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Varun Beverages Limited IPO Views - 24th Oct 2016

FMCG | Published on Oct 24th 2016

IT

Varun Beverages (VBL) is PepsiCo India’s bottling franchisee, operating since last 25 years. It is engaged in the business of producing and distributing wide range of PepsiCo’s beverages. It has total 21 manufacturing facilities in India and a few other countries. Indian operations account for 82% of its total revenues while rest of the revenues comes from other countries. On CY2015’s PAT of `87cr, the issue, at its upper band is priced at the P/E ratio of 85.4x which looks expensive. The issue still looks expensive at P/E of 51.4x, calculated on estimated CY2016E PAT of `157cr. We note that a lot of MNC brands have presence in India through franchisees. Few of these franchisees have been able to grow their business by taking strategic decisions such product launches, advertising etc. which is not the case with VBL . Considering its inconsistent financial performance, low RoE, asset heavy business model and high valuation, we rate this IPO as ‘Neutral’.

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