The Hindu Business Line : Tilaknagar Industries: Invest

SHAREHOLDERS of Tilaknagar Industries may consider subscribing to its rights offer. The rights offer, in the ratio of 1:2, is being made at Rs 20, a discount of 74 per cent to the market price of Rs 77. The valuation for the offer attractive.

Tilaknagar Industries derives about 75 per cent of its revenues from liquor and 12 per cent from industrial alcohol.

Tilaknagar Industries plans to use the funds raised through this offer for enhancing the capacity of its re-distillation plants and to meet brand-positioning expenses.

Tilaknagar Industries is on a growth path; its revenue growth of 17 per cent over a 10-year period has outpaced the industry's growth of 10 per cent during the same period. However, revenue growth hit a roadblock in the last quarter with the re-distillation plant reaching full capacity. The expansion of its re-distillation plant would open up opportunities for higher utilisation of its primary distillation plant.

Tilaknagar Industries recently entered into outsourcing to increase its capacity utilisation and an arrangement with bottlers to diversify its risk by catering to different geographical markets. On commencement of operations of the proposed plant, scheduled to be operational by January, Tilaknagar Industries will be able to report a further rise in revenues. Tilaknagar Industries could generate higher volumes with two of its brands recently having been enlisted in the Canteen Stores Department of the paramilitary forces.

The reduction of duties on imported liquor and spirits facilitating the entry of global liquor majors poses a threat to the domestic liquor industry. Duty-free import allowances for hoteliers have affected the volumes of its premium brands. Higher income levels and an increasing middle-class population would, however, mitigate part of the threat.

Though prices of molasses rose more than two-fold, its operating margin in FY05 fell by only a percentage point compared to FY04. Higher volumes have contributed to a marginal rise in operating profits. Higher interest expenditure and depreciation charges, however, shaved off the rise. With an adequate rainfall this year, sugarcane crop is expected to improve and, consequently, molasses prices are expected to tone down.

A higher operating margin, coupled with a growth in volumes, would ensure higher earnings for Tilaknagar Industries.

On offer are 19-lakh shares in the ratio of one share for every two shares held. The issue, which opened on August 22, closes on September 21. Keynote Corporate Services and Bigshare Services are the lead manager and the registrar to the issue respectively.

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