VCCircle

It has been a remarkable journey for Ess Dee Aluminium, an aluminium foil-based packaging company for pharma businesses, from Rs 1 lakh turnover in 1991 to Rs 1,600 crore valuation in 2007. The company has just raised Rs 81 crore by diluting 5 per cent stake to Morgan Stanley. This was a company which analysts urged investors to avoid when it came up with an IPO in December last year.

Ess Dee Aluminium on Wednesday informed Bombay Stock Exchange that it would issue 1.41 million equity shares of Rs 10 face value on a preferential basis to Morgan Stanley at Rs 575 a share. That makes the deal worth Rs 81.07 crore or $18 million, valuing the company at $360 million. Interestingly, in March 2007, foreign fund Fidelity had picked up 5.21 per cent stake in the company for about Rs 40 crore, at just half of the current valuation.

It also has other biggies as investors - ICICI and Marc Faber who hold around 3.5 per cent and 4 per cent equity, respectively, besides Volrado Venture Partners (6.06 per cent) and Deutsche Securities Mauritius Ltd (2.11 per cent). Morgan Stanley's investment in Ess Dee comes at a time when it was also reportedly in talks to buy out the Vedanta Resources unit India Foils.

The story of Ess Dee, set up by Sudip Dutta (he apparently bought the sick unit from his employers), has its beginnings from a small scale unit in Jogeshwari in Mumbai with 12 employees in 1991. It started with manufacturing pouches and sachets and had its first year sales of just Rs 1 lakh. In 1994, they were appointed as one of the distributors for Indian Aluminium Company Ltd (INDAL). But the breakthrough came in 1994, when it acquired a sick aluminium foil printing unit in Goregaon on a rental basis, after which it entered the pharmaceutical packaging and printing market. It hasn't looked back ever since.

Ess Dee posted a consolidated net profit of Rs. 16.29 crore and a stand alone net profit of Rs. 13.12 crore for the quarter ended June 30, 2007. Its consolidated net sales stood at Rs. 74.05 crore. Interestingly, the company's chairman and MD Sudip Dutta, 35, the son of an army man in Durgapur, West Bengal, didn't know where his next meal would come from when he was growing up in the 1980s (read a Business Standard profile).

Yahoo recently bought sports content website Rivals.com for $100 million. What is interesting is, in 2001, Yahoo had offered to buy the then-loss making Rivals for $25 million (via Bill Burnham). The company was on its last legs. The deal fell through as Yahoo insisted on "a incredibly complex structure" in order to keep the losses low on books. VCs liquidated their holdings. The founder bought out all the assets and rejuvenated the company with a "non-bubble cost and mentality". Six years hence, the site was sold for $100 million to Yahoo only. (Yahoo ended up paying $75 million more, even though they knew Rivals was a good product a few years ago).

Burnham draws a few investing lessons from this:

1) Even if good products are damaged by bad business decisions, they are still good products.

2) The time to buy is when everyone else is selling.

3) You can always reduce expense more.

For entrepreneur:

1) Don't give up on a good product too soon.

2) If your product is good, and if you are passionate about it, that will pay off finally

I am sure these lessons work in Indian context too.