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Tuesday, April 28, 2009

Empee Distilleries Ltd:-Future outlook and prospects

Scripscan:Empee Distilleries Ltd
Traded in:Nse-bse

Story:Empee Distilleries manufactures and bottles Indian-made foreign liquor (IMFL) and has manufacturing and sales bases in Tamil Nadu and Andhra Pradesh.While the Tamil Nadu unit of Empee operates at near capacity, capacity utilisation at the Kerala plant is less than 50%. This is on account of the competition from low-priced brands available in the Kerala market, forcing the company to cut down on production at its unit there. The company plans to tackle the issue by entering into the premium segment.It needs to be seen whether the strategy will be successful as high taxes in Kerala make premium brands unaffordable to most consumers.Empee operates in a government-regulated sector with a high potential of volume growth but low profitability.It sells liquor through state government agencies. Even though the company claims that such arrangements reduce its marketing costs and improves its working-capital cycle, it doesn''t reflect in its margins. Its operating margin is slightly lower than its bigger peers including United Spirits, Radico Khaitan and Jagatjit Industries. This may be on account of higher raw material costs.The company plans to expand existing capacity in Tamil Nadu and add new capacity in Andhra Pradesh. This will help it to augment its presence in these two markets. However, it is essentially a regional player compared to its peers who enjoy a pan-India presence with higher mindshare of their brands among customers.Its new initiatives in realty and power sector will take time to mature.The IMFL sector is rapidly growing in India and is expected to continue its momentum. Companies with strong brand recognition and all-India presence are better positioned to take advantage of this opportunity.Investors interested in this sector may consider other well-established companies in this sector.

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