Liquor stocks gain; GM Breweries, Associated Alcohols soar over 10%

December 13
15:17 2017
Shares of liquor companies rallied up to 14% on BSE on Wednesday on the back of heavy volumes, extending their past two-and-half months rally after the company reported a good set of numbers for the quarter ended September (Q2FY18).

GM Breweries and Associated Alcohols & Breweries surged more than 10%, Som Distilleries, United Breweries, Global Spirits, IFB Agro Industries, Pincon Spirit and Empee Distilleries were up in the range of 2% to 10% on the BSE. By comparison, the S&P BSE Sensex was up 0.45% at 33,379 at 11:54 AM;

Thus far total 13 companies from the breweries & distilleries sector declared their Q2FY18 results, and doubled their aggregate net profit to Rs 322 crore. These companies had reported combined net profit of Rs 153 crore in the same quarter last fiscal year.

GM Breweries surged 14% to Rs 925, also its record high on the BSE in intra-day trade today. Since October 10, post Q2F18 results, the stock zoomed 64% from Rs 563 after the company posted 41% growth in net profit at Rs 15.73 crore.

United Spirits too outperformed the market by gaining 32% post Q2FY18 results since October 26. The stock hit a new high of Rs 3,470 in intra-day trade on Tuesday.

“Despite the implementation of Goods and Services Tax (GST) which has resulted in stranded taxes, the company has been able to deliver a robust underlying gross margin improvement in both the second quarter and first half, enabled it accelerated productivity initiatives, price increases in select states, and continued focus on premiumisation,” Anand Kripalu, CEO, commenting on the quarter and six months ended 30 September 2017 said.

With the recent Supreme Court clarification on the highway ban, the company has seen outlets start to re-open in September and expect the impact of the highway ban to continue to decrease and the business to normalize by end of the third quarter.

Based on current expectations, through the company continued focus on productivity initiatives coupled with price increases in select states, it expect the net adverse impact of GST on margins to be moderate in this financial year, he added.

Analyst at JP Morgan has ‘overweight’ call the stock with 12-month price target of Rs 3,580.

“Better pricing, strong cost optimization focus and a more rational competitive landscape (focus on profits vs volume) should lead to an overall higher industry profit pool. Strategic initiatives such as moving selectively to asset light/franchisee model and monetizing non-core assets would further help medium-term returns, in our view,” the brokerage firm said in recent report.

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