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Varun Beverages IPO Allotment status, Listing Date & Price – Details & Review

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Varun Beverages has announced its Rs 1100 crore IPO. Varun Beverages is franchisee of PepsiCo in India and internationally.

Issue Details  of Varun Beverages IPO:  

  • IPO Open :  26th to 28th  Oct  2016
  • Issue Price band:  Rs 440 – 445
  • Issue Size:   Rs 1100 crore
  • Market lot :   33 shares or multiples
  • Max shares for Retail:   429
  • Book Running Lead Managers :   Axis, Kotak
  • Registrar –
  • Listing: BSE/NSE

Grey market premium – The listing is not expected to by hugely over-subscribed with subscription to 1 to 1.5 times. The Grey market premium is Rs 5-10 and some brokers are offering between Rs 300 – 600 for the forms / kostak.  (These are just indicative values)

Varun Beverages IPO Issue Allocation

  • Qualified institutional buyers (QIBs) –  50 % of the total issue size.
  • Non-institutional investors (NIIs) –  15 % of the issue size.
  • The retail quota limit in the issue = 35 % of the issue size.

Varun Beverages is one of the largest franchisee in the world (outside USA) of carbonated soft drinks (“CSDs”) and non-carbonated beverages (“NCBs”) sold under trademarks owned by PepsiCo.

PepsiCo CSD brands produced and sold by us include Pepsi, Diet Pepsi, Seven-Up, Mirinda Orange, Mirinda Lemon, Mountain Dew, Seven-Up Nimbooz Masala Soda, Seven-Up Revive and Evervess. PepsiCo NCB brands produced and sold by us include Tropicana Slice, Tropicana Frutz (Lychee, Apple and Mango), Nimbooz as well as packaged drinking water under the brand Aquafina. In addition, we have also been granted the franchise for Ole brand of PepsiCo products in Sri Lanka.

As of April 30, 2016, we operated 16 production facilities across India and five production facilities in our international licensed territories

Promoters holdings:  Promoter group hold 86% of the shares. There are some private equity players a well- Standard Chartered Private Equity (7.7%) , Aion Capital partners (4.9%) and these PE are not selling their share in this IPO.

Objective of the issue:  The issue is 60% fresh issue & 40% offer for sale. The proceed from IPO will be used 

  • Prepayment or scheduled repayment of a portion of outstanding indebtedness ( Rs 540 crores) availed by our Company; and
  • General corporate purposes.

Financials: 

Revenue from operations (net) increased at a CAGR of 31.15% from  Rs 1100 crores in 2001 to Rs 3394 crores in 2015. 

Net profit after tax in 2015 was Rs 85 crores. But there was loss in 2014 & 2013. Net profit has been volatile, with losses incurred in 2013 and 2014 on account of changed depreciation policy as well as organic & inorganic expansion.

 

Anchor Investors:  

Risks:

  1. Termination or non-renewal by PepsiCo India / PepsiCo Inc. or PepsiCo International Entities or any material modification to the existing terms may have an adverse impact to continue business and operations and future financial performance.
  2. 2) The company has long term liabilities of Rs 2400 crores against the shareholder funds of Rs 672 crores i.e the company is highly leveraged.After the issue, net debt is expected to come down to Rs 1600 crore with debt equity ratio improving to 0.8.
  3. 3) The company’s business is quite seasonal. 45% of the yearly revenue comes from June Quarter.
  4. The slowdown in volume growth of carbonated drinks, which constitute over 80% of the company’s revenues, is a key concern.
  5. Besides, most of the promoter group companies are not making profit.

Valuation as compared to its peers:

This IPO values the company at Rs 8000 crore – twice its annual revenues. Based on the annualised earnings of FY16, the offer values the company at a price to earnings (PE) multiple of 71.

These are high valuations – especially when compared with VBL’s Chinese counterpart Tingyi Holding, which is trading at one-year forward PE of 35.

Should you invest:    

 The valuation of the company is quite expensive. So there may not be anything left for short term investors. Investors with long term view may subscribe as other smaller peer (Manpasand Beverage) has doubled since its listing.
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Disclaimer:  The articles or analysis on this website should not be constituted as Investment advice. Please consult your financial advisor before making any investments.

 

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The author is a Chartered Accountant and loves to write about Personal Finance, Wealth Management, Taxation etc. Disclaimer - The articles on this website is for informational and knowledge purposes and should not be treated as financial advice, Please consult your financial advisor before taking any investment decision.

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