G M Breweries Ltd. - Rs.120.00

G M Breweries Ltd. (GMBL) was originally incorporated as a private limited company in Dec.'81 but was subsequently converted into a public limited company in Aug.'90. The company was promoted by Mr. Jimmy Almeida, Managing Director & CEO of the company. Today, GMBL is the single largest manufacturer of country liquor in Maharashtra and enjoys virtual monopoly in the districts of Mumbai and Thane. Earlier, it used to make and market Indian made foreign liquor (IMFL) like brandy, rum, whisky etc as Pioneer Special Doctor Brandy, Hot Shot Rum and Reporter’s Choice Whisky but due to competitive market conditions, it has been concentrating on country liquor for the past five years. Its country liquor brands are GM Doctor, Tango and Punch, which are all fast-selling.

GMBL’s plant is located in Thane and it has the facility to blend and bottle both IMFL and country liquor. Interestingly, al products are manufactured using in-house know-how and no outside technology is being used in manufacturing. With the recent installation of additional bottling lines, the capacity of its IMFL & country liquor stands at 1.43 cr. bulk litres & 5.47 cr. bulk litres respectively. Since the plant worked at 75% capacity utilization in FY06, there is tremendous potential to utilize the balance capacity by penetrating into the interiors of Maharashtra.

Interestingly, the company funded the entire expansion plan through debt and internal accrual and hasn’t diluted its capital since its IPO in 1994. Still, its debt equity ratio is quite decent at 1:1. What’s more, it has an uninterrupted record of dividend payment from the day of listing. GMBL made sharp progress in FY06 as sales more than doubled to Rs.155 cr. and net profit stood at Rs.13 cr. compared to Rs.0.75 cr. in FY05. It has reported very encouraging numbers the first half of FY07 as well. Sales improved by 17% to Rs.81.50 cr. but profit doubled to Rs.6 cr. Notably, its OPM stood enhanced to 14% compared to 10% in the corresponding previous half year. Assuming the same trend, it could end FY07 with sales of Rs.185 cr. and PAT of Rs.13.50 cr. leading to an EPS of Rs.15 on its equity of Rs.9.40 cr. At a reasonable discounting of 12 times, its share price can easily touch Rs.180 (40% appreciation) in 9-12 months. On an optimistic note, the scrip has the potential to break its earlier high and cross Rs.275 mark in 18-24 months. It’s a strong buy for medium as well as long-term.