Morality or money? Tobacco, liquor, casino stocks surge up to 225% in five years




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                          ChartsValuation & Peer ComparisonCommunity BuzzPEER COMPANIESPhillipsntc industriesMotilal Oswal Financial ServicesMotilal OswalITCifb agro industriesGolden TobaccoGodfreyDelta CorpEXPAND TO VIEW ALL Gruesome photograph as well as health warnings published on the tobacco and alcoholic products can give you an awkward feeling. But return delivered by these companies including casino player on Dalal Street have given a major push to accumulate handsome profit over the past five years.

                          Some people consider buying liquor, cigarette or playing games in casino against their ethics.

                          Share price of Delta Corp, the only listed casino player, has surged 225 per cent during August 2012-August 2017, whereas benchmark BSE Sensex advanced 80 per cent during the same period. Brokerage firm Motilal Oswal Financial Services is still bullish on the company.

                          Shares of alcohol manufacturer IFB Agro Industries and cigarette and smoking mixture maker NTC Industries have delivered 192 per cent and 175 per cent returns during the same period.

                          Winsome Breweries has advanced over 160 per cent in last five years. Other cigarette and alcohol majors such as Golden Tobacco, ITC, VST Industries, Godfrey Phillips and United Breweries have gained between 30 per cent and 67 per cent.

                          The liquor sector is hogging limelight ever since the Supreme Court slapped a ban on the sale of alcohol along national highways. However, the apex court recently clarified that the ban on sale of alcohol within 500 meters of state and national highways does not apply within city limits, providing some relief to the liquor and hospitality industry.

                          The move will enable liquor vends, which fall under the city limits but operate within 500 meters of a highway, to open shutters and apply for license renewal.

                          Some market veterans have offloaded liquor stocks in recent times. “I have sold United Spirits because of the environment problems, including the highway ban,” Manish Sonthalia, Motilal Oswal Asset Management, said in a chat with ETNow.

                          The brokerage is looking positive on ITC. The company reported a 7.4 per cent jump in June quarter profit at Rs 2,560 crore, while total income rose 4.4 per cent to Rs 14,277 crore.

                          The company’s flagship cigarette business reported a 6.6 per cent jump in gross sales during the quarter at Rs 8,774 crore, while profitability of the business grew 8.9 per cent to Rs 3,274 crore. The company said the cigarette industry remains under pressure due to an increase in excise duty in February.

                          It said the excise duty hike and the revised rate of compensation cess under the GST regime will increase the tax burden on the cigarette business by over 20 per cent.

                          “We are advising investors to look at a couple of themes, including beaten down largecap ITC. The stock has declined from its 52-week high and clearly there is good upside in it. In ITC, a lot of negatives related to tax are already priced in and the valuation is attractive as compared to the other consumer staple names,” Sanjeev Zarbade, Vice President for PCG Research, Kotak Securities, said in a chat with ET Now.

                          Sharekhan says ITC is a preferable pick on the basis of discounted valuations in comparison with other large FMCG stocks. With concerns around the core cigarette business, valuations are likely to remain at current levels.

                          “In view of near-term headwinds, we maintain our hold rating on the stock,” said Sharekhan.

                          Delta Corp owns and operates 3 offshore live casinos in Goa and will shortly commence an onshore casino in Daman. Motilal Oswal is positive on the stock with a target price of Rs 237.

                          The company’s online gaming division Adda52 recently posted consolidated revenue of Rs 29 crore, with Ebitda of Rs 8 crore in Q1 of FY18, which sets the stage for robust growth of around 70 per cent in FY18 (FY17 revenue: Rs 72 crore).

                          Adda52 has aggressive plans to ramp up its online Rummy business and launch Teen Patti in the UK market, which should drive sustainable long-term growth.

                          Reports said the Goa government is likely to make a change in its casino policy, whereby all offshore license holders will be allowed to set up a live onshore gaming casino on land in lieu of their offshore licenses.

                          “This will be a major game changer for Delta Corp, as it would not only significantly increase the scale of the business, but also bring down the cost of operations,” Motilal Oswal Financial Services said in a report. The stock traded at Rs 186.55 on August 28.




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