Varun Beverages IPO: 5 Things To Know Before Your Invest

NDTV Profit Desk

26 Oct 2016, 08:25 AM IST

Varun Beverages is one of the largest bottling franchise of PepsiCo outside US.

Varun Beverages, PepsiCo India's bottling franchise, has hit the capital market with its Rs 1,100 crore initial public offer (IPO). The Gurgaon-based company has set the price band of its IPO at Rs 440-445. Investors can subscribe the IPO in lot sizes of 33 shares. The IPO will close on October 28.

Here are 5 things to know:

1) Varun Beverages' Rs 1,100 crore IPO consists of fresh issue of Rs 667 crore and offer for sale of Rs 445 crore. Out of the fresh issue of Rs 667 crore, the company wants to use Rs 540 crore for repayment of debt and the remaining for general corporate purposes. Post this IPO, promoter holding in the company will come down to 73.7 per cent from 86.3 per cent now.

2) Varun Beverages is engaged in the business of producing and distributing wide range of PepsiCo's beverages such as Pepsi, Diet Pepsi, Seven-Up, Tropicana Slice, Aquafina, etc. Its Indian operations account for 82 per cent of its total revenues. It has 21 manufacturing facilities in India.

3) Varun Beverages had reported a net profit of Rs 84 crore on revenues of Rs 3,394 crore in the calendar year 2015 and in the first half of 2016, its net profit was Rs 207 crore on revenues of Rs 2,530 crore. The Gurgaon-based company's earnings have remained lacklustre in last four years with losses reported in CY2013 and CY2014. In CY2015, its volume from existing territories declined by 7 per cent, which indicates de-growth in existing business.

4) At the upper end of the price band, Varun Beverages' shares are valued at 51.4 times its CY2016 estimated earnings per share, which looks expensive, said Angel Broking. "Considering its inconsistent financial performance, low RoE, asset heavy business model and high valuation, we rate this IPO as 'Neutral'," the brokerage said.

5) Varun Beverages has 100 per cent dependence on PepsiCo for it revenues. The company has limited strategic flexibility to improve its business further as key decisions such as advertising, product launches, are determined by PepsiCo, which is a key risk in the business of the company, said Angel Broking.