material = PET Packing material cost = 35% of sales

FX risk

Volatile RM

Glass FX Plastic Oil prices

ContrarianValueEdge.com

Cannot be adj. in between for RM inc

11%

EBITA margin

32%

Book tax rate

34%

Cash tax rate

Tax rate 4%

Net margin

1.6X Asset turnover

ROE [14 Yrs AVG]

FY06-09 = 2.5x 7%

RoA

3x Leverage [Assets/Equity] FY13 = 1.6

Post 2006 AVG

18% Div Payout ratio FY13 = 20%

14% ROE AVG FY13 = 15%

EBITA EBITA margin = 9%

Pre-tax = 27%

Tax rate = 32%

RoA Fy06-13 = 13% Assets/Equity

3X

Post 2006 ROIC

RoIC [Post 2006 AVG]

Net margin = 6% Asset turnover = 2.2x

9%

Asset turnover

Post tax = 18% EBITA

ROE {FY07-13]

8%

Asset turnover

3X

TTM Pre-tax = 24%

Leverage = 2x

ROIC

Profitability

RoE = 23%

Post tax = 16%

Deb/Equity < 0.4x

Capacity utilisation

IMFL 1Cr BL IDLE CAPACITY since 1997

EBITA margin = 8% Int/Sales = 1%

FCF

Tax rate = 32% Net margin = 4% Asset turnover = 2x

OCF

ROE {FY13]

1999-2005

6% of OCF 7% of FCF

Leverage = 1.7x

Cash flow analysis [Post 2006 AVG]

RoE = 14%

Nil FCF 14 Y AVG = 4% OCF

All fixed cost

For loss, Sales decline > 40%

8% of sales

Cash fixed cost

16% of sales

Capacity expansion = NIL Div payout

RoA = 8%

10% of sales

14%

8% of sales

Post 2006 Capacity expansion > 3x

Operating leverage

10% of OCF Div payout 66% of FCF

ContrarianValueEdge.com

Meaningless, HIGH capex