Empee Distillery

By Research Desk
about 14 years ago
Empee Distillery

Empee Distilleries is entering the capital market on 1st November, 2007 with a public issue of 48 lakh equity shares of Rs.10 each, in the band of Rs.350 to Rs.400 per share.


The company is presently engaged into manufacturing of various IMFL products with its distillery located at Kanchipuram, Tamil Nadu with an installed capacity of 30.24 lakh cases per annum and another distillery at Kerala with an installed capacity of 30 lakh cases per annum.


For 9 months ending 30-06-07, the total income of the company was at Rs.546 crores with EBITDA of Rs.32.73 crores, PBT of Rs.21.78 crores and PAT of Rs.16.42 crores, on equity of Rs.14.20 crores, which results in an annualized EPS of Rs.15.40. Presently, purchase and marketing of IMFL in the state of Tamil Nadu and Kerala are with the state government and hence no distilleries operating in those states can sell its products to any other buyers, except the state governments and also can't produce beyond its rated capacity, which is based on monthly rated capacity. If any distillery reaches its levels, say on 25th of any month, it can't operate for remaining 5 days of the month. Hence, capacity utilization is already capped and only improvement in the working can be made by change in product mix. Since, marketing is state subject, even distilleries can't advertise and to push its brands of IMFL, they need to motivate to state distribution shops by offering them incentives in other forms, to enable them to push the company products, by which higher allocation of better brand is received by the distilleries, for better margin.


Realising this, company is expanding its Tamil Nadu distillery capacity as also setting up grain based distillery in Andhra Pradesh and relocating a distillery in Karnataka. Due to surplus land, held by the company, the same is also developed by the company at Shriperumber an I.T. hub, of about 2 lakh sq. ft. The total fund requirement is estimated at Rs.182 crores, which is financed by term loan of Rs.22 crores, internal accruals of Rs.9.50 crores and proposed IPO of Rs.192 crores, considering at the upper band of Rs.400 per share.


Considering an estimated EPS of Rs.16, for FY 07 and considering upper band of Rs.400, the share is being issued at a PE multiple of 25, which is in line with the valuation of existing IMFL manufacturers like Radico Khaitan, Jagatjit Industries etc. United Spirits and United Breweries are discounted dearly due to leadership and national presence.


Hence, considering present level of activity, share may seem fully priced at Rs.400 per share. However, capacity expansion in Tamil Nadu would add quickly to the financials while Andhra Pradesh and Karnataka would add to the financials from next year. The realty stock would also add good cash flow, in the next three years, to the financials. All this leaves scope for further appreciation in the share price. Due to 25% dilution to the public, low floating stock would also keep share price at respectable levels.


If you have no reservations for a wine stock, this could definitely give you decent returns, even if subscribed at the upper band of Rs.400.



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