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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