Pioneer Distilleries Ltd - Rs 75.00

Incorporated in 1992, Pioneer Distilleries Limited (PDL) is a distillery manufacturing company engaged primarily in the manufacture of extra natural alcohol (ENA), rectified spirit (RS), denatured spirit (DS), and absolute alcohol (Ethanol). The fine grade of ENA manufactured by the company is mostly used as raw material for many brands of renowned liquor manufacturing companies. On the other hand Ethanol is being supplied to pharmaceutical companies and petroleum companies. This apart, PDL is also processing the carbon-dioxide (CO2) generated in the fermentation process to manufacture commercial grade CO2 and has appointed SKVM agencies as its sole selling agent. Although company uses molasses as raw material but it has also obtained license for the manufacture of grain based alcohol. So in case prices of molasses shoot up or there is some shortage, company can use various grains like jowar, bajra, rice etc as alternative raw materials for the manufacture of alcohol.

PDL’s plant is at Nanded Maharashtra, which is located near many sugar factories that ensure regular and cheap supply of its raw material i.e. molasses. During FY07, company doubled its production capacity from 50 KLPD to 100 KLPD (kilo litres per day) and is currently running at 100% capacity utilization. Hence it is planning to further double the installed capacity to 200 KLPD for which statutory permission from the excise has been received. On the back of increased demand for ethanol product from petroleum companies, PDL is also contemplating to increase the capacity of ethanol plant from 30,000 to 130,000 ltrs per day. In addition it is also looking to set up acetic acid plant of 30 MT per day and ethyl acetate of 20 MT per day capacity. Apart from all these, company is setting up a 5 MW biogas based power generation project and additional effluent treatment plant to become a zero discharge company in the future. Both these are expected to commence operation by August 2008 thru a capex of Rs 40 cr. Notably, PDL is entitled to get carbon credits for its biogas power project and hence is in the process of tying up with a reputed organization based in UK for getting the registration with UNFCCC. However the power generated will be sold to Maharashtra power grid thereby generating extra source of income.

Financially, after making a remarkable turnaround in FY07, PDL continued to report encouraging performance for FY08 as well. Due to better operating efficiency and fall in raw material cost, company was able improve its operating margin from 14% to 24% in FY07. Based on first three quarter nos, it is further expected to improve its OPM to 28~30% for FY08. In order to fund its expansion, earlier it made an preferential allotment of 11.45 lac warrants @ Rs 21 and recently allotted another 7 lac warrants @ Rs 53. For FY08 it may clock a turnover of Rs 75 cr and net profit of Rs 12 cr which works out to an EPS of Rs 11 on current equity of Rs 11.20 cr. Interestingly, PDL also owns around 300 Acres of land which is being used for agricultural purpose where treated effluent is used for cultivation. Considering company’s expansion plan and other factor it can post an EPS of Rs 14 for FY09. Hence at a fair discounting by 8x times against FY09 earnings scrip can move up to Rs 110-120 Rs (i.e. 50% return) within a year.

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