Stock Review: Empee Distilleries

 

Empee Distilleries is one of those stocks where I feel there is tremendous potential both in terms of their core business as well as because of their assets into the business. Empee Distilleries is a south-based group of Empee Group. The company, in 2007, actually came up with an IPO at Rs 400 and the current price is hovering around the Rs 150 levels, which roughly translates into marketcap of Rs 272 crore.

Going through their prospectus, I see there are tremendous hidden assets into the company best being the real estate part where we feel the company would be developing the real estate in the next three years that will generate cash flows over the current market cap of the company itself. That means in the next three years the company's cash flow from the real estate part itself will be much more than the current market cap.

What does this translates for common shareholder? A company that is paying a dividend of Rs 6 per annum, a company that has its core business some of the prestigious companies, which has a sale of above Rs 500 crore in to distilleries, these are restricted entry into the southern markets. We feel the market share is protected for the company plus you have a real estate story that will generate cash flows of more than the current market cap in the next three years.

You also have a power capacity of 10 megawatts into the company of which 75% is free salable and only 25% needs to be transferred to Tamil Nadu government that adds roughly about Rs 3-4 crore of free cash flow to the bottom-line. Apart from this also the company is holding 2.81 crore share of Empee Sugars and Chemicals.

At current market price it roughly translates to about Rs 130 crore. If I add up all these things I think there is tremendous value left into the company. What we feel is even if I give a heft discount of say 15-20-25% to its NAV it still works out to be at Rs 240 without discounted cash flow analysis. If I do that DFC analysis for the next 3-5 years the stock can easily touch its issue price of Rs 400.