Empee Distilleries

Empee Distilleries is engaged in manufacturing IMFL (Indian Made Foreign Liquor) products with one Distillery located in Kanchipuram District at Tamil Nadu with capacity of 30.24 lakh cases per annum another and in Palakkad District of Kerala with an installed capacity of 30 lakh cases per annum.

· The company is developing part of its 20.88 acres freehold property located at Sriperumbudur, Kanchipuram District, into 12.23 lakh sq. ft. of residential space and 3 lakh sq. ft. of basement. This project was approved by DTCP in March 2007 and hence eligible for deduction under Section 80-IB of the Income Tax Act. This would make the company eligible for 100% tax exemption on the profits to be earned from development of this property. The project has 840 flats and estimated selling price is around Rs.2,850 per sq. ft. in addition to realization of Rs.1,000 per sq. ft. for basement. Considering cost of construction and development of Rs.1,500 per sq.ft., this would translate into a profit of Rs.195 crores which would get realized in the next three years by September 2010. Remaining 2.38 acres of land would be used for setting up godown for storage of bottle and 1.53 acres for commercial use.

· The company also owns 13 acres 10 cents land at Poonamalle Taluk in Tiruvallur Dist., 13 acres 3 cents in Gummidipundi Taluk in Tiruvallur District and 10,260 sq. ft. land in Kancheepuram Dist. as also 15 acres land at Kuthumbakkam near Chennai. These properties would get developed after about 12 months, over the next 4 -5 years, which would result in total area of above 25 lakh sq. ft.

· The company, for the year ending 30th September 07, posted net sales of Rs.626.11 crores, other income of Rs.11.80 crores, with EBITDA of Rs.37.15 crores, PBT of Rs.29.86 crores and PAT of Rs.20.10 crores resulting into an EPS of Rs.14.15 on pre-issue equity of Rs.14.20 crores. On post issue equity of Rs.19.00 crores, EPS works out to Rs.10.60.

· The company is now expanding capacity its Tamil Nadu Distillery from 20 KLPD to 70 KLPD with capacity to handle 5 lakh cases per month, from present 3.20 lakh cases per month. The company is also setting up 60 KLPD grain based Distillery with capacity of 8.40 lakh cases per annum at Nellore in A.P. and a distillery in Karnataka for 12 lakh cases per year. This would give presence to the company in all four Southern states.

· All these are estimated to cost Rs.182 crores including Rs.31.07 crores for development of 2 lakh sq. ft. To finance this, the company issued 48 lakh equity shares at Rs.400 per share in November 07 and mobilized Rs.192 crores. All these expansions and new establishment would commence production from March 2008 to March 2009.

· The company hopes to have a topline of about Rs.1,100 crores with PAT of atleast Rs.48 crores. Of this PAT, realty division would give Rs.12 crores, IMFL Business Rs.32 crores and Power Rs.4 crores. This would result into an EPS of Rs.25 for FY 08, ending 30th September.

· For FY 09, ending 30th September, topline would be close to Rs.1,600 crores with PAT of Rs.148 crores of which Realty would give Rs.70 crores, IMFL Business Rs.72 crores and Power Rs.6 crores. This would result into an EPS of Rs.78.

· Realty would give PAT of close to Rs.100 crores in FY 10, ending 30th September, which alone would translate into an EPS of Rs.53 with IMFL giving close to Rs.84 crores and Power Rs.6 crores, resulting into an EPS of Rs.48 from core business. Thus EPS would be in excess of Rs.100 in FY 10.

· The present equity of the company is Rs.19.00 crores, of which, 75% is held by the promoters while 25% by Public. The selling pressure from QIB in recently concluded IPO seems to have completed with no selling pressure seen form last couple of days.

· The company would have parallel and equal flow of bottomline from realty business, on regular basis, from FY 09, ending September, for the next 5 – 7 years. This would give huge cash flow and EPS jump, resulting in higher valuation to the company.

· The company had issued shares at Rs.400 per share, which is now ruling at Rs.310, discounting FY 08 earning by about 13 times and FY 09 earning by about 4 times. Due to strong visibility of earnings for the next couple of years, the share has huge upside potential.

· The market has not correctly assessed the earnings potentials of its core business and huge value unlocking from its realty business. The IMFL companies are having PE of over 30 while Realty companies have PE of close to 15 times. The share falls in both the categories with big IMFL capacity, present in two states to be expanded in four Southern states, with substantial developable area near Chennai.

· The share qualifies an excellent buy at Rs.320 with potential to rise by 100 per cent in 9 – 12 months, with virtually no downward risk.