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IPO Updates: Ravi Kumar Distilleries

The Initial Public Offering (IPO) of Ravi Kumar Distilleries Limited will open for subscription by investors on December 8, 2010.

The company is coming out with Public Issue of 115,00,000 Equity Shares (to raise Rs.74 crore) Of Rs. 10 Each for cash at a price band of Rs 56 to Rs 64 through 100% book building process.

The Minimum Order Quantity is 100 Equity Shares and in multiples of 100 Equity Shares. The Maximum Subscription Amount for Retail Investor is Rs.200000.

About Company:
Pondicherry-based liquor-maker Promoted by Mr. R. V. Ravikumar, is engaged in the business of manufacturing Indian Made Foreign Liquor (IMFL) under its own brand portfolio.
 The IMFL comprises of Whisky, Brandy, Rum, Gin & Vodka. In addition to manufacturing and marketing of its own liquor products, it also has tie-up arrangement with various leading liquor companies of India like .Radico Khatian Ltd., Shashi Distilleries Pvt. Ltd., John Distilleries Ltd., Gemini Distilleries Pvt. Ltd., and Mondovi Distilleries & Breweries Pvt. Ltd for manufacturing and marketing of their popular brands.

Production Capacity:

The company started with initial capacity of 7,20,000 cases per annum and a bond capacity of 6300 cases of Excise Bonded warehouse. Presently the plant is having an installed capacity of 14,25,000 cases per annum and 26000 cases of Excise Bonded Warehouse.

Future Plans:

The proceeds from issue will be used will be used for the expansion of the current unit by increase in existing capacity and installation of Re-distillation plant. At present the company is producing 60000 cases per month, which is supplied to Pondicherry region only, which they propose to increase to 300000 cases per month. Expansion is to be commissioned by May 2011 and installation of re-distillation plant is scheduled to be over by March 2011.

The civil and structure related work will cost Rs 0.4 crore, purchase and installation of machines will cost Rs 10.82 crore. The issue proceeds will also part finance the marketing and corporate branding expenses costing Rs 3 crore and also incremental working capital requirements of Rs 33.97 crore.
Strength and Weakness:

It has established itself in Pondicherry. The company has already developed technology in the field of manufacturing a wide range of IMFL products.

The company's products lack adequate brand presence and awareness and also has limited geographical presence across the country. The IMFL Industry is heavily regulated by the government and is politically sensitive. Any changes in regulations or applicable government policies could materially adversely affect the operations and growth prospects.

Company’s Profit Loss / Valuation:

Net sales for the quarter ended June 2010 was at Rs 13.92 crore and a net profit of Rs 0.59 crore. Net sales for the year ended March 2010 was at Rs 49.25 crore, showing a 13% growth. OPM declined by 90 basis points to 12.8%. Net profit grew by 17% to Rs 2 crore.

At a price band of Rs 56 to Rs 64 per equity share of Rs 10 face value, the P/E at the lower band works out to 67.38 times the EPS of Rs 0.8 for FY10 (on post-IPO equity). At upper band, P/E works out to 77.01 times.

Advisory View:
In Breweries and Distilleries Industry, industry composite TTM P/E is high at 46. However considering the very small size of the company and its limited presence only in Pondicherry, the asking price is very high.
We will put this IPO in GRADE 2
We suggest our investors to invest in this company after it gets listed and it will fall back to its correct price, it is good company to invest in for long term.