IPO Note | FMCG
June 22, 2015
Manpasand Beverages
NEUTRAL
Issue Open: June 24, 2015
IPO Note - Valuation expensive
Issue Close: June 26, 2015
Investment rationale:
Issue Details
Capacity expansion to trigger growth: Currently the company has three
manufacturing plants having a total capacity of around 9 lakh litres per day. The
Face Value: `10
company is now setting up a new manufacturing facility in Haryana/Punjab, at a
Present Eq. Paid up Capital: `37.6cr
capex of around `152cr, which will increase the total capacity by around 50%. Going
Fresh Issue**: 1.25cr Shares
forward, we believe this new plant will drive additional growth for the company.
Post Eq. Paid up Capital: `50cr
A strong regional brand supported by a wide distribution network: The company
has a strong brand - Mango Sip, having presence in rural and semi urban
Market Lot: 45 Shares
regions, ie mainly in Punjab, Bihar, Maharashtra, Gujarat, and Uttar Pradesh.
Fresh Issue (amount): `400cr
Also, the company has a wide distribution network including 73 consignee agents
and 654 distributors spread across 24 states in India to whom it sells directly. The
Price Band: `290-320
company’s sales and distribution network is strategically spread across different regions
Post-issue implied mkt. cap `1,452cr*-
in India, and has an especially strong outreach in certain semi urban and rural markets.
1,602cr**
Note:*at Lower price band and **Upper price band
Investment concern:
Overall slowdown in rural markets could impact discretionary spending: A major
portion of the company’s revenue comes from rural markets owing to the
Book Building
company’s strong presence in these areas, backed by a wide distribution network.
The Indian rural story is currently going through an adverse phase due to
QIBs
75%
unseasonal rains in the recent past which impacted crops extensively, and due to
Non-Institutional
15%
lower hike in minimum support prices (MSPs), thus curtailing rural incomes. Thus,
Retail
10%
going forward, any further slowdown in rural markets could likely result in lower
spending on discretionary products.
High dependency on a single brand: The company started operations with its
Post Issue Shareholding Pattern(%)
flagship brand ’Mango Sip’ in the year 1997; since then, the brand has been the
Promoters Group
50.4
largest contributor to the company’s revenues. In the last three years, more than
97% of the company’s revenue has been contributed by ’Mango Sip’ alone.
MF/Banks/Indian
FIs/FIIs/Public & Others
49.6
Outlook and Valuation: MBL is highly dependent on a single brand (Mango Sip)
which currently has rural and semi urban focus. Going forward, for penetrating
the brand in urban markets, MBL would face stiff competition from strong existing
brands like Frooti, Slice, Mangola, Pepsi, Coca cola etc.
On the price to earnings per share (EPS; post-IPO) front, the company is valued at
95x 9MFY2015 annualized numbers, while its close peer - Dabur is trading at
44x FY2015 numbers. Further, other FMCG companies like ITC and HUL are also
trading at a lower multiple than MBL inspite of bigger brands in their portfolios, wide
pan India distribution networks, and higher ROEs, coupled with their proven track
records. Hence, we recommend NEUTRAL on the issue due to expensive valuation.
Key Financials
Y/E March (` cr)
FY2013
FY2014
9MFY15
Net Sales
240
294
239
Net Profit
22
20
13
OPM (%)
16.1
15.5
15.2
EPS (`)
5.9
5.5
3.4
P/E (x)*
53.8
58.7
-
P/BV (x)*
14.4
11.4
-
Amarjeet S Maurya
EV/Sales (x)*
4.7
3.9
-
+91 22 3935 7800 Ext: 6831
EV/EBITDA (x)*
29.2
25.1
-
[email protected]
Source: Company, Angel Research; Note: *The above numbers are considering subscription at the
upper end of the price band
Please refer to important disclosures at the end of this report
1
Manpasand Beverages | IPO Note
Company background
Manpasand Beverages was incorporated in 1997 and is based in Vadodara,
Gujrat. It operates as a fruit drink manufacturing company in India. The company
offers a mango based fruit drink under the ‘Mango Sip’ brand, fruit drinks and
carbonated fruit drinks under the ‘Fruits Up’ brand, and fruit drinks with energy
replenishing qualities under the ‘Manpasand ORS’ brand. It also offers an apple
flavoured fruit drink under the ‘Apple Sip’ brand, and bottled water under the
‘Pure Sip’ brand. All of the company’s brands have a distribution focus towards
semi urban and rural markets. The company has two manufacturing facilities in
Vadodara (Gujrat) and one in Varanasi (Uttar Pradesh). Of the two facilities in
Gujrat, one has just commenced commercial production, ie from April 2015. As of
March 2015, MBL has a wide distribution network including 73 consignee agents
and 654 distributors spread across 24 states in India to whom it sell directly. The
company also sells directly to Indian Railway Catering and Tourism Organization
(“IRCTC”) approved vendors.
Exhibit 1: Sales mix -Tetra pack vs Bottle
100%
90%
20%
80%
70%
60%
60%
50%
40%
80%
30%
20%
40%
10%
0%
Historically
Current
Tetra pack
Bottle
Source: Company, Angel Research
Exhibit 2: Tetra pack
Source: Company, Angel Research
June 22, 2015
2
Manpasand Beverages | IPO Note
Exhibit 3: Bottle
Source: Company, Angel Research
Issue details
MBL is backed by venture capital fund SAIF Partners (which holds ~30%), private
equity firm Aditya Birla Private Equity (which holds ~3%) while promoters hold
~67% in the company. The company is raising money through an IPO (fresh issue)
via the book building process aggregating to `400cr. Shares could be subscribed
to in the price band of `290-320 (face value of shares: `10/- each). The fresh
issue of shares will constitute ~27% of the post-issue paid-up equity share capital
of the company.
Exhibit 4: Shareholding pattern
Particulars
Pre-Issue
Post-Issue
No. of shares
(%)
No. of shares
(%)
Promoter group
2,52,40,500
67.2
2,52,40,500
50.4
Others
1,23,13,500
32.8
2,48,13,500
49.6
Total
3,75,54,000
100.0
5,00,54,000
100.0
Source: Company, Angel Research
Objects of the offer
Setting-up of a new manufacturing facility in the state of Haryana/Punjab
which would cost around `152cr.
Modernization of manufacturing facilities, ie Vadodara 1 Facility and Varanasi
Facility, which would cost around `39cr.
Setting-up of a new corporate office at Vadodara, which would cost around
`22cr.
Repayment/prepayment of certain borrowings availed by the company to the
tune of `100cr; while the balance would be utilized towards general corporate
purposes.
June 22, 2015
3
Manpasand Beverages | IPO Note
Key investment rational
Capacity expansion to trigger growth
Currently the company has three manufacturing plants (two plants in Vadodara
and one in Varanasi) which have a total capacity of around 9 lakh litres per day.
The company is now setting up a new manufacturing plant in Haryana/Punjab, at
a capex of around ~`152cr, which will likely increase total capacity by 50%. The
company is also modernizing its existing facilities at Vadodara and Varanasi at an
estimated cost of ~`39cr. Going forward, we believe the new plant will drive
additional growth for the company.
A strong regional brand with a wide distribution network
The company has a strong brand - Mango Sip which has presence in rural and
semi urban markets, mainly Punjab, Bihar, Maharashtra, Gujarat and Uttar
Pradesh. Mango Sip contributed by more than 97% to the company’s total revenue
in FY2014. The brand is supported by a wide distribution network including 73
consignee agents and 654 distributors spread across 24 states in India to whom
the company sells directly. In addition, the company’s consignee agents and
distributors also engage a number of super stockists, other distributors and sub
distributors who distribute the company’s products to a number of retail outlets.
The company’s sales and distribution network is strategically spread across
different regions in India, and has an especially strong outreach in certain semi
urban and rural markets.
Exhibit 5: Distribution network
States
Distributors
Punjab
96
Bihar
75
Maharashtra
73
Gujarat
53
Delhi
47
Haryana
44
Rajasthan
38
Uttar Pradesh
38
Chhattisgarh
36
Karnataka
33
Jharkhand
21
Uttarakhand
12
Assam
10
Madhya Pradesh
9
Himachal Pradesh
8
Andhra Pradesh
7
Goa
7
Manipur
5
Orissa
5
Kerala
3
Tamil Nadu
2
Jammu & Kashmir
1
Telangana
1
Source: Company, Angel Research
June 22, 2015
4
Manpasand Beverages | IPO Note
Key investment concerns
Overall slowdown in rural markets could impact discretionary
spending
A majority of the company’s revenue comes from rural markets through sales of
discretionary products like fruit drinks. The Indian rural story, in the recent past,
has been negatively impacted due to unseasonal rain which adversely affected
crops. Further, lower hike in MSPs (in FY2015, price hike was of 4.3% compared to
last six years’ average hike of 12.5%) has also curtailed income in rural hands.
Also, for FY2016, the government has announced a hike in MSP of around 3.7%,
which is even lower than in FY2015. Considering the above factors, we see less
scope for discretionary spending to expand in rural markets in the near term.
Exhibit 6: Historical average MSP Price trend growth
35
30.9
30
25
20
14.4
15
10.4
9.3
8.9
10
4.3
3.7
5
0.8
0
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
Average % increase in MSP (wheat & pady)
Source: Company, Angel Research
Higher dependency on a single brand
The company started operations with its flagship brand “Mango Sip” in the year
1997; since then, the brand has been the largest contributor to the company’s
revenues. In the last three years, more than 97% of the company’s revenue has
been contributed by “Mango Sip” alone.
As against this, other listed FMCG companies like HUL, ITC, Dabur etc have a well
diversified product portfolio, thereby not being subject to the single product
dependency risk, to a fair extent. Although MBL has launched a few brands in
FY2015 to restrain the single brand dependency risk, it will take time for these
brands to take off; as of now, the contribution of these brands is insignificant for
the company.
June 22, 2015
5
Manpasand Beverages | IPO Note
Exhibit 7: Mango Sip brand’s contribution to total revenue
100
2
2
3
90
80
70
60
50
98
98
97
40
30
20
10
0
FY2012
FY2013
FY2014
Mango Sip Others
Source: Company, Angel Research
Expensive Valuation
During FY2014, MBL reported a top-line of ~`294cr and a bottom-line of
~`20cr. For 9HFY2015, the company has reported a top-line of `239cr and a net
profit of `13cr.
MBL is highly dependent on a single brand (Mango Sip) which currently has rural
and semi urban focus. Going forward, for penetrating the brand in urban markets,
MBL would face stiff competition from strong existing brands like Frooti, Slice,
Mangola, Pepsi, Coca cola etc.
On the price to earnings per share (EPS; post-IPO) front, the company is valued at
95x 9MFY2015 annualized numbers, while its close peer - Dabur is trading at 44x
FY2015 numbers. Further, other FMCG companies like ITC and HUL are also
trading at a lower multiple than MBL inspite of bigger brands in their portfolios,
wide pan India distribution networks, and higher ROEs, coupled with their proven
track records. Hence, we recommend NEUTRAL on the issue due to expensive
valuation.
Exhibit 8: Valuation table
MBL
Dabur
ITC
HUL
PE
95
44
25
43
ROE (%)
9
32
30
108
Source: Company, Angel Research; Note: MBL’s 9MFY15 numbers are annualised for comparison;
other peers FY15 numbers have been taken. Valuation Ratio at the upper price band
Risks to upside
(a) Improvement in economic growth and better than expected monsoon would
likely increase crop produce, which would lead to higher disposable incomes
in the hands of the rural consumer. This would be a risk to our
recommendation.
(b) Success of recently launched brands and their higher contribution to overall
revenue of the company would be a risk to our recommendation.
June 22, 2015
6
Manpasand Beverages | IPO Note
Profit & Loss
Y/E March (` cr)
FY2013
FY2014
9MFY2015
Total operating income
240
294
239
Total Expenditure
202
249
203
Cost of Materials
148
172
143
Personnel Expenses
7
8
7
Others Expenses
46
68
53
EBITDA
39
46
36
(% of Net Sales)
16.1
15.5
15.2
Depreciation& Amortisation
10
15
15
EBIT
29
31
21
(% of Net Sales)
11.9
10.5
9.0
Interest & other Charges
4
8
8
Other Income
0
0
0
(% of PBT)
1.3
0.2
2.6
Share in profit of Associates
-
-
-
Recurring PBT
25
23
14
Prior Period & Extraordinary Expense/(Inc.)
-
-
-
PBT (reported)
25
23
14
Tax
2
3
1
(% of PBT)
9.1
11.5
10.2
PAT (reported)
22
20
13
Restatement Adjustments
(0)
(0)
0
PAT after MI (reported)
22
20
13
ADJ. PAT
22
20
13
(% of Net Sales)
9.3
7.0
5.3
Basic EPS (`)
6.6
6.0
3.4
June 22, 2015
7
Manpasand Beverages | IPO Note
Balance Sheet
Y/E March (` cr)
FY2013
FY2014
9MFY2015
SOURCES OF FUNDS
Equity Share Capital
3
3
38
Reserves& Surplus
72
92
147
Shareholders Funds
76
96
185
Minority Interest
-
-
-
Total Loans
47
65
89
Deferred Tax Liability
-
0
-
Total Liabilities
123
161
273
APPLICATION OF FUNDS
Fixed Assets
93
92
80
Capital Work-in-Progress
-
-
105
Investments
0
0
0
Current Assets
71
106
144
Inventories
21
42
41
Sundry Debtors
33
48
43
Cash
6
5
10
Loans & Advances
10
11
45
Other Assets
2
1
5
Current liabilities
41
38
55
Net Current Assets
30
69
88
Deferred Tax Asset
0
-
0
Total Assets
123
161
273
Cash flow statement
Y/E March (` cr)
FY2013
FY2014
9MFY2015
Profit before tax
25
23
14
Depreciation
10
15
15
Change in Working Capital
(1)
(41)
18
Interest / Dividend (Net)
(0)
0
0
Others
(1)
5
4
Cash Flow from Operations
32
2
51
(Inc.)/ Dec. in Fixed Assets
(48)
(15)
(138)
(Inc.)/ Dec. in Investments
(0)
-
(0)
Cash Flow from Investing
(48)
(15)
(138)
Issue of Equity
-
-
-
Inc./(Dec.) in loans
16
(3)
89
Dividend Paid (Incl. Tax)
7
22
11
Interest / Dividend (Net)
(4)
(8)
(8)
Cash Flow from Financing
19
11
92
Inc./(Dec.) in Cash
3
(1)
5
Opening Cash balances
2
5
4
Closing Cash balances
5
4
9
June 22, 2015
8
Manpasand Beverages | IPO Note
Key Ratios
Y/E March
FY2013
FY2014
Valuation Ratio (x)
P/E (on FDEPS)
53.8
58.7
P/CEPS
36.9
34.0
P/BV
14.4
11.4
EV/Sales
4.7
3.9
EV/EBITDA
29.2
25.1
EV / Total Assets
0.7
0.6
Per Share Data (`)
EPS (Basic)
5.9
5.5
EPS (fully diluted)
5.9
5.5
Cash EPS
8.7
9.4
Book Value
22.2
28.1
Turnover ratios (x)
Asset Turnover
2.6
3.2
Inventory / Sales (days)
32
52
Receivables (days)
49
59
Payables (days)
28
22
Working capital cycle (days)
53
89
June 22, 2015
9
Manpasand Beverages | IPO Note
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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June 22, 2015
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