Wednesday, December 1, 2010

IPO ANALYSIS: RAVI KUMAR DISTILLERIES LIMITED –JUNK IPO – AVOID.


The issue is being lead managed by Comfort Securities Private Limited, who were the BRLM to the IPO of Tarapur Transformers limited, which hit the market in the month of April 2010. Against the issue price of Rs 75, the shares are currently trading around Rs 33/- The lead manager is known for managing poor quality, grade 1 and 2 IPOs. The current issue is one such.  The Puduchery based, small size, small time manufacturers of IMFL is entering the capital market with issue of 1,15,00,000 equity shares of Rs 10 each in the price band of Rs 56 -64. The issue opens on 08-12-12. The issue constitutes 48% of the post issue capital of Rs24cr.

The company is engaged in the business of manufacturing and trading of Indian Made Foreign Liquor (IMFL) under own brand, as well as for third parties. The IMFL comprises of Whisky, Brandy, Rum, and Gin&Vodka.


The objects of the issue are being to part finance the expansion, for brand building and to meet the incremental working capital needs, among others. Out of the issue proceeds, the amount earmarked for incremental working capital is Rs 34cr.

FINANCIALS:

RS IN CRORES


08

09

30-06-10

TOTAL INCOME

43.10

50.23

13.93

PAT

  1.70

  1.99

  0.59
EPS (Rs)
  1.36
  1.60
   1.00#
RONW %
  13.00
  13.27
   --


RISKS / MATTERS OF CONCERNS:


1.      The scale of operation is very small. The operation is restricted to union territory of Puducherry.
2.      Highly competitive, highly regulated segment, with low entry barriers.
3.      CARE IPO grade 2, indicating below average fundamentals.
4.      The average cost of acquisition of shares by promoters is Rs 2.51
5.      Corporate governance is much to be desired. The company has received notices from ROC for non compliance / violation of various company guidelines.

6. The company has entered into an agreement with one of the Group Company - Ravikumar Properties Private Limited to acquire 33.54 acres of land for a total consideration of Rs. 1500.00 Lacs.

7. The company had negative cash flow in the past.

8. The company is  yet  to  place  orders  for  plant  & machinery  and  equipments, required for the proposed expansion.

9. The company has very high debt component – Rs 27cr.
 

VALUATION AND RECOMMENDATIONS:

The company is likely to report an EPS of Rs 1 for the FY 11, on the post issue expanded capital. In the band of Rs 56-64, the company is demanding a valuation of around 60 x. Even the best managed MNC companies think hundred times before deciding on such high valuation.  The shares are not worth even at face value. AVOID.

4 comments:

  1. excellent analysis! I once had invested in empee distilleries, which did not give returns at all. The management interviews were poor and not convincing at all. Later, when i broke even, i got out of the scrip. I don't trust these distillery companies at all because of the domestic violence associated with their product.

    Thanks!

    ReplyDelete
  2. Thank you for your valuable comments and drawing our attention to such a bad issue.
    Please tell us something about Punjab and Sindh Bank and L & T Finance IPO i.e. Issue Period and Detail analysis.
    Thanking you,

    ReplyDelete
  3. Thanks. Analysis of PSB, L&T Finance will be posted in due course. Both are good issues.

    ReplyDelete
  4. After reading of Point 6. "The company has entered into an agreement ...to acquire 33.54 acres of land for ...Rs. 1500.00 Lacs." I recollect what had happened in Satyam Computers

    I have been following your Advices all along (with only one exception of Claris Lifesciences) and shall continue to do so

    (K V Subba Rao)

    ReplyDelete