On Tuesday, 24th November 2015, Porinju Veliyath and Rajasthan Global Securities launched an aggressive, no-holds-barred attack on the counter of Globus Spirits, the micro-cap (Rs. 219 crore) manufacturer of IMFL (Indian Made Foreign Liquor) brands like ‘Nimboo’, ‘Ghommar’, ‘Heer Ranjha’, ‘Narangi’ etc.
The duo was in a rush to grab all the stocks in sight and was in no mood to bargain with the sellers. Porinju pocketed 1,55,000 shares at Rs. 66.30 each. Rajasthan Global pocketed 6,30,081 shares at a slightly better price of about Rs. 65.85 each. The sellers were beaming with joy because the stock rocketed 20% and tripped the upper circuit.
Porinju has pumped in about a crore of rupees into Globus while Rajasthan Global’s investment is about Rs. 4 crore.
At first glance, Globus Spirits does not appear to fit in with Porinju’s investment philosophy because it is not a “cheap” stock. At the CMP of Rs. 76, the stock is at a P/E of 26x, which is quite exorbitant for a micro-cap. The stock also has a low average three-year ROE of 3.5% and a poor growth record.
Porinju’s timing was most inauspicious. The very next day, Nitish Kumar, the newly re-elected Chief Minister of Bihar, made the grim announcement that the State of Bihar will go dry from 1st April 2016 and the sale and consumption of liquor will be banned.
The rationale for the ban is that “the poorest of the poor are consuming liquor, badly hitting their families and their children’s education” and “Increasing liquor consumption is also a major cause for domestic violence, particularly against women, and has contributed to a rise in crimes”. It is also stated that “Women are suffering more than anyone else due to increasing liquor consumption.”
The ban will affect a body blow on the fortunes of Globus Spirits. Shekar Swarup, its’ ED, had stated a few days ago that the Company is setting up a distillery in Bihar and that there is a “good response” to IMFL in Bihar.
Nitin Mathur, an expert, opined that “the ban is going to be a huge negative for companies like Globus Spirits, United Spirits Limited and Radico Khaitan as Bihar forms a significant portion of their revenue”. Priya Sheth of CNBCTV18 estimated that Bihar constitutes 17% of Globus’ sales.
To compound the issue, Shivraj Chavan, Chief Minister of Madhya Pradesh, came on record to state that “We have decided that we will not let any new liquor shop open anywhere in the state”.
We have decided that we will not let any new liquor shop open anywhere in the state-MP CM Shivraj Chauhan pic.twitter.com/sUJ9CwmJtS
— ANI (@ANI_news) November 28, 2015
Devendra Fadnis, the Chief Minister of Maharashtra, appears to have taken a cue from this and is mulling a State-wide ban.
After Bihar, Maharashtra planning statewide ban on liquor
— IndiaTodayFLASH (@IndiaTodayFLASH) November 27, 2015
Prohibition is already in force in the Chandrapur district of Maharashtra. The same has been challenged in Court and is pending.
Production, sale and consumption of alcohol is already prohibited in Gujarat, Kerala, Manipur, and Nagaland.
It is notable that the proposed ban on liquor has supporters amongst prominent citizens. Kamal R. Khan, who has a massive following of 9,67,000 people on twitter, demanded the ban:
Will Maharashtra government show courage to ban liquor in the state? Come on @Dev_Fadnavis Sir, do it for the poor people of your state.
— KRK (@kamaalrkhan) November 26, 2015
However, several other eminent citizens are opposed to the ban on the basis that the Government cannot dictate what the citizens can and cannot do. Some experts are also concerned about the adverse impact that the ban will have on the revenues of the State.
In this state of affairs, liquor stocks are the last place that one should be investing in. Surely, savvy investors like Porinju Veliyath and Rajasthan Global have alternative stocks to deploy their funds.
It is also important to bear in mind is that even if the liquor ban is not made effective or is diluted so as not to apply to IMFL, the overhang of the regulatory hammer will constantly haunt these stocks and prevent from reaching their full potential. One could see this in the case of Titan Industries. When the RBI announced an adverse change in the norms for the gold-leasing scheme, the stock plunged like a ton of bricks. However, thereafter, even though the ban was lifted by the RBI, the stock never fully recovered because investors were wary that the RBI could change its mind anytime and reintroduce the ban. One can also see this fear in Pharma stocks which are singed by a FDA ban. Investors are wary about such stocks and prefer to keep away.
What Porinju and Rajasthan Global do about their brand new investment in Globus Spirits deserves to be closely watched!
Example of Titan is not relvent,Gold buying was being done due to single upward direction of Gold prices,so with Gold on southward journey,no takers unless it is required for immdiate marriage .Bad things had attracted human being since start of civilization. These have been and will be roaring business till the last man on earth.I don’t drink presently but had for many years.I know no govt or family or society pressure can stop these bad attractions.Attraction is root cause of survival of bad habits ,and Forget Nitish,great reformers world over could do nothing,so alcohol business will not only survive but thrive.If there is single common point between devolped or underdevolped, east or west,rich or poor, educated or illetrate, foot soldier or General,worker or chairman,black or white,north or south,old or young ,across all continents, it is attraction to bad habits like drink and I don’t see it dyeing soon.
These are political gimmicks and not to worry about. They give a blanket statement and the do the exact opposite.
When the United AndhraPradesh was under TDP regime, the Government was reeling under financial pressure, so, it opened the Liquor business. The Opposition was vociferous at that time, and finally could come into power, stating that it is against free liquor policy.. But after they came to power, they opened more bar shops, more licences and today, in both Andhra and Telangana regions, liquor is flowing more than the Godavari river water.
No Government including Bihar or MahaRashtra can survive without the Excise income, which is the major part of the State Income. Nitish or Satish, one has to allow people to drink more so that their coffers have to fill. This is a personal view, and I am not in favour of such income, but it is a good game play, the stock will be down for a while, but will be reaching 100 soon.
Nitish Kumar is a smart man. And so is Lalu. He is trying to do something good for the state. Unfortunately he doesn’t realize that liquor sales are the life of Bihar. It is ingrained in their everyday life and culture. It makes no sense to try and provide such rationale policy to people who voted for Lalu.
Boss Liquor sales will not drop. Instead it will sell via black market just like all Gutkhas in Maharashtra.
The politicians will now earn more via black market.
I view the step in the right direction. This step may not stop people from drinking alcohol but it will surely discourage new ones.I see depressed share prices for quite some time owing to reduced sales growth and redced expectation reflecting in p/e.
Do you remember the Skylab falling rumours in 1970s? People ate and drank a lot, fearing that the space station will fall on them.
I saw similar efect, back in 1990s. People guzzled IMFL, and all other stuff.
Similar effect can be seen, when Porinju bought something, people rush towards it.
Same Is the case when Nitish announces ban. Are Bihari’s going to drink more? Thinking that there will be no more fun after April 1st????
I think Nitish is brilliant. All of us wait to fool someone until April 1st, while he started it just on 27th November…
When the liquor was not available in Hyderabad, people used to visit Bidar, in Karnataka… If 17% is the Globus share in Bihar, they can easily supply more from other factories, sans the Bihar factory….Any comments?
Seems like ban is on country liquor. then cos manufacturing cheaper IMFL will get a big boost. Would like to think smart investors like porinju dont act without good reason and logic
I too invested in globus spirits, so, my views may be biased.
Government will only loss revenue due to liquor ban. but poor people has to shell out more money to drink liquor or they have to go near by border states to drink. Anyway only poor people should shell out their hard earned money. ultimately black marketeers may benefit enormously.
Everything said n done, Globus Spirit up by 33% from Mr. Porinju’s price in a boring market.
Ba or no ban liquor sales will continue as long as human life is their.
Ban or no ban
Globus spirit’s ltd and waterbase ltd have enough strengths to enter into nifty 50 stock in 8 years time
One small company which can grow leps and bonds in next 10 years r. DQ entertainment international ltd
Ub holdings ltd fall on news that t
Suspension of trading but this company is most powerful company. D Mart promoter Radha Krishna damini is holding this stock. No need to panic in this stock.
Modi, sebi, rbi is first time on right direction to control cheater’s, all companies will show good results if checking continues. Government tax collections grow. Social spending will boost growth.