Ravi Kumar Distilleries (RKDL) IPO Review- Small Liquor,Low Margin,Low Growth, Low Quality Company Avoidable

Ravi Kumar Distilleries (RKDL) is another low quality company coming out with an IPO to take advantage of the current bullish conditions of the Indian Stock Market.It is not the first junk IPO nor is going to be the last ,it is an addition to the list of low quality companies which have given huge losses to investor unfortunate enough to subscrible.Note more  than 50% of the companies coming out with an IPO over the last year are trading well below issue price.Recent Stock Market Scandals show the complicity of market operators,shady promoters and compromised financial institutions.Note the other recent IPOs by the investment banker for RKDL IPO have resulted in massive losses for investors.It would take a miracle for this one to prove a success in the long run.Ravi Kumar Distilleries (RKDL), plans to raise Rs 74 crore through its Initial Public Offer (IPO) and has fixed the price-band at between Rs 56-64 per share for the issue.Here are some of the main features of the IPO

1) Low Growth – The company has hardly grown over the last 4-5 years.From Rs 42 crore sales in FY07,its sales have grown to just Rs 50 crores in FY10.The Profit Growth has been somewhat better ,however its net profit margin remains pathetic at 2-4%.It has shown negative cash flows over most of the last 5 years

2) Small Size,Lack of Branding and Distribution Network – The Company has aroudn 1% of the Indian Made Foreign Liquor (IMFL) Market in India,it lacks any national brands and lacks a big distribution network as well.Its a marginal player and will continue to remain so despite its plans of expanding capacity from 1.425 million cases to 3.6 million cases (Indian market of 125 million cases)

3) High Debt,High Interest Outgo – The Company has a debt equity ratio of almost 1.6:1 and has annual interest rate of above 10%.The Company seeks to totally lack any competitive advantage

4) Valuation Too Steep – For such a low quality company the valuation being asked for is quite steep.With 2.4 crore shares and aroudn Rs 62 share price the market value of the company would be around Rs 150 crore which values the company at a trailing P/E of 75x

Summary

This is hardly a company that you would analyze too much as a cursory glance shows you that it is a very low quality  company without any decent prospects which is asking for a huge valuation.Even at half the valuation,the company would be price too expensively.However like other small microcap junk IPOs like Sea TV,Aster Silicates,Tirupati Inks,RPP Projects,Commercial Engineers,Gyscoal  expect this one too to get subscribed.Here is how the small cap junk IPOs have performed in recent times.