Investing Reflections On India

Empee Distilleries is in the alcohol business – producing ‘Indian Manufactured Foreign Liquor’ (IMFL).  The company operates in the premium segment with relatively high operating margins. The company reported reasonable growth in revenues and profits over the last five years – reporting about 40cr in operating profits on revenues of about 600cr in the last financial year.  It employed moderate debt in relation to its book equity. The company, however, has used up cash in the aggregate over the last five years resulting in the requirement for additional financing over that period. The primary issue adversely affecting this business is pervasive government control.  The government authorities in the states, where the company operates, have monopoly control over alcohol distribution allowing them to dictate prices to the company.  The state governments also control aspects of manufacturing, storage, distribution, brand approval, excise and import duties, advertising, inter-