The company is in the business of exporting tea and coffee. 90% of its revenue came from the exports of tea and coffee. The main markets for the company have been Russia and CIS.
The company owns a "bought leaf factory" with a capacity of around 3000 tonnes. The public issue of 71.4 lakh shares at Rs. 14 is being done to increase the capacity of this plant to 9000 tonnes by June 2006. This would be done in two phases and the company expects the first phase to get over by June 2005 when the capacity will increase to 6000 tonnes per annum.
All this is being done despite the fact that the utilizations for the company is not very high even today with the company being able to utilize only 62% of its capacity and actually making a loss on the tea business. However in the overall picture this was set off by a profit that the coffee business had turned up.
The company plans to sell this additional capacity in the Indian markets domestically, however the thing to be kept in mind is that the competition in the domestic market is intense and the company will have to fight it out with more established players with excellent distribution channels, huge marketing budgets and established brands.
The coffee business has also been able to drive home profits because the production in Brazil, which is one of the major exporters of coffee, has been less this year. Consequently the prices of coffee in the international market have been high.
The company is offering its share for Rs. 14 which translates into a P/E multiple of 17 based on Fiscal 05 earnings. Now this is very high for such a small company whose major line of business has made losses. The company hopes to take advantage of the bullish sentiment that exists in the IPO market and is asking for a price that is not really justified by the earnings of the company.
