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Ravi Kumar Distilleries Ltd
IPO Note
COMPANY BACKGROUND
‘Ravi Kumar Distilleries Ltd’ (RKDL), incorporated on 11th October 1993 is engaged
in the business of manufacturing Indian Made Foreign Liquor (IMFL) under their
brand portfolio as well as under tie‐up arrangements with other companies. The
IMFL comprises of Whisky, Brandy, Rum, Gin & Vodka. The ISO certified company
has its operations in the Katterikuppam Village, Puducherry. The unit encompasses
modern facilities for blending and bottling, can undertake the manufacturing of
IMFL.
OBJECTIVE
Expansion the company’s existing unit by increase in existing capacity and
installation of Re‐distillation plant,
To part –finance the marketing and corporate branding expenses,
To part‐finance incremental working capital requirements,
To part –finance the general corporate Expenses,
To meet issue expenses.
STRATEGY
Increase in Capacity
RKDL is in the process to replace their 3 semi automatic line and 1 obsolete
automatic line to fully automatic lines to increase the production from current
levels and meet the rising demand of the products.
Redistillation of ENA
In Puducherry, there is no availability of Extra Neutral Alcohol, which is the main
raw material for IMFL products thus increasing dependence on states like
Maharashtra, Madhya Pradesh and Uttar Pradesh for its supply. Hence, the
company proposes to install a re‐distillation plant in their manufacturing unit for
the supply of ENA from Rectified Spirit that would reduce the cost of production of
the final IMFL products.
Enhancing Market Share
RKDL plans to make their presence felt in adjoining states like Kerala, Andhra
Pradesh, and Karnataka. They also intend submitting an application for enlistment
to Canteen Stores Department (CSD), for supply of IMFL to CSD in the near future.
Brand Development
RKDL has established a distinct identity in Puducherry and have further undertaken
marketing initiatives to promote our brand such as meeting the customers at the
outlets and market the brand by way of offers and gifts.
STRENGHTS
Brand presence
RKDL has established across segments and flavors thereby enjoying brand recall
from customers. The manufacture IMFL products under their own brand as well as
under various tie‐up arrangements with other Companies include CAPRICORN, 2
BARRELS, CHEVALIER, KONARAK, GREEN MAGIC, etc.
Established Manufacturing facility
The existing manufacturing facility is located in Puducherry and is equipped with
state‐of‐the‐art infrastructure facilities & technology. With an initial capacity of
20,000 cases per annum, it has increased to an installed capacity of 14,25,000
cases per annum and 26000 cases of Bonded 75 warehouse with a further
projection of 36,00,000 cases per annum in future.
Experienced management team
RKDL’s management consists of experienced and professional managers with
experience in different aspects of distillery industry including production, sales,
marketing and finance. The management is well qualified and has an experience of
around 30 years in Liquor industry.
Wide product portfolio
The product portfolio consists of a variety of IMFL products such as of Whisky,
Brandy, Rum, Gin & Vodka, thus catering to diverse needs of markets.
Location of the Unit
The location of the unit is such that raw materials required for the plant are
available easily since the unit is well connected to highways, which enable easy
access to three states namely Kerala, Karnataka and Andhra Pradesh, there is
abundant supply of water and cheap and skilled manpower is available in plenty.
INDUSTRY OVERVIEW
Alcohol industry is the second largest source of revenue of the State Exchequer –
Rs. 25,000 crores. The Industry turnover is Rs. 6,000 crores. It is the only industry
where there is free market price and State Excise in most states controls output.
(Source: Pioneer Distillery HDFC Report).
The Alcohol Industry in India can be divided into the following five categories: ‐
Industrial Alcohol
Potable Alcohol
Mixed Distilleries (Industrial and Potable Alcohol)
Bottling Plants (purchasing alcohol and bottling alcoholic beverages)
Distilleries producing alcohol from substrates other than molasses.
The distillery industry today consists of one potable liquor which produces Indian
Made Foreign Liquor and Country Liquor having a growth rate of about 7‐10 per
cent per annum and the other being industrial alcohol which shows a declining
trend because of high price of Molasses which is invariantly used as substrate for
production of alcohol.
Market Size
Indian demographics are favorable to consumption of alcohol. Alcohol
consumption begins at age 16‐18 in India and peaks at 30‐35. The 18‐35 age group
in India is 247 mn strong and growing at 3.4%, p.a. Potable alcohol segment has
been growing at rate of 10 % over the last few years and is expected to rise at a
CAGR of 13% over the next 5 years. IMFL accounts for only a third of the total
liquor consumption in India.
Snapshot of the IMFL Industry
The IMFL (Indian Made Foreign Liquor) market in India constitutes 31 percent of
the total liquor market in India, the rest being country liquor. The industry
however is constrained by numerous factors like capacity restrictions, imposition
of high duty, restrictions on distribution, trading etc. IMFL sales in different States,
classified on the basis of the distribution channel accessible to the manufacturer,
are given below:
Open Market: Maharashtra, West Bengal, J & K, Goa, Assam, Meghalaya, Tripura,
Arunachal Pradesh,
Auction Market: UP, Rajasthan, MP, Bihar, Punjab, Chandigarh, Haryana,
Government‐controlled: Tamil Nadu, Delhi, Kerala, Andhra Pradesh,
Prohibited Areas: Gujarat, Manipur, Mizoram, and Nagaland.
COMPANY OVERVIEW
The company was set up in 1993 and has a plant in Puducherry, which is built
keeping international standards in mind and operated by a group of dedicated and
skilled workers. The Factory has a capacity to produce 1.43 million cases per
annum and has tie‐ups with CGEVF France for production of Brandy and with JBB
(Greater Europe) Plc for the production of Scotch Whisky.
SWOT Analysis
Strengths
Cordial relationship with Customers
Knowledge of Industry – Commercial & Technical
Established Manufacturing facility
Low Overhead cost
Bottling high quality IMFL products
Brand Presence
Experienced management team
Weaknesses
Limited distribution network of IMFL
Lack of nation‐wide presence.
Opportunities
Establishment of market in neighboring states
Potential to increase capacity in the existing facility
Threats
Industry is prone to change in government policies, any material changes in
the duty may adversely impact our financials
The Industry has negative perception in the Indian culture context leading to
circumstances like ban on liquor consumption, advertising of alcoholic
beverages etc, which is not conducive to business development.
KEY CONCERNS
Involvement in litigation cases
RKDL is involved in various litigations, which could adversely affect their business
and financial operations.
Contingent Liabilities
As on 30th June 2010, RKDL has reported contingent liabilities amounting to Rs.
7.96 crores, which could have an adverse effect on the profitability of the
company.
Negative Cash Flows
The company has reported negative cash flows of Rs. 42.62 Lakhs as on 30th
June 2010, 12.38 Lakhs as on 31st March 2009, 100.95 Lakhs as on 31st March
2008 and Rs. 4.89 Lakhs as on 31st March 2006, that could affect the profitability
and growth of the company.
Loss Incurred by Group Companies
RKDL’s group companies have incurred losses over the past 3 financial years
Considerably High Debt
RKDL has substantial indebtedness and will continue to have debt service
obligations following the Issue. The total amounts outstanding and payable by
them as principal and interest were Rs. 2633.80 Lakhs as on 30th June 2010.
OUTLOOK AND VALUATION
At the current valuations, RKDL appears expensive. The price earning is 35 times
the lower band and 40 times the upper band, which is comparatively higher than
its peers except for Radico Khaitan. Similarly the price –to‐book ratio too seems be
on the higher side whereas the EPS is extremely low at 1.6. Considering these
factors, we recommend avoiding the issue.
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