Manpasand Beverages Ltd.

Transcription

1 2015 Equirus All rights reserved Rating Information Primary Issue Size (Rs. Bn) 4.0 Face value (Rs.) 10.0 Issue type 100% Book building Ownership Pre-Issue Post-Issue Promoters 67.2 % 50.4 % Others 32.8 % 49.6 % Total % % Objects of Issue Use of Proceeds Rs. Mn. New manufacturing facility in Haryana 1,532 Modernisation of existing facilities at Vadodara 389 New corporate office at Vadodara 221 Repayment/prepayment of certain borrowings 1,009 General corporate purposes 848 Total Gross Proceeds 4,000 Source: DRHP Manpasand Beverages Ltd. t Rated IPO te Riding on the push scheme of things, sales growth in next couple of years to decide if investors make money Food and Beverage Manpasand Beverages (MBL) is the fourth largest player in mango drinks category with its brand Mango Sip. MBL has used the product push strategy by playing on lower prices and higher retailer margins to push its sales in the ~Rs. 50bn Mango based drinks category dominated by likes of Frooti, Maaza and Slice. MBL has witnessed strong sales growth mainly driven by product push with improving distribution network. MBL has recently forayed in carbonated fruit drinks category with its brand Fruits Up and has also launched an energy revitalizing drink under the brand name of Manpasand ORS. However, these diversifications are yet to be proven in the market. Channel checks indicate Mango SIP brand purely banking on pricing play against the larger players which has helped witness strong growth: Mango SIP currently accounts for ~86% of revenues for MBL. MBL has strategically decided against Consolidated Financials launching this product in Metros and is purely playing on pricing by enticing users of 9M lower middle class and below. Our channel checks at few of the modern trade outlets Rs. Mn YE Mar FY12A FY13A FY14A FY15A in Ahmedabad indicate that the product is finding takers due to the pricing strategy (Mango SIP 1.2ltr bottle being sold of Rs. 62 where the company is giving another Sales 857 2,402 2,943 2, ltr bottle free vs. Rs. 65 for a 1.5ltr bottle of Maaza). We believe that the clarity of target audience and right pricing has helped the company witness strong growth in EBITDA revenues from Rs. 0.9bn in FY12 to Rs. 2.8bn at the end of FY14. Depreciation New product launches could help the company further scale up its revenues over Interest Expense the next 2-3 years: MBL has recently launched products under the Fruits Up brand trying to address the fruit drink market (has higher pulp content vs. Mango Sip) and Other Income carbonated fruit drinks. During our recent store visits in Ahmedabad we couldn t see the product on the shelf and it could take some time as the company is in the process Reported PAT of setting up a separate distribution channel for the same. Our industry interactions Recurring PAT on carbonated fruit drinks also suggest minimal success for products except Mango and Litchi flavor due to low consumer acceptance. MBL has also launched fruit drinks Total Equity ,849 under Manpasand ORS brand which has energy replenishing qualities in rth East Gross Debt India. We believe that a judicious mix of pricing and target market would define the way forward for the company in these categories. Cash Revenue growth over next 2-3 years would be contingent on further scalability of Mango SIP and scalability of new products: Our industry interactions have suggested that although Mango SIP has done phenomenally well over the last 2-3 years, such strong growth in the future could be difficult to achieve in the category on the back of current brand size and competition from regional players. Hence we believe any future growth for MBL would depend on revenue contribution from new launches. Valuation: The IPO price at lower band implies TTM 70x P/E for FY15 assuming ~40% of profit contribution for full year during the last quarter. This is at ~50%/+100% premium to Dabur and Coke respectively. We think the IPO has generated strong demand amongst investors due to success stories of regional players like Ghari in rth India. Valuation on TTM earnings looks a bit stretched and any upside would be contingent on strong growth over the next 2-3 years. June 23, 2015 Analyst: Dhaval Dama dhaval.dama@equirus.com ( / ) Page 1 of 7 Before reading this report, you must refer to the disclaimer on the last page.

2 Key takeaways from interaction with industry participant 1. Manpasand has done a good job of scaling up its revenues from Mango Sip brand despite strong competition from established players like Maaza, Frooti, Slice etc. 2. The company follows a distribution led business model (heavily reliant on discounts). Tier II, III, railways business are such kind of markets where if you give higher discounts you can push sales. 50% discount is the norm for such businesses and sometimes discounts can be as high as 70%. 3. Frooti, Slice, Maaza occupy a large size of the organized mango food drink market with roughly about Rs. 30bn of sales. 4. Beyond a certain level scaling up business in the category could be challenging due to presence of several regional players like Fresca (New Delhi), MAA Beverages (South India) etc. 5. Awareness on pulp content is increasing by the day and more aware consumer will lookout for the same. Pulp content on Maaza, Slice would be close to 20% from ~15% levels some time back while Manpasand has pulp content in the range of 10-12%. 6. Category growth for mango based fruit drinks is expected to be in the range of ~12-15% over the next 2-3 years. 7. Flavor innovation is a challenge in carbonated fruit drinks as flavor acceptance is a challenge. Besides the hugely popular mango juices, Litchi flavor has been a success in the carbonated fruit drinks category. 8. Mango flavored drinks is an impulse category hence there should be a proper TV advertising backed by paper campaigns. Ad-spends are required to have relevance in the minds of the consumer. The belief is that with Mango Sip becoming over a Rs. 3bn brand the company would be able to afford ad-spends in the range of Rs mn. 9. MBL would have to be careful post the IPO and make sure they don t start considering themselves as an A-league brand and take price hikes which could help other regional players take away sales from the company by playing on pricing. 10. Mango Sip is a lower quality product but it isn t exactly a bad product as the product has lower pulp content. 11. Cumulative media spends on mango based drinks industry would be in the range of Rs bn. Media spends on brands like real and Tropicana juices would be close to Rs. 500mn. 12. Real and Tropicana have a small portion of portfolio (5-10% of sales) from 100% fruit juices. There is a market opportunity for nectar juices in Tier II and III cities. 13. Beyond Mango and Litchi juices other flavors would require MBL to invest significantly in packaging facilities as other flavors cannot be filled in an PET bottle and would require Tetra Pack plants for the same. 14. The industry hasn t been too positive on carbonated fruit juices as the consumer doesn t prefer such a product. 15. Cannibalization between Mango Sip and Fruits Up is unlikely to happen as the company might like to set up a separate distribution channel and target different markets for the same. June 23, 2015 Analyst: Dhaval Dama dhaval.dama@equirus.com ( / ) Page 2 of 7

3 Mango SIP getting good shelf space in Modern Trade June 23, 2015 Analyst: Dhaval Dama ( / ) Page 3 of 7

4 Historical Financials Manpasand Beverages IPO te t Rated P&L (Rs Mn) FY12A FY13A FY14A 9M FY15A Balance Sheet (Rs Mn) FY12A FY13A FY14A 9M FY15A Cash Flow (Rs Mn) FY12A FY13A FY14A 9M FY15A Revenue 857 2,402 2,943 2,391 Equity Capital PBT Op. Expenditure 718 2,015 2,486 2,027 Reserve ,473 Depreciation EBITDA Networth ,849 Others Depreciation Long Term Debt Taxes Paid EBIT Def Tax Liability Change in WC Interest Expense Minority Interest Operating C/F Other Income Account Payables Capex ,388 PBT Other Curr Liabi Change in Invest Tax Total Liabilities & Equity 987 1,638 1,986 3,285 Others PAT bef. MI & Assoc Net Fixed Assets Investing C/F ,384 Minority Interest Capital WIP ,050 Change in Debt Profit from Assoc Others Change in Equity Recurring PAT Inventory Others Extraordinaires Account Receivables Financing C/F Reported PAT Other Current Assets Net change in cash EPS (Rs) Cash RoE (%) 23 % 35 % 24 % 9 % DPS (Rs) Total Assets 987 1,638 1,986 3,285 RoIC (%) 22 % 26 % 19 % 9 % CEPS (Rs) n-cash Working Capital Core RoIC (%) 26 % 28 % 20 % 10 % FCFPS (Rs) Cash Conv Cycle Div Payout (%) 0 % 0 % 0 % 0 % BVPS (Rs) WC Turnover EBITDAM (%) 16 % 16 % 16 % 15 % FA Turnover PATM (%) 7 % 9 % 7 % 5 % Net D/E Tax Rate (%) 11 % 9 % 11 % 10 % Revenue/Capital Employed EV/EBITDA Sales growth (%) % 23 % -19 % Capital Employed/Equity EV/Sales FDEPS growth (%) % -8 % -94 % June 23, 2015 Analyst: Dhaval Dama dhaval.dama@equirus.com ( / ) Page 4 of 7

5 Equirus Securities Pankaj Sharma Executive Director Research Analysts Sector/Industry Equity Sales Ankit Jain Mid Caps Vishad Turakhia Ashutosh Tiwari Auto, Metals & Mining Vibhor Rastogi Devam Modi Power & Infrastructure Sweta Sheth Dhaval Dama FMCG, Mid Caps Dealing Room Maulik Patel Oil and Gas Ashish Shah Nimish Mehta Pharma Darshit Shah Associates Jigar Chokshi Karan Uppal Nirav Prajapati Manoj Gori Sandip Amrutiya Meet Chande Compliance Officer Pranav Mehta Smita Sharma Umesh Raut Vikas Jain Rating & Coverage Definitions: Absolute Rating LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap > Rs 5 billion and ATR >= 20% for rest of the companies SHORT: ATR >= negative 5% over investment horizon TRADE: Stocks that do not meet the criteria for either LONG or SHORT Relative Rating OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon BENCHMARK: likely to perform in line with the benchmark UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Target Price and Investment Horizon Target Price is a point value for stocks with Absolute rating of LONG or SHORT and a range value for stocks rated TRADE. Investment Horizon is set at a minimum 3 months to maximum 15 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion. Registered Office: Equirus Securities Private Limited Unit. 1201, 12th Floor, C Wing, Marathon Futurex, N M Joshi Marg, Lower Parel, Mumbai Tel. : +91 (0) Fax : +91- (0) Corporate Office: Ground Floor, Block E, Satyam Corporate Square, Behind Rajpath, Club, Bodakdev, Ahmedabad Tel. : +91 (0) Fax : +91 (0) June 23, 2015 Analyst: Dhaval Dama dhaval.dama@equirus.com ( / ) Page 5 of 7

6 2015 Equirus Securities Private Limited. All rights reserved. For Private Circulation only. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Equirus Securities Private Limited Analyst Certification I, Dhaval Dama author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Disclaimers Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH2007PTC is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the Capital Market (Reg.. INB ), Futures & Options Segment (Reg.. INF ) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg.. 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7 Disclosures Disclosure of Interest statement for the subject Company Yes/ If Yes, nature of such interest Analyst/ESPL/Associate/Relatives financial interest Analyst/ESPL/Associate/Relatives actual/beneficial ownership of 1% or more Analyst/ESPL/Associate/Relatives material conflict of interest Whether ECPL managed any public offering in past 12 months * Associate means individual who assist Analyst June 23, 2015 Analyst: Dhaval Dama dhaval.dama@equirus.com ( / ) Page 7 of 7