Recently, Empee Distilleries came out with IPO at Rs. 400/-, commanding P.E. Ratio of 40. although, promoters of Empee are not
investor friendly. Its only listed company Empee Sugar has one of the worst track records (did not do well even when all sugar
companies reported all time high profits). In last 6 months, valuations of companies manufacturing Alcohol, ENA, IMFL have gone
up sharply due to extremely bright future. In such a scenario, PDL appears a top pick as its valuations in this industry are
still the lowest.

This Hyderabad based company is engaged in the production of ENA, RS, DS, CO2 and Ethanol at its factory in Nanded. Fine
Grade ENA made by the company finds place as R/M for renowned liquor brands of Mcdowell, Shaw Wallace, Radico Khaitan etc.
Basic R/M for ENA is molasses which is abundantly available around its factory area. Company has also obtained licence to use
grain as alternate R/M for making alcohol. There is market for grain based alcohol but presently, production cost is on the higher
side. In future, company can take decision to go for grain based alcohol if profitability in the same comes at par with molasses route.
Sheer size of India's distillery market is growing rapidly and attracting attention of global players. Last year's performance of the
company is one of the best in the industry and hence the recommendation to buy.

Financial Performance:

TRAILING 4 QUARTERS

Company is also processing Carbon-di-Oxide generated in the fermentation processes. Company has performed extremely
well during 06-07 with EPS of 6.10. Its PAT has gone up by 400% from 1.35 crs. to 6.45 crs.. In Q4 alone, company has
reported PAT of 3.55 crs. Q4EPS was 3.25. Company has benefitted immensely by decline in molasses prices. Low prices
of R/M has resulted in less than proportionate decline in sale prices, hence rise in profit margins. Company has declared
maiden dividend of 10%.

During the year 06-07, capacity utilization was 94.56% and segment-wise performance is as under:

a) Production of RS was 218,44,165 BL.

b) Production of ENA was 174,69,154 BL.

c) CO2 production was 248,77,38 KG.

During the year company had started production of Ethanol and obtained orders from BPCL, HPCL, IOC etc. Company
also doubled its production capacity of distillery from 50,000 litres per day to 1 lakh litres per day. Expansion was
completed towards end of the year and impact of same will be felt in 07-08.

Future Outlook:

Molasses prices continue to be soft and hence company will continue to enjoy high profit margin. Company is expected to
do well as there are many barriers for new units:

1) Getting Licence.

2) Getting pollution control clearance of the process and premises.

3) Need huge effluent treatment facilities.

Company has commenced work for setting up a 5 MW Bio-gas Power Plant including setting up of effluent treatment plant at
Rs. 40 crs. It should be functional in Q1, 08-09. This Plant is eligible for carbon credits and company should get around Rs. 4 crs.
worth CER in 08-09. Power generated will be sold to Mah. Power Grid.

Future Outlook:

Company has already reported NP of 5.10 cr. in H1FY08. It may report NP of 4.20cr. in Q3FY08 alone and declare
10% interim dividend

Company is planning a capex of around Rs. 100 crs. which will involve:

1) Doubling of distillery capacity from 1 lakh to 2 lakh litres per day.

2) One more Bio-gas Cogen Power Plant of 5 MW which will be entitled for carbon-credit

3) Forward integration for manufacturing Acetic Acid, Ethyl Acetic Acid etc.

4) Increasing Ethanol capacity from 30,000 litres per day to 1.30 lakh litres per day. Recently, Govt has announced that
mixing of 10% Ethanol
will be mandatory from Dec 08 and hence, this division of co will have great future

Above projects will be completed by Dec. 2008.

Promoters are mainly concerned with higher profitability in the company and continue to concentrate on their core competence
by increasding capacities of their existing business. Company already has big infrastructure/utilities in place and post-expansion,
there are significant cost savings. Company, in near future, dont plan to sell IMFL in its own-brand name as building a brand
(particularly in Indian market which is dominated by 1 giant) will need huge pockets and long long time which can wipe out its
profits of existing business. Company has earned a very good name in ENA which is being supplied to strong brands and its
customers wont easily switch to other suppliers due to specific tastes of specific brands. Moreover, new entrants will find it
very time-consuming to get quality acceptance of ENA.

Expansion will be funded through small Equity dilution (around 3 mn shares), internal accruals and borrowings. This cogen will
also be eligible for carbon credits, thus company should get CER worth Rs. 8 crs. in 09-10.

In 09-10, company can comfortably achieve NP of 30 crs. as Cogen Power Plant alone will contribute Rs. 10-11 crs. and CER will
contribute around Rs. 8 crs.

Valuations: PDL is a small company so far but, its promoters have capacity to deliver and a vision to grow rapidly. Company is
gearing itself to exploit price by modernizing machinery, installing balancing equipments and developing new product applications.

Normally, for preferential offers, majority of the promoters try to raise funds from outsiders. However, promoters have made 3
preferential offers and all 3 offers are only to promoters:

a) 6,25,600 shares in July 2006.

b) 5,87,000 warrants in June '07.

c) 7,00,000 warrants in Sept. '07 (to be converted into Equity at Rs. 53/- per share).

This amply displays integrity and confidence of the promoters.

PDL Scrip is going cheap consideing:

1) Company has 400 acres of land purchased at very very low price where the effluent is used for growing some crops.
Market Value of this land alone works out to more than Rs. 50 crs. (nearly Rs. 50/- per share).

2) Scrip should be listed at NSE in next few months.

3) Company is already in Ethanol Business which is a high profile industry.

4) Company is eligible for carbon credits.

5) Stock is trading at 11.25x FY08E EPS.

6) Stock is trading at 8.06x FY09E EPS.

7) Stock is trading at 6.30 x FY10E EPS (these figures include impact of proposed capex of 100 crs.).

Promoters and their associates hold more than 65% Equity. Floating Stock is not big except Sicom holds around 4 lakh shares.
Once Sicom selling is over, share prices can zoom one-way.

At 20,000 sensex level, PDL is one of the safest scrips for best returns. Our price target:

1) Rs. 175/- in less than 6 months.

2) Rs. 225/- in just 12 months.
.

Most likely, some FI/FII may take Equity Stake at Rs. 200/- in next 3 months. Then, scrip will be strongly re-rated.
Buying strongly recommended.

Hemant K. Gupta
Centre for Development Of financial Treasure