Empee Distilleries is into manufacturing of Indian-made foreign liquor (IMFL). The Tamil Nadu-based company entered into beverages and distillery industry in 1984. It is one of the major suppliers to the Tamil Nadu State Marketing Corporation. The company, in its products offering, has brands in the likes of Old Secret XXX Rum, Power XXX Rum, Power Brandy and Club Royal Whisky. It has two facilities: one at Mevaloorkuppam, in Tamil Nadu, and other at NIDA, Palakkad district, in Kerala.
Objectives
The company intends to set up a 60 kilo litres per day (KLPD) grain-based distillery unit at Nellore district in Andhra Pradesh. For this, it has earmarked around Rs 61 crore of the total issue size of around Rs 192 crore (considering the higher price band). Also, the company plans to set up blending and bottling IMFL plant (having a capacity of 0.70 lakh cases per month) at Nellore district in Andhra Pradesh for which it intends to invest around Rs 21 crore.
In Tamil Nadu, the company plans to set up a 7.5 MW bio-mass power plant and expansion of its existing distillery plant by increasing capacity from 3.20 lakh cases to 5 lakh cases per month. The Tamil Nadu plant?s current capacity utilisation is almost 100%.
It also intends increase the capacity of its neutral alcohol plant at its existing facility in Tamil Nadu from 20KLPD to 70 KLPD.
For these capacity augmentations, the company intends to spend around Rs 23 crore. The Tamil Nadu-based company also plans to relocate its plant and machinery to Karnataka and increasing capacity of the relocated plant in Karnataka from 50,000 cases per month to 1 lakh. The company also plans to foray into real estate by developing 2 lakh sq.ft residential space in Mevalorkuppam in Tamil Nadu and for this it intends to use around Rs 31 crore.
Investonomics
As of June 30 this year, the beverage-manufacturer has a net profit margin (NPM) and operating profit margin (OPM) of around 3.1% and 6.15% respectively. It has a net profit and sales income of Rs 16 crore and Rs 525 crore respectively. Considering past performance of the company, its OPM seems to be getting stabilised between 5-6%. Hence, operationally the company is getting stabilised.
However, on the net profit margin basis, the company is still to see stabilisation. Also, its foray into real estate, where it has scant exposure entailing stiff competition from already established players like Sobha Developers, cannot be ruled out. Also the company?s windmill in Tamil Nadu, which it exports to the Tamil Nadu State Electricity Board, will enhance the bottomline of the company.
Valuation
On the valuation front, considering the post-issue capital on a fully-diluted basis, the company quotes a P/E of around 40.51(X) and 46.30(X) at the lower and higher end of the price band respectively. Industry players like Jagajit Industries and Radico Khaitan quote P/E around 30.88(X) and 49.56(X) respectively. The company is smaller than Radico Khaitan. Radico quotes an NPM of around 7%.
Also it must be noted that the scrip?s price is not cheap and an upside in the stock price is minimum considering the steep valuation. Investors need to have a long-term approach towards the company in order to see good revenue generation.