Varun Beverages IPO fetches Good Response

Varun Beverages, Pepsi Co’s largest franchise bottlers, kicked off the capital market on Wednesday with its Rs.1,100 crore initial public offer (IPO). The Gurgaon-based company has kept the price band of its IPO at Rs. 440-445. Investors can subscribe the IPO in lot sizes of 33 shares. The IPO which will close on October 28 is selling up to 2.5 crore shares. On Tuesday it raised more than Rs 327 crore by allotting shares to anchor investors, a day ahead of its initial public offering opened for subscription. The shares were allotted at Rs 445 apiece, which is the higher end of the price band of IPO.

The IPO constitutes of a fresh issue of 1.5 crore equity shares of Rs 10 each. Promoters are offloading 1 lakh equity shares of the company and will have 73.7 per cent stake post IPO. It is going to utilize Rs 540 crore of the issue proceeds to repay its debt which currently amounts to Rs 2138 crore.

The crucially located advanced manufacturing facilities, low per-capita consumption of soft drink in India, firm relationship with Pepsi Co and huge distribution network are among the factors that make the IPO attractive. Nonetheless, heightened competitive intensity, mainly from Coca-Cola products, increased regulatory oversight and a highly capital-intensive business model make the stock a bit risky

Its valuations are stretched, even after considering performance in first half of ‘16 and factoring debt repayment. Though there are no listed competitors in India, there are various bottlers listed overseas, which trade at significant discount to these multiples. On the basis of reported profit of Rs 87 crore in 2015, the stock would trade at price to equity ratio of 93x CY15 earnings at upper end of the price band, while EV/ EBITDA multiple stands at 14.9x.

Varun Beverages, the biggest franchisee of PepsiCo in the world, excluding the USA, manufactures and distributes Pepsi Co products including Carbonated Soft Drinks (CSD), Non-Carbonated Beverage (NCB) & Packaged Drinking Water. Some of the chief brands manufactured and distributed by VBL are Pepsi, 7 Up, Mirinda, Mountain Dew, Tropicana and Aquafina among others.

Since 1990, it is associated with Pepsi Co. At present, Varun Beverages enjoys manufacturing and distribution rights in 17 states and 2 Union Territories (UTs) that include North & North-East India. Varun Beverages has also been granted franchise rights in international geographies i.e. Sri-Lanka, Nepal, Morocco, Mozambique and Zambia.

It’s consolidated Revenues and EBITDA was up 24 per cent and 41 per cent CAGR through CY12-15, while PAT increased to Rs 87 crore from Rs 25.1 crore in the corresponding period. Its volume CAGR from existing sub-territories through CY11-15 stands at 7.4 per cent.

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