GM Breweries Upper Circuit At 20%

GM Breweries share price surged 20% intraday from day’s low of Rs. 470 and closed at Rs 546.65. The stock showed a huge jump in volume by 10.50 times of its average 20 days volume. The stock was trading below its 9 month low of Rs. 489.60 and made low of Rs. 442.55 on 4th Aug 2016. The 52 weeks high for the stock was at Rs. 936 on 8th Jan 2016.

Reason for fall in GM Breweries:

• Weak quarterly result: The Company registered a decline of 10.52% in its Net profit from Rs. 14.06 crores (Before Exceptional Item) in FY16 March Quarter to Rs. 12.58 crores in FY17 June Quarter. GM Breweries’ revenue has gone down by 2.91% from Rs. 91.70 to Rs.89.03 crores QoQ.
• Bad news in Sector: The liquor companies were not included in the list of GST, the benefit that liquor companies were expecting because of GST implementation has not been granted by the government. Many states banned alcohol which has impacted the overall growth of the industry.
• Liquor Price went up: Liquor price increased by 20% due to increase in tax.

Reason for investing in GM Breweries:

• Zero Debt: GM Breweries is a Zero debt company.
• Profit margin: GM brew has an excellent operating profit margin of 22.40% and the net profit margin is at 16.24%.
• Valuation: GM Brew is trading at very low PE multiple of 12.13 where the industry PE ratio is 30 (approx).
• Delivery Position: GM Brew showed tremendous surged in volume on 9th Aug 2016 by 100774 shares where the 20- day average volume for the stock is 38215 shares, however, had the delivery position for 28734 shares and the stock traded in a range of Rs. 489.95 to Rs. 445.00. On 4th Aug GM Brew had a huge delivery position of 14425 and share traded in a range of Rs. 480.00 to Rs. 442. Therefore Rs. 442 becomes a good support for the stock.

Investment Opinion:GM Breweries share price fell by 36% from its recent high of Rs. 691 made on 29th June 2016. Looks like that worse is over for the stock; however, Rs. 442 will act as a crucial support for the same. We suggest buying in GM Breweries at correction of Rs. 480 to Rs. 500 levels.

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