Thursday, October 20, 2016

IPO ANALYSIS : VARUN BEVERAGES - ' BOTTLES ARE EMPTY' - AVOID





ISSUE OPENS / CLOSE ON

26-10 / 28-10-2016
PRICE BAND / FACE VALUE
RS 440-445 / RS 10
ISSUE SIZE
RS 1110 CR

BUSINESS
FRANCHISEE OF PEPSICO
PROMOTERS
RJ CORP LIMITED, RAVI KANT JAIPURIA, VARUN   JAIPURIA AND RAVI KANT JAIPURIA & SONS (HUF)
LISTINGS
BSE, NSE
BRLMs
CLSA, YES SECURITIES, KOTAK AND AXIS CAPITAL
REGISTRAR
KARVY
IPO GRADE
NA


BUSINESS


Varun Beverages are one of the largest franchisee in the world (outside USA) of carbonated soft drinks (CSD) and non-carbonated beverages  sold under trademarks owned by PepsiCo. Pepsico produces and distributes a wide range of CSDs, as well as a large selection of NCBs, including packaged drinking water. PepsiCo CSD brands produced and sold by us include Pepsi, Diet Pepsi, Seven-Up, Mirinda Orange, Mirinda Lemon, Mountain Dew, Mountain Dew Game Fuel, Seven-Up Nimbooz Masala Soda, Seven-Up Revive and Evervess. PepsiCo NCB brands produced and sold includes Tropicana Slice, Tropicana Frutz (Lychee, Apple and Mango), Nimbooz as well as packaged drinking water under the brand Aquafina.


THE OFFER


Fresh Issue of Equity  - 1.50 Cr shares, OFS  - 1.00  Cr shares,TOTAL   2.50  Cr shares


OBJECTS OF THE OFFER


Prepayment or scheduled repayment of a portion of the loan and  for General corporate purposes.


RISKS


1.Termination or non renewal of the PepsiCo India Agreements or the PepsiCo International Agreements by PepsiCo India / PepsiCo Inc. or PepsiCo International Entities will impact business.


2.The company incurred losses of ₹ 395.30 million and ₹ 201.56 million in Fiscal 2013 and Fiscal 2014,  respectively. .


3.Obesity or nutritional concerns will reduce demand for some of the products.


4. GST on  carbonated sweetened beverages will increase from 18% to 21%. This will impact profitability of the company.


5.Changes in currency exchange rate influence the results of operations. Some of the expenses, particularly operating expenses in connection with the operations outside India, are denominated in currencies other than Indian Rupees.


FINANCIALS
(RUPEES IN CRORES)



30-06-2016
31-12-2015
31-12-2014




TOTAL REVENUE
2539
3408
2517
NET PROFIT
210
87
(20)
EPS
12.61
5.27
(1.30)


VALUATION AND RECOMMENDATIONS:


The company is likely to report an EPS around Rs 9 for CY 16. The offer at the upper end made at 50 plus PE, which is expensive. The company has limited history of profitability.  Funds from the fresh issue of equity will be utilized towards repayment of debt / general corporate exps.


The company, virtually is offering empty bottles to the investors.


Other than high percentage of promoters holdings (70 plus perecentage), there are are no positive factors in the offer.


A MUST AVOID IPO.


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