After a long time, investors are liable to see a company associated to consumables hit the Indian stock markets. Although Varun Beverages Ltd, a bottler for Pepsi, is not really a consumer play, it’s the closest proxy for Pepsi that Indian markets can hope for. So, let’s find out if investing in the Varun Beverages IPO is a good idea. Here are 10 key points about the company and what it does.

1. Should you invest in the Varun Beverages IPO
After a long time, investors are liable to see a company
associated to consumables hit the Indian stock markets.
Although Varun Beverages Ltd, a bottler for Pepsi, is not
really a consumer play, it’s the closest proxy for Pepsi that
Indian markets can hope for.
So, let's find out if investing in the Varun Beverages IPO is a
good idea. Here are 10 key points about the company and
what it does.
1. Varun Beverages is one of the leading franchisees in the world of carbonated soft drinks
(CSDs) and non-carbonated beverages (NCBs) for PepsiCo, outside USA. CSD brands are
manufactured and sold by the company include Pepsi, Diet Pepsi, Mountain Dew, Mirinda
Orange, Mirinda Lemon, Seven-Up, Seven-Up Nimbooz Masala Soda, Seven-Up Revive
and Evervess. The NCB brands are produced and sold by Tropicana Slice, Nimbooz,
Tropicana Frutz (Lychee, Apple and Mango), as well as packaged drinking water under the
brand, Aquafina.
2. The company has been allied with PepsiCo since the 1990s and has consolidated its
business over the years. As of March 31, 2016, the company is licensed to sell PepsiCo’s
products across 17 states and two union territories in India.
3. It also has existence in Nepal, Sri Lanka, Morocco, Mozambique and Zambia. Still,
India is its biggest market contributing about 84.4% in FY15.
4. Varun Beverages reckoned for 44.12% of PepsiCo’s sales in the country in the Financial
Year 2015, up from 26.5% in the Financial Year 2011.
5. As of April 30, 2016, the company runs 16 production facilities across India and five
production facilities at their internationally approved territories. Also, it manufactures
performs, corrugated boxes and pads, crowns, plastic crates and shrink-wrap films. Its
production facilities across India are tactically located in geographical closeness to various
target markets, resulting in lower transportation and distribution expenses.

2. 6. Varun Beverages has a well-built distribution network covering urban, semi-urban and
rural markets. Its 578 key distributors in India reckoned for 76.79% of sales in volume
terms in India in FY2015.
7. Carbonated drinks accounts for 82% of the revenue, water is 12% while non-carbonated
drinks account for 6%. However, over-dependence on the carbonated segment, which is a
slow growing segment, is structurally negative for the company.
8. Being a bottler, Varun Beverages does not have any pricing authority. The company
does not have any of the main operational and financial characteristics of a consumer
business; operationally, it has no pricing power, brand ownership, new product
development or control over raw material. These are the reasons which keep the company
from being compared to any other in the consumer sector.
9. Additionally, the business is capital intensive. Bulk of the cash generated by the
business has departed towards funding its capital expenditure and interest payment. In the
hunt for growth, the company’s return ratios and balance sheet has taken a hit with a
steady dilution of existing shareholders and increasing debt levels. Despite a rationally
healthy EBITDA margin of 18%, Varun Beverages is striving hard to achieve a double-
digit ROCE mainly on account of high level of capacity building that the company has
undergone to create sales growth. Over the past five years, nearly 25% of sales have gone
in for capacity expansion.
10. As per media reports, the company is determined to tap the market at a price of Rs
440-445 valuing the business at around Rs 7,900 crore. In FY15, the company reported a
consolidated net profit of Rs 87 crore, which takes the current issue at a price to earnings
ratio of nearly 90 times, almost twice the industry average. These valuation numbers are
based on December 2015 numbers rolled out by the company in its prospectus. A sharp
improvement in profits can bring the valuation lower.
Related Articles:
Pepsico Franchisee, Varun Beverages Got A Nod For IPO
Varun Beverages eyes up to Rs1,400 cr from IPO in October

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The investment advice or guidance provided by way of recommendations, reports or other ways are solely the personal views of the research
team. Users are advised to use the data for the purpose of information and rely on their own judgment while making investment decision.
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Analyst/ his Relative:
 Do not have any financial interest / any actual/beneficial ownership in the subject company.
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Article Written by
Tanaya Nath