Empee Distilleries Results Updates

Results 2009-10
Turnover Rs 854.2 Cr
PBIDT Rs 39.61 Cr
PBT Rs 17.09 Cr
BV Rs 125.8
EPS Rs 8.99

CMP 118 PE 13.12 PBV 0.94
Dividend Rs 6 per share Dividend yield 5.08%

Maintain hold and buy at dips

2010VP09 Empee Distilleries

Empee Distilleries  BSE: 532920  NSE: EDL
CMP 127  market cap Rs 240 crore

The presently engaged into manufacturing of Indian Made Foreign Liquor (IMFL) products under our own brand portfolio as well as under various tie-up arrangements with other Companies. Have facilities to manufacture various IMFL products in our Distillery Units set up at Mevaloorkuppam, Kanchipuram District, Tamil Nadu with an installed capacity of 30.24 Lakh cases per annum and at NIDA,  Kanjikode, Palakkad District, Kerala with an installed capacity of 30.00 Lakh cases per annum.
Had gone in for raise fund through issue of 48 lakh shares in Nov 2007 for meeting requirement of
1. Setting up of 60 KLPD Grain Based Distillery Unit  at Andhra Pradesh.
2. Setting up of Blending & Bottling IMFL Plant at Nellore District
3. Setting up of 7.5 MW Bio-mass based Power Plant at Tamil Nadu
4. Development of 2.00 Lakhs sq.ft. of residential space inKancheepuram, District Tamil Nadu
5. Expansion of our Existing Distillery Unit situated at Kanchipuram by augmenting the capacity of our Extra Neutral Alcohol Plant from 20KLPD to 70KLPD
6. Expansion of our Existing Distillery Unit situated at Kanchipuram by augmenting the capacity of the said distillery to handle 5.00 Lakh cases per month from the present 3.20 Lakh cases per month.
7. Relocation of Plant & Machinery purchased from Appollo Alchobev Limited to Karnataka along with expanding the existing capacity from 0.50 Lakh cases per month to 1.00 Lakh cases per month.

Present performance
Turnover 869 cr ( 2009-10)
OpProfit 46.1 cr
NProfit 21.8cr

EPS 11.45
Dividend Rs 5 a share
Book value Rs. 123.8
MCap at CMP 124.9 Rs 237.33cr
PE 10.81
Market Value of Investment Rs 100 cr in sugar co excluding Rs 146 cr being invested

Entreprise Value 750 cr (450 cr + 300 cr investment in progress)

Considering these parameters below and the expected EPS of 16 -18 for 2010-11,  the share (127) is now ruling at about PE multiple of less than 8 of forward earnings for 2010-11


Other similar midcap distilleries companies are ruling at a PE multiple of 20, while the larger ones are ruling at a PE multiple of 35 to 40.” Upside 700 cr at expected price of 365-400

Investment rational
Distellery Investment (on going)
The company is setting up a brewery unit with a capacity of 2.5 lakh hectolitres per at Sanga Reddy in Andhra Pradesh. Empee has purchased land for the project and is in the process of finalising orders for the supply and erection of plant and machinery. The project, scalable to 5 hectolitres, is expected to be completed in Sep 2010.

The company, through Apollo Alchobev, another group company, is setting up another beer-making facility in Tamil Nadu with a capacity of 5 lakh hectolitres and expandable to 7.50 lakh hectolitres.

Meanwhile, Empee Distilleries has drawn up a Rs 200-crore investment plan in Distilleries for the current fiscal. The plan includes backward integration and setting up new projects in Karnataka and Andhra Pradesh. Funds for the expansion plan would come through debt, equity and internal accruals, according to the company’s joint managing director Nisha Purushothaman.

The distillery major is setting up a 60 kilolitre per day (klpd) grain-based distillery at Sanga Reddy in Andhra Pradesh. The company has placed orders for supply and erection of plant and machinery with Praj Industries and the project is expected to be completed by June next year, Purushothaman added.

Empee has also acquired a bottling unit in Karnataka and is relocating the plant from Whitefield, Bangalore to Kolar in Karnataka. All the necessary statutory clearances have been obtained and the relocation is expected to be completed by end of the current fiscal.

Empee Sugar (75% subsidiary)

Empee Distilleries Ltd has recently invested an amount of Rs 146.85 crore for investing in in Empee Sugars & Chemicals Ltd to part finance Rs 515-crore integrated sugar mill project coming up at Tirunelveli in Tamil Nadu.
Empee Sugars is setting up a 5,000-tonne-a-day sugar mill, 50 MW cogeneration plant and a 100-kilolitre-a-day distillery at the integrated sugar mill complex

Infrastucture

They have about 17 acres of land in Shreeperumbur, which they are developing and which in an area of about 12 lakh square feet. On that the company is hopeful of generating a cash revenue of about Rs 150 crore over next two years because the project is in advanced stage of implementation, the 150 crore cash flow is likely to come in FY11 and FY12.

Given the fresh stronghold which the company enjoys in the market and the proposed expansion in the other parts of the country with a dividend of 50%, this company has got intrinsic value of the real estate subsidiary, which is building 100 apartment complexes close to Chennai besides developing other properties in Chennai and also White Field in Bangalore and expected revenues of close to Rs 950 to Rs 1,000 crore for FY11.


Risk
The  company which has 1.9 cr outstanding shares as on 31.03.2010 came out with IPO for 48lakh shares at Rs 400 a share . The price is southbound since then (400 to 125) and as on 31.03.2010 56 lakh shares ae held by public The promotors may consider buyback of atleast 10 % shares ie 19 lakh share to boost prices

Opportunities
The Company which is valued more than Rs 450 cr (my estimate) is quoting a Market Capitalisation of only Rs 240 cr which is meagre valuation considering the value of investment in Empee sugar valued at Rs 100 cr (excluding Rs 146cr being invested ). Promotors are investing close to Rs 300 cr in Distillery business and Sugar business which will take entreprise value close to Rs 750 cr.
The promotors shall scale up prices as the total promotors investment in entity shall be Rs 560 cr and prices has to move up to Rs 365-400 by Dec 2010