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Empee Distilleries Ltd Management Discussions

4.6
(-4.17%)
Jul 16, 2020|03:25:36 PM

Empee Distilleries Ltd Share Price Management Discussions

(a) Industry structure and developments.

India is one of the fastest-growing alcohol markets in the world. Rapid increase in urban population, a sizable middle-class population with increasing spending power, and a sound economy are certain significant reasons behind the increase in alcohol consumption in India. The Indian alcohol industry is segmented into IMFL (Indian made foreign liquor), IMIL (Indian made Indian liquor), wine, beer and imported alcohol. Imported alcohol accounts for a meager share of the Indian market. The heavy import duty and taxes levied push up the price of imported alcohol. Alcohol is exempted from the taxation scheme of GST and the State Governments have been empowered to levy local VAT.

The Indian alcohol market is growing at a CAGR of 8.8% and is expected to reach 16.8 billion litres of consumption by 2022. The popularity of wine and vodka is increasing at a remarkable CAGR of 21.8% and 22.8% respectively. India is the largest consumer of whisky in the world and constitutes about 60% of the IMFL market. Though India is one of the largest consumers of alcohol in the world owing to its huge population, the per capita alcohol consumption of India is low compared to Western countries.

The trends and patterns of alcohol consumption are changing in the country. With the increasing acceptance of responsible consumption of alcohol, growing popularity of wine and high demand for expensive liquor, the market scenario seems to be optimistic.

(b) Opportunities and Threats Opportunities

• Company to lay strong focus on value added products.

• With rising disposable income and evolving consumer lifestyles, there is significant opportunity for sustained growth.

• Company focus on accomplishment of medium term vision and adherence to long term objectives.

Threats

• Any government regulation aimed at partial or full prohibition of liquor consumption can have an adverse impact on the volume demand of IMFL.

• Taxes on alcohol are levied only by the state governments and account for a large proportion of their tax revenues. Therefore, any significant tax increase can result in higher retail prices, thus impacting overall demand of IMFL.

• Revival of the company under the new management may take some time in the current challenging circumstances. Competition from existing players.

(c) Segment-wise or product-wise performance.

As the Company was undergoing Corporate Insolvency Resolution Process and due to difficulties in mobilizing the working capital requirements of the Company, the Production and Sales were significantly low for the period ended 31st March 2019.

(d) Outlook

The Indian economy appears to be headed for sustained sluggishness in 2019-20. The long-term outlook of the country appears to be positive on account of the various economic reforms, increasing aspirations, sustained consumption momentum and a national underconsumption across a range of products appearing to correct. (Source: CSO, Business Standard)

India is the third-largest and fastest growing liquor market in the world. Alcoholic beverages are considered a sunrise industry owing to a high-growth potential and increasing social acceptance. The alcoholic beverages market in India is expected to grow at a CAGR of around 7.72% over a 10 year period.

(e) Risks and concerns

- As per the order of Honble National Company Law Tribunal, Chennai Bench, the Company is under CIRP with effect from 1st November 2018.

- The industry is expose to multiple regulatory risks emanating from state taxes, adverse ruling from courts and changes in regulations.

• Increased Political Promotion in an election year towards Prohibition.

- Dependence on State Government for Price escalation, margins get severely impacted in case of inflation and steep rise in raw material cost.

- Regulatory oversight of both central and state governments encompasses a slew of restrictions in production, movements and sell of alcohol products. Licenses are required to produce, bottle, store, distribute or retail all alcohol products. Distribution is also highly controlled, both at wholesale and retail levels. In addition, direct advertising of alcohol products are not permitted.

(f) Internal control systems and their adequacy

In view of the corporate insolvency resolution process under way during the year under review, the Resolution Professional was mainly focused on finding a viable resolution plan and to keep the company as a going concern. Challenges were faced in getting access to the accounting systems of the company. Hence, the newly appointed directors and Resolution Professional are not able to provide any opinion on this aspect.

(g) Discussion on financial performance with respect to operational performance

The financial performance with respect to operations performance is provided in the Directors Report.

(h) Human Resources and Industrial Relations

As the Company was undergoing Corporate Insolvency Resolution Process the operations of the Company were stalled except the Palakkad Unit. Employees dues except Palakkad Unit was not paid from 1st November 2018, due to difficulties in mobilizing the working capital requirements of the Company.

Cautionary Statement

Estimates and expectations stated in this Management Discussion and Analysis Report may be forward looking statements within the meaning of applicable securities, laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand / supply, price conditions in the domestic and international markets, changes in Governments regulations, tax laws and other statutes, and other incidental factors.

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