This country liquor maker's stock is up nearly 500% - The Morning Context

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  • Nimboo, Ghoomar, Heer Ranjha and Narangi. Ever heard of them? Probably not. They are all brands of country liquor that have outpaced more hallowed peers like McDowell’s No. 1 and Royal Challenge by defying industry trends last year, including the disruption caused by COVID-19.

  • Thanks to them, Ajay Swarup and his son Shekhar Swarup have scaled new heights over the last few months. Their “high” is because of the nearly 12.3 million cases of Nimboo, Ghoomar, Heer Ranjha and Narangi that their Globus Spirits Ltd sold in 2020-21.

  • The improved financial performance is just one part of Globus Spirits’s high-spirited run. At the time of writing this story, its stock had risen by 494.75% over the last year, overshadowing every other peer. Diageo India’s stock was up just 11.36% in the same time.

  • In the last couple of months, the Globus Spirits stock has breached its 52-week high innumerable times, often on consecutive days.

  • The fascination with Globus Spirits’s stock defies an industry trend. Much of India’s liquor industry is after the premium segment of the market that promises higher margins and more profitability. On the other hand, Globus Spirits’s revenues come from selling country liquor, which is otherwise known as Indian Made Indian Liquor, or IMIL, and falls in the value segment of the market.

  • Globus Spirits’s biggest market is Rajasthan, a state where it has a 29% share of the IMIL segment. The other big player in the state is the government-run Rajasthan State Ganganagar Sugar Mills. It’s not a level playing field by any means. According to government regulations, at least half of what liquor shops sell must be products of Rajasthan State Ganganagar Sugar Mills.

  • Perhaps nothing underlines the influence of country liquor, especially when mixed with family pride, than what happened during a recent auction of a liquor shop in a nondescript village in Rajasthan’s Hanumangarh district.

  • The auction in March saw two families in Khuiyan village face off. The bids began at 11 am, starting from Rs 75 lakh, about Rs 10 lakh higher than the winning bid a year earlier. To everyone’s surprise, the bidding war went on till 2 am as the families tried to outdo each other. The auction finally ended with a bid of Rs 510 crore!

  • While Globus Spirits’s brands are hugely popular in Ganganagar and Jaipur, competition takes the top slots in Bikaner.

  • Globus Spirits’s products are priced between Rs 40 and Rs 180 for a quarter bottle. In other words, they straddle the entire value segment.

  • Remember, the alcohol content in IMFL is 42%, which is higher than country liquor’s maximum of 36%.

  • But in bad times, like in the aftermath of COVID-19, the opposite can happen. Consumers of regular brands will opt for cheaper options as they limit expenses after a salary cut or a job loss. The industry calls it down-trading.

  • When the frequency comes down, it is back to the basics. The consumer opts for the brand that gives him the best bang for the buck. That’s country liquor.

  • So, is the stock market rewarding Globus Spirits for its performance in Rajasthan, and/or, for being lucky with the whole down-trading that has happened in the industry? Possibly. Another reason for its success could be its regional spread (unlike most of the other country liquor producers who are lions of their own dens).

  • In short, Globus Spirits enters a state and sets up a manufacturing unit to produce ethanol and ENA. This raw material is partly used to make its products, which are sold in the state’s liquor shops. The rest of the ethanol and ENA is sold to beverage and fuel companies. The key is to choose states that are in “deficit” when it comes to their ethanol and ENA requirements.

  • This capacity to churn out millions of litres of ethanol and ENA helps Globus Spirits in three ways. It can use the ENA, which is ethanol with a purity of 96% or higher, to make its products. It also sells this to many IMFL manufacturers. The other part of its 360-degree business model is the franchisee bottling it does for Diageo India in Haryana and West Bengal, and for Allied Blenders & Distillers in Rajasthan. The last plank of the business model is to supply the alcohol to fuel companies which have to meet the Indian government’s target of blending all petrol sold with ethanol (to the extent of 20%) by 2025.

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