VARUN BEVERAGES Beyond the fizz

VISIT NOTE VARUN BEVERAGES Beyond the fizz Varun Beverages India Equity Research Consumer Goods We met management of Varun Beverages (VBL), a pure play on India s soft drinks industry, to gain deeper insights in the company s growth strategy. VBL is one of the largest franchisees globally (outside US) of carbonated soft drinks (CSDs) and non-carbonated beverages (NCBs) sold under the PepsiCo brand. With limited territories in India in 1990s, currently the company boasts of 16 plants across 17 states and 2 UTs along with 4 overseas units. With end-to-end execution capabilities and straddling the value chain, VBL contributes ~45% to PepsiCo s India volumes. Armed with backward integration, management is confident of further growth organically through launch of more PepsiCo variants as well as inorganically via acquisition of new geographies. NOT RATED. Steadily gaining scale; prudent backward integration margin kicker VBL has gradually acquired PepsiCo-run plants / other small bottlers and currently operates across 5 countries through 20 state-of-the-art facilities. To build efficiencies and expand margin, the company has inked long-term contracts for almost all raw materials (except the concentrate, which is supplied by PepsiCo) and undertaken backward integration with in-house manufacture of PET bottles, crowns, plastic caps, shrink-wrap films, shells, corrugated boxes etc., which boosts margin. Vibrant product portfolio; equipped to capture new opportunities VBL straddles CSD, NCB as well as packaged drinking water segments, which have clocked 18%, 12% and 32% volume CAGR, respectively, over CY12-16. Contrary to popular perception, management anticipates strong growth in CSD segment aided by deepening penetration, expanding distribution reach and new launches. VBL also has strong portfolio of NCB and packaged drinking water through which it caters to requirements of health conscious consumers. The company expects inclusion of new product segments and entry in new territories to open new growth opportunities. EDELWEISS 4D RATINGS Absolute Rating MARKET DATA (R:.BO, B: VBL IN) NOT RATED CMP : INR 524 Target Price : NA 52-week range (INR) : 573 / 341 Share in issue (mn) : 182.5 M cap (INR bn/usd mn) : 96 / 1,491 Avg. Daily Vol.BSE/NSE( 000) : 237.9 SHARE HOLDING PATTERN (%) Current Q4FY17 Q3FY17 Promoters * 73.6 73.7 73.6 MF's, FI's & BK s 1.3 1.2 1.2 FII's 10.8 10.6 8.2 Others 14.3 14.6 17.0 * Promoters pledged shares (% of share in issue) : NIL PRICE PERFORMANCE (%) Stock Nifty EW Consumer Goods Index 1 month (1.9) 0.8 2.7 3 months 1.2 0.8 (0.4) 12 months 9.5 13.5 4.0 Outlook and valuations: Improving fundamentals; NOT RATED VBL reported revenue, EBITDA and PAT CAGR of 20.9%, 36.7% and 56.7%, respectively, over CY12-16. At CMP, the stock is trading at 12.8x CY16 EV/EBITDA. NOT RATED. Financials Year to December CY13 CY14 CY15 CY16 Revenues (INR mn) 21,151 25,024 33,941 38,520 Rev. growth (%) 17.5 18.3 35.6 13.5 EBITDA (INR mn) 2,911 3,845 6,371 7,952 Adjusted Profit (INR mn) (395) (202) 960 1,513 Adjusted Diluted EPS (INR) (3.1) (1.5) 7.1 8.9 Diluted P/E (x) NM NM 73.4 58.5 EV/EBITDA (x) 29.7 22.9 13.8 12.8 ROAE (%) (20.0) (6.9) 19.1 11.1 Abneesh Roy +91 22 6620 3141 abneesh.roy@edelweissfin.com Alok Shah +91 22 6620 3040 alok.shah@edelweissfin.com September 7, 2017 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL <GO>, Thomson 1 First Call, Reuters and Factset. Edelweiss Securities Limited

Consumer Goods Story in charts Chart 1: Volume and revenue trajectory over CY12-H1CY17 300 240 45,000 39,000 (mn cases) 180 120 (INRmn) 33,000 27,000 60 21,000 0 2012 2013 2014 Total cases 2015 2016 H1CY17 15,000 2012 2013 2014 2015 2016 H1CY17 Net revenues Chart 2: Revenue mix product wise and geography wise 100.0 80.0 9.0 9.6 9.0 12.3 13.4 7.5 7.4 7.4 6.0 5.7 100.0 80.0 16.3 13.8 15.2 12.8 18.9 60.0 60.0 (%) 40.0 83.5 83.1 83.6 81.7 80.8 (%) 40.0 83.7 86.2 84.8 87.2 81.1 20.0 20.0 0.0 2012 2013 2014 2015 2016 CSD NCB Packaged Water 0.0 2012 2013 2014 2015 2016 India International Chart 3: Strong surge in margins and return ratios 60.0 21.0 50.0 12.0 (%) 40.0 30.0 (%) 3.0 (6.0) Dip owing to fund raising 20.0 (15.0) 10.0 2012 2013 2014 2015 2016 (24.0) 2013 2014 2015 2016 Gross Margins EBITDA Margins RoCE (pre-tax) RoE 2 Edelweiss Securities Limited

Key Highlights 1. Much more than a mere bottler VBL is one of the largest franchisee in the world (outside USA) of carbonated soft drinks (CSDs) and non-carbonated beverages (NCBs) sold under the PepsiCo trademarks. The company is also involved in the production and distribution of CSDs, NCBs and packaged drinking water. VBL is also amongst the first to receive PepsiCo s license for manufacturing and selling multiple beverage products in India. We believe Street is sceptical about VBL s relationship with PepsiCo, which makes it imperative to delve deeper and know more about this almost 25 years of association which commenced in the 1990 s. Over the last two and half decades, VBL has expanded the number of PepsiCo licensed territories and sub-territories, produced and distributed wider range of PepsiCo beverages, introduced various SKUs in its portfolio and expanded its distribution network. VBL has increased its share of PepsiCo s India beverages volume sales (based on its sales to end customers) from 26.5% in CY11 to 44.1% in CY15. As of June 30, 2017, VBL had franchises for various PepsiCo products spread across 17 States and 2 Union Territories in India. VBL also has franchisees for PepsiCo products in Nepal, Sri Lanka, Morocco and Zambia. VBL is also in the midst of setting up a green-field facility in Zimbabwe, in anticipation of being granted franchise rights by PepsiCo Inc. for such territory. That the relationship has only been well nurtured and grown from strength to strength is evident from gradual consolidation of VBL s presence across contiguous geographies. For instance, until February 2015, the company s licensed sub-territories in India included Delhi, Rajasthan, West Bengal, Goa, Arunachal Pradesh, Assam, Meghalaya, Manipur, Mizoram, Nagaland, Tripura and certain designated parts of Madhya Pradesh, Uttar Pradesh, Uttarakhand, Haryana and Maharashtra ( erstwhile territories ). As part of PepsiCo s strategy of consolidating certain PepsiCo-operated sub-territories in India, pursuant to a business transfer agreement entered into with PepsiCo India in November 2014, VBL was granted, with effect from February 28, 2015, franchises for additional sub-territories in India including Punjab, Himachal Pradesh, Chandigarh, and remaining parts of Haryana, Uttarakhand and Uttar Pradesh. We believe VBL s vast operational experience, widespread integrated distribution network and in-depth market knowledge lends significant value to the distribution and sale of PepsiCo products in India. PepsiCo transferring even its own bottling plants to VBL bears testimony to the latter s varied and rich track record. Over the years, VBL has gradually also expanded operations in high-growth potential international geographies of Morocco, Nepal, Sri Lanka, Zambia and now proposes to enter into Zimbabwe. 3 Edelweiss Securities Limited

Consumer Goods Table 1: VBL s geographical expanse and contract period Geography India Nepal Sri Lanka Morocco Zambia Contract Expiry 2-Oct-22 30-Nov-21 31-Jul-21 31-Jan-21 31-Aug-20 As is apparent the contracts are quite sticky in nature with revenue visibility at least till CY20/21 as the case may be. As per contract terms, on expiry of an agreement it is automatically renewed at the discretion of PepsiCo for the next 5 successive years. Fig. 1: Widespread presence Let us now put to rest the confusion about Varun being a pure bottler. First, a bottler merely manufactures the product and supplies it back to the brand owner for a small conversion fee. VBL is much more than a pure bottler in fact, the company is present almost across the entire value chain. a. VBL straddles across the entire value chain VBL s presence across the entire value chain more than signifies that it is not just a bottler, but makes significant contribution across the value chain. As per its agreement with PepsiCo, responsibilities of both players are clearly spelt out. For seamless execution of their respective responsibilities, VBL has all the building blocks in place - possesses strong infrastructure, supply chain, margin improvement, etc. 4 Edelweiss Securities Limited

Fig. 2: PepsiCo-VBL tie-up Responsibilities spelt out b. Robust infrastructure in place VBL has also made significant investments towards establishing a robust back-end infrastructure be it manufacturing of preforms, crowns, caps, shrink-wrap films, corrugated boxes and plastic crates. This ensures that VBL s reliance on third party vendors is limited. It also helps the company in harnessing operating leverage benefits, thereby lending fillip to margins. 5 Edelweiss Securities Limited

Consumer Goods Fig. 3: VBL s presence across value chain Fig. 4: Process flow involved in manufacturing of soft drink and VBL s prowess Other than PepsiCo providing the concentrate, consumer marketing and brands to VBL, the latter charts its own success with complete control over the manufacturing and supply chain process, driving market share and cost efficiencies. Source concentrate Source Sugar Source other ingredients Mfg of PET and glass bottles/ Cans Source cans, crowns, labels, etc Packing and labelling Distribution on trade and off trade From Pepsi Strong relationships with leading sugar mills Existing long term contracts In house through backward integration In house through backward integration In house through backward integration Directly and through wholesalers From pricing perspective, prices are decided taking into account the input cost prices and competitive scenario and changes in MRP are affected by VBL in its territories. This way, VBL s cost pressure and margin requirement are duly taken care. Overall, VBL s core strengths and involvement across the entire value chain shuns the perception that it is a mere bottler. VBL s total involvement and PepsiCo s willingness to offer more territories speak volumes about VBL being a valuable partner for PepsiCo. 2. A formidable soft drinks portfolio PepsiCo s CSD brands produced and sold by VBL include Pepsi, Diet Pepsi, Seven-Up, Mirinda Orange, Mirinda Lemon, Mountain Dew, Seven-Up Nimbooz Masala Soda, Seven-Up Revive 6 Edelweiss Securities Limited

and Evervess Soda. PepsiCo s NCB brands produced and sold include Tropicana Slice, Tropicana Frutz (lychee, apple and mango), Seven-Up Nimbooz as well as packaged drinking water under the Aquafina brand. VBL has also been granted the franchise for PepsiCo s Ole brand of products in Sri Lanka. Fig. 5: Enviable product portfolio During CY12-16, VBL clocked 19% volume and 21% value CAGR. The company s growth was steered not only by its erstwhile territories, but its inorganic acquisitions in contiguous and international geographies also aided growth. From Like-to-Like ( LTL ) perspective, VBL clocked 7.4% volume CAGR during CY11-15 from the erstwhile territories. Chart 4: VBL s total cases sold (19% CAGR over CY12-16) 300 240 (mn cases) 180 120 60 0 2012 2013 2014 2015 2016 H1CY17 Total cases 7 Edelweiss Securities Limited

Consumer Goods Chart 5: India volume growth (18% CAGR over CY12-16) 250 (mn cases) 220 190 160 Spike with integration of New Territories 130 100 2012 2013 2014 2015 2016 India Chart 6: 20.9% revenue CAGR over CY12-16 45,000 39,000 (INR mn) 33,000 27,000 21,000 15,000 2012 2013 2014 2015 2016 H1CY17 Net revenues With inorganic acquisitions and incrementally bagging license for new international geographies, the proportion of revenue coming from those geographies also increased. Having said this, management believes India sub-continent revenue (including Nepal & Sri Lanka) will sustain at >90% of overall revenues over 3-5 years. 8 Edelweiss Securities Limited

Chart 7: Geographic revenue mix 100.0 16.3 13.8 15.2 12.8 80.0 18.9 (%) 60.0 40.0 83.7 86.2 84.8 87.2 81.1 20.0 0.0 2012 2013 2014 2015 2016 India International Chart 8: Proportion of CSD, NCB and packaged drinking water 100.0 9.0 9.6 9.0 12.3 13.4 7.5 7.4 7.4 6.0 5.7 80.0 60.0 (%) 40.0 83.5 83.1 83.6 81.7 80.8 20.0 0.0 2012 2013 2014 2015 2016 CSD NCB Packaged Water CSD segment CSD segment continues to account for major portion of VBL s aggregate sales volumes, even as other segments, viz., NCB and packaged drinking water, have grown significantly in recent times as VBL continues to expand its product portfolio. 9 Edelweiss Securities Limited

Consumer Goods Table 2: CSD product range, territories where it is sold Product Territories Description Packages / SKU Pepsi India, Nepal, Sri Lanka, Cola, Pepsi Max and Diet - Glass bottles from 200 ml, 250 ml, 300 ml, 350 ml and 400 ml; Morocco, Zambia, Pepsi - PET bottles from 250 ml to 2250 ml; Mozambique - Cans of 250 ml and 330 ml and post-mix bags. Seven-Up India, Nepal, Sri Lanka, Morocco, Zambia, Mozambique Lemon-lime flavor, Seven-Up Nimbooz Masala Soda - Glass bottles from 200 ml, 250 ml, 300 ml, 350 ml and 400 ml; PET bottles from 250 ml to 2250 ml; - Cans of 250 ml and 330 ml and post-mix bags. Mountain Dew Mirinda Evervess India, Nepal, Sri Lanka, Zambia India, Nepal, Sri Lanka, Morocco, Zambia, Mozambique India, Nepal, Sri Lanka, Zambia, Mozambique Citrus flavor, Mountain Dew Game Fuel Fruit flavor, Mirinda Orange, Mirinda Pineapple, Mirinda Apple and Mirinda Lemon Soda, Evervess, Teem Soda, and Duke s Soda - Glass bottles from 200 ml, 250 ml, 300 ml and 400 ml; - PET bottles from 250 ml to 2250 ml; - Cans of 250 ml and 330 ml and post-mix bags - Glass bottles from 200 ml, 250 ml, 300 ml, 350 ml and 400 ml; - PET bottles from 250 ml to 2250 ml; - Cans of 250 ml and 330 ml and post-mix bags - Glass bottles of 250 ml and 300 ml; - PET bottles of 330 ml, 400 ml and 600 ml; - Cans of 250 ml Note: All SKU s may not be sold in all geographies Within CSD, VBL is focussed on maintaining sales volume and value growth led by: (i) ensuring ready availability of CSD products; (ii) expanding distribution reach into tier III- VI geographies; (iii) introducing new flavours targeted at expanding consumer segment; (iv) efficient distribution and logistics support; and (v) implementing effective marketing and product promotions. CSD grew at 18% CAGR during CY12-16: Within CSD, Pepsi s share has historically been higher. However, with changing consumer preferences, the proportion of Mountain Dew has been rising whose proportion is now double of the proportion of Pepsi sold by VBL. Management believes relative under-penetration of Mountain Dew in certain markets and distribution channels presents significant growth opportunities even from current levels. Chart 9: CSD segment s volume trajectory 250 210 (mn cases) 170 130 90 50 2012 2013 2014 2015 2016 CSD 10 Edelweiss Securities Limited

Chart 10: Mountain Dew - Rising share within CSD segment 100.0 80.0 (%) 60.0 40.0 29.7 29.0 33.4 37.8 47.0 20.0 34.1 31.9 30.7 27.4 PepsiCo and VBL well realises change in consumer preference and drinking habits. There is also a large segment of customers switching from regular cola-carbonates to non-cola carbonates. To capitalise on this changing market sentiment, VBL is gearing to enhance penetration and distribution reach of Mountain Dew as well as introduce new variants of Seven-Up. 22.2 0.0 2011 2012 2013 2014 2015 Pepsi Seven-Up Mountain Dew Mirinda Other CSDs For the health conscious consumers who avoid such drinks and prefer healthier options, such as non-carbonated drinks and juices, VBL has also been getting its act together to cater to this growing segment. VBL is working on a new product with low sugar content (>30% lower sugar) with research in progress in Gujarat. NCB segment With the increasing number of health conscious consumers, India has been witnessing significant growth in NCB segment in recent times, with new products getting introduced regularly in the markets. This segment majorly comprises juice-based product variants. Table 3: VBL s NCB product range, territories where these are sold VBL s NCB segment volumes grew at 12% CAGR over CY12-16. On relative basis, though the segment remains soft, it is amongst the most promising ones for VBL. With VBL including Slice under the Tropicana mother brand, the segment is expected to reap further gains for the company. Product Territories Description Packages / SKU Tropicana Slice India, Nepal Mango based drinks variants - Glass bottles of 200 ml, 250 ml; - PET bottles from 350 ml to 1750 ml; - Tetrapak cartons of 200 ml. Nimbooz India Lemon based drink variants - PET bottles from 300 ml to 1200 ml Tropicana Frutz India, Sri Lanka, Lychee, Apple, Mango, Mix Fruit and Orange flavors - PET bottles of 200 ml, 350 ml, 500 ml and 1,000 ml; Note: All SKU s may not be sold in all geographies 11 Edelweiss Securities Limited

Consumer Goods Chart 11: NCB segment s volume trajectory 18.0 16.0 (mn cases) 14.0 12.0 10.0 8.0 2012 2013 2014 2015 2016 NCB VBL s future strategy for NCB segment includes: 1) enhancing market penetration and availability through a widespread distribution network; 2) developing brand preferences via sampling and visibility programs; and 3) launching new and novel flavours introduced by PepsiCo. Packaged Drinking Water Aquafina is PepsiCo s packaged drinking water brand, for which too VBL has a franchise. During CY12-16, Aquafina clocked volume CAGR of 32% in India. In fact, Aquafina registered highest volume CAGR amongst the packaged drinking water brands in India. Chart 12: Packaged drinking water segment s growth trajectory 40.0 34.0 (mn cases) 28.0 22.0 16.0 10.0 2012 2013 2014 2015 2016 Packaged Water Note: All SKU s may not be sold in all geographies Table 4: VBL s packaged drinking water, territories where these are sold Product Territories Description Packages / SKU Aquafina India, Sri Lanka, Packaged Drinking Water - PET bottles from 500 ml to 2,000 ml and bulk jars 12 Edelweiss Securities Limited

Packaged drinking water, as a segment, will continue to see exponential growth since: (i) corporates prefer bottled water over installing water purifiers due to absence of any maintenance required; (ii) consumers preference for packaged drinking water will increase to cut down their tap water intake due to hygiene concerns and increasing health consciousness. All these factors combined will result in expanding penetration in rural geographies and also ensure that VBL garners higher market share and volume traction in packaged drinking water segment. While VBL s existing portfolio range may look vast, there still exists humongous scope to add more PepsiCo products to the bouquet. Fig. 6: New launches over last 4-6 quarters 13 Edelweiss Securities Limited

Consumer Goods Table 5: PepsiCo s range of products shows immense scope of expansion into newer geographies Sr. No. What Pepsi has in India What Varun has within it? 1 Pepsi Pepsi - Pepsi - Pepsi - Pepsi Max - Pepsi Max - Diet Pepsi - Diet Pepsi 2 Mountain Dew Mountain Dew 3 Mirinda Mirinda - Mirinda Orange - Mirinda Orange - Mirinda Lemon - Mirinda Lemon 4 7 UP 7 UP - 7 UP - 7 UP - 7 UP Lemony Bite - 7 UP Lemony Bite - 7 UP Revive - 7 UP Revive - Nimbooz - Nimbooz - Nimbooz Masala Soda - Nimbooz Masala Soda 5 Slice Slice - Tropicana Slice Fruit Drink - Tropicana Slice Fruit Drink - Tropicana Slice Alphonso Fruit Drink - Tropicana Slice Alphonso Fruit Drink 6 Aquafina Aquafina 7 Tropicana 100% Juice - Tropicana Apple 100% - Tropicana Orange 100% - Tropicana Mixed Fruit 100% - Tropicana Red Grape Juice 100% 8 Tropicana Rest of the Range - Tropicana Apple Fruit Beverage - Tropicana Guava Fruit Beverage - Tropicana Mango Fruit Beverage - Tropicana Orange Fruit Beverage - Tropicana Pomegranate Delight Fruit Beverage - Tropicana Cranberry Twirl - Fruit Beverage - Tropicana Litchi Twirl - Fruit Beverage - Tropicana Mixed Fruit - Fruit Beverage - Tropicana Pineapple - Fruit Beverage - Tropicana Tomato Juice 9 Duke - Duke's Soda - Duke's Lemonade 10 Gatorade range Reflects VBL's immense scope to expand into potential new segments The above table reveals that VBL has a wide range of opportunities as yet these new opportunities will provide better realisations and higher margins for VBL. 3. Standing tall with strong growth levers VBL, through its long standing (>25 years) relationship with PepsiCo, consolidated its position in North and East India by integrating various erstwhile PepsiCo/other bottlers plants into its operations. VBL s strategy has been to identify territories that offer humungous growth opportunities for PepsiCo s products and are located contiguous/in close proximity to its existing licensed territories and sub-territories so that they avail 14 Edelweiss Securities Limited

freight, transportation and distribution cost efficiencies and operating leverage. VBL continues to work closely with PepsiCo to identify such strategic consolidation opportunities. Within India, until February 2015, VBL s licensed territories included Delhi, Rajasthan, West Bengal, Goa, Andhra Pradesh, Assam, Meghalaya, Manipur, Mizoram, Nagaland, Tripura and few designated territories of Madhya Pradesh, Uttar Pradesh, Uttarakhand, Haryana and Madhya Pradesh. In line with its strategy of acquiring contiguous geographies, VBL bagged licenses for Punjab, Himachal Pradesh, Chandigarh and additional territories of Haryana, Uttarakhand and Uttar Pradesh. VBL has been slowly and steadily acquiring sub-territories operated by small bottlers or by PepsiCo themselves to further strengthen its position (reasons why VBL s India market share for PepsiCo products have improved from 26.5% in CY11 to 44.1% in CY15). To continue its inorganic expansion, VBL has also entered into a binding agreement to acquire PepsiCo India s previously franchised territories of the State of Odisha and parts of Madhya Pradesh along with three manufacturing units at Cuttack, Bargarh and Bhopal (Mandideep). Fig. 7: VBL s India presence Apart from expansion within India, VBL also expanded its overseas footprints after flagging off in Nepal in 1998, the company expanded its wings to Sri Lanka, and Morocco. Recently, VBL acquired 90% stake in its Zambian operations and also started trading PepsiCo products in Zimbabwe. It also acquired 51% stake in Mozambique operations, but that stake has been hived off owing to lack of growth visibility. 15 Edelweiss Securities Limited

Consumer Goods Table 6: VBL s production facilities Production Facility Preform Production PET bottle filling Glass bottle filling Can filling Greater Noida 1 - - Greater Noida 2 - - Kosi - Nuh - - Bhiwadi - Panipat - - Jodhpur - - Bazpur - - Satharia -1 - - - Satharia -2 - - - Jainpur - - Sonarpur - - Phillaur - - Guwahati Unit-1 - - Guwahati Unit-2 - - Goa - - Hardoi Nepal - - Sri Lanka - Morocco - Zambia - With such expansion, VBL has ensured healthy reach in fast growing territories. Apart from top line focussed, VBL has also ensured it plays across parameters to improve margins and profitability. To this end, VBL has undertaken multiple steps to cut costs and improve margins. a. Robust sales and distribution network ensures effective market penetration VBL has a strong sales and distribution network with its reach straddled across various point of sales grocery stores, modern trade, e-commerce channels, bars and restaurants. As of June 2017, the company had >70 depots, 2,024 owned vehicles and 1,186 primary distributors. To increase penetration, it also installed >450,000 visi-coolers across its territories. Such penetration aids VBL achieve consumer level marketing. The company s strong region specific sales team also reaches out directly to multiple outlets on trade as well as off-trade channels. VBL s strong sales team works closely with PepsiCo to develop and implement local advertising and marketing strategies. While PepsiCo controls the global marketing of its brands, VBL as a franchisee primarily focuses on customer level marketing including managing distributor and retailer relationships, special occasion-based marketing at points of sale and implementing promotional activities to strengthen its distribution network. This apart, it also works with PepsiCo s active product development team to strategise new product launches in India. Riding this strategy, VBL is also able to optimise its distribution operations and enhance penetration by efficient utilisation of distribution infrastructure, particularly in semi-urban and rural areas. 16 Edelweiss Securities Limited

b. Optimisation of freight, transportation and distribution costs For a company which sells product akin to being termed as commodity, the key for better margins is proximity to consumption centres which reduces its transportation cost. Since VBL s production facilities are strategically located in geographical proximity, it results in lower transportation and distribution expenses and enables it to leverage on economies of scale. c. Backward integration and benefits of economies of scale VBL has initiated multiple steps to cut production cost. For instance, through backward integration VBL continues to focus on consolidation of production activities to ensure that all components are manufactured and supplied internally. This has helped since the company has been able to technologically advance the manufacturing process and achieve cost savings. For instance, VBL has introduced lower weight plastic bottles and reduced size of the bottle caps which has enabled reduced usage of PET. VBL has also acquired copackers facility. In addition, it has also invested in backward integration with facilities for production of preforms, crowns, caps, corrugated boxes and pads, plastic crates and shrink wrap films. From an operating leverage perspective, for a bottler to make economic sense, it has to achieve sales volume of >10mn cases. Since VBL is way past this threshold, it will immensely benefit from operating leverage. The production facilities across India are strategically located in geographical proximity to target markets which results in lower transportation and distribution expenses and enables it to leverage economies of scale. VBL also has a centralised procurement team which ensures that it benefits from the deep vendor relationship thereby get best rates for its purchase. These may appear small measures, but on a combined basis these have the potential to expand margins on a sustainable basis. 4. Humongous market opportunity India s beverage market is under developed with per capita consumption at mere 9.4 litres in 2015 versus mature markets of USA and UK that have per capita consumption of 347.3 litres and 162.9 litres, respectively. However, India is set to almost double its per capita consumption to 18.4 litres by 2020, which would still be miniscule compared to the developed Western markets. 17 Edelweiss Securities Limited

Consumer Goods Chart 13: VBL s presence across fast growing geographies, yet at lowest penetration 400.0 320.0 (ltrs) 240.0 160.0 80.0 0.0 World USA Germany Brazil China India Sri Lanka Nepal Zambia Morocco 2010 2015 2020E Mozambique Zimbabwe India s soft drinks market recorded aggregate sales of 12,081mn litres (2,128mn cases) worth INR524.3bn in 2015. The main segments constituting the soft drinks market in India are carbonated soft drinks, juices and bottled water, which together accounted for over 99% of the total volumes sold in 2015. Chart 14: India s soft drink sales - 8%/19% volume/ value CAGR during CY10-15 15,000 600 13,000 500 (mn litres) 11,000 9,000 400 300 (INR bn) 7,000 200 5,000 100 2010 2011 2012 2013 2014 2015 Volume (mn litres) Value (INRbn) As against the perception that the soft drinks market is slowing, in terms of volumes and value the scenario is completely different. Soft drinks, as a category, has grown at 18% in volume terms and 19% in value terms over CY10-15. In terms of total volumes, bottled water was the largest category in the soft drinks market in 2015, closely followed by carbonates segment. However, in terms of value, carbonate was the largest category in the soft drinks market in 2015. The domestic soft drinks market has been driven by innovation, particularly due to increasing preference of consumers for product variety and healthier beverages. As a result, several new products have been launched by leading players in past few years. 18 Edelweiss Securities Limited

With the introduction of small pack sizes, the products are more accessible to the rural population which is driving rural consumption. In terms of distribution channels, the soft drinks market is divided into off-trade and on-trade. Off-trade sales are undertaken at retail outlets, such as, grocery stores, hypermarkets, super markets, etc. On-trade sales, on the other hand, are undertaken at food service outlets, restaurants, bars, etc. The distinction between the two holds particular relevance in the soft drinks industry, since on-trade sales generally take place at higher prices, and hence impact analysis of any value-based sales data. Way forward As per Euromonitor, India s soft drink market is poised to grow at 16% and 18% in volume and value terms over CY15-20 (15.1% volume CAGR over CY16-21). The estimated per capita volume consumption CAGR over 2015-20 is estimated to be 14.4%. Long summers, higher spending on packaged products, rising penetration & awareness and increasing per capita consumption are expected to fuel this growth. Growing focus on rural and semi-urban markets by major players has helped improve product penetration in turn leading to customisation of products. Soft drinks manufacturers have also introduced customisation of soft drinks based on specific requirements of rural consumers. For example, manufacturers have launched smaller pack sizes and soft drinks in glass bottles to make the products available at LUP. Increased marketing efforts and communications from soft drinks manufacturers are expected to continue playing an important role in terms of pushing sales in most soft drinks categories. The bottled water and juice segments are also expected to log strong growth, as they are being equally patronised by both urban and rural consumers alike. Chart 15: Soft drinks sales projected at 16%/18% volume/value CAGR over CY16-20 27,500 1,400 24,000 1,200 (mn litres) 20,500 17,000 1,000 800 (INRbn) 13,500 600 10,000 400 2015 2016 2017 2018 2019 2020 Volume (mn litres) Value (INRbn) 19 Edelweiss Securities Limited

Consumer Goods Table 7: Segment-wise volume growth Volume Value Segment 2015/16 (%) 2015-20 2015-20 2015/16 (%) CAGR (%) CAGR (%) Bottled Water 21.7 19.3 23.5 21.0 Carbonates 8.2 7.8 10.8 10.1 Juice 20.3 21.5 25.3 26.0 RTD Tea 4.4 3.8 7.5 7.0 Sports & Energy Drinks 15.6 13.7 16.1 15.0 Soft Drinks 16.3 15.8 17.5 17.5 The juice category is expected to record maximum growth with value CAGR of 26% followed by bottled water at 21%. Majority of volume and value growth is expected to come from these 2 categories, which are being accepted by consumers in urban and rural areas alike. Increased marketing efforts and communications from soft drinks manufacturers are expected to continue playing an important role in terms of pushing sales in most categories. Among the territories in which VBL is present, North India is expected to log faster growth than other parts of India. During CY10-15, North India grew at strong 18.2%/19% CAGR in volume and value terms and is expected to sustain such growth going forward as well. As per Euromonitor, North India is expected to clock 16.4%/18.2% volume and value growth over CY15-20E, respectively. This seems conducive for the 2 players and in sync with VBL s widespread presence in North heavy markets, which should also help in steady revenue growth. Contrary to perception, it is in the rural areas where most of the soft drinks, especially carbonates and concentrates, are doing well. The rural consumers either continue to become more aware of the brands or became brand loyal in soft drinks. For many soft drinks categories, manufacturers have started to target rural consumers to increase sales volumes. However, electricity and refrigeration are the primary hurdles for selling soft drinks in villages. These issues have however now been tackled to a large extent by the government by increasing electrification as well as by soft drinks companies like Coca-Cola and PepsiCo by providing coolers to stock their products. As per Euromonitor, as at 2015, rural areas constituted ~24.3% and urban areas constituted about 75.7% of the total offtrade sales of soft drinks in India, by volume. Product wise trends Table 8: Volume and value growth trajectory Volume Value Existing and Outlook mn litres mn litres 2010-15 2015-20 INRbn INRbn 2010-15 2015-20 Trends (2015) (2020) CAGR (%) CAGR (%) (2015) (2020) CAGR (%) CAGR (%) Carbonates 4,578 6,650 10.7 7.8 251 407 12.5 10.2 Cola carbonates 1,863 2,509 9.9 6.1 103 157 11.3 8.9 Non cola carbonates 2,714 4,141 11.3 8.8 148 250 13.3 11.0 Juice 1,802 4,766 21.6 21.5 132 417 26.3 26.0 Bottled Water 5,607 13,571 25.4 19.3 121 315 31.2 21.0 20 Edelweiss Securities Limited

Carbonates: In past 5 years (ending 2015), carbonates have grown at volume and value CAGR of 10.7% and 12.5%, respectively. Over CY15-20, with greater push and demand from non-cola carbonates (also a lesser penetrated segment), overall carbonates are poised to grow at volume and value CAGR of 7.8% and 10.2%, respectively, led by non-cola segment which is likely to grow at 8.8% and 11% volume and value CAGR, respectively. Some other factors aiding growth of carbonates segment are: (i) Popularity of carbonates among Indian consumers across age groups/genders and widespread availability of these products in all retail channels across all regions of India; (ii) Non-cola carbonates are likely to continue to maintain growth momentum due to their suitability to be used as mixers with alcoholic drinks. Juices: During CY10-15, the juice segment clocked stellar 21.6%/26.3% volume and value growth, respectively. Likely triggers to catapult growth rates in juice segment are: (i) changing breakfast trends from idli/parathas to quick sandwiches or a bowl of cereal and fruit juices; (ii) increasing prominence as a beverage at social gatherings and most importantly a delicious, healthy wholesome drink; (iii) conscientious mothers have started stocking juices in a bid to discourage children from colas; and (iv) rising health consciousness and changing food habits of consumers. Over CY15-20E, juice category is poised to grow at volume and value CAGR of 21.5% and 26%, respectively. Bottled water: Key drivers of bottled water growth include increasing awareness and rising consciousness among consumers about water borne diseases. Further, a large number of consumers in urban areas without water purifiers at home which bought bulk water bottles of 20 litres on more frequent basis. Corporates too prefer bottled water over installing water purifiers due to absence of maintenance. Parle s Bisleri remains the leading brand of bottled water in India with 25.8% share in value terms in 2015, followed by Coca Cola s Kinley and PepsiCo s Aquafina with market share of 17.9% and 10.8% by value, respectively. However, the gap between the leader and other players is narrowing as evident in PepsiCo s volume CAGR of 28.1% during CY10-15 versus industry volume CAGR of 25.4%. Some other levers driving overall bottled water segment are: (i) rising awareness and consciousness over health concerns which may force consumers to switch to bottled water; (ii) drinking water shortages which prevails especially in urban areas. Over CY15-20E, juice category is poised to grow at volume and value CAGR of 19.3% and 21%, respectively. In the overseas geographies where VBL is present is also expected to show strong volumes offtakes Nepal, Sri Lanka, Morocco and Zambia are likely to clock 20%, 13.1%, 12.6% and 7% CAGR, respectively, over CY16-21E. Fig. 8: Expected volume growth for VBL s geographies 21 Edelweiss Securities Limited

Consumer Goods Financial Outlook Robust revenue trajectory Backed by such a strong product portfolio, increasing penetration and expansion led by both organic and inorganic avenues, VBL clocked volume and revenue CAGR of 19% and 20.9%, respectively, during CY12-16. This was also possible owing to VBL s presence in strong growth-oriented geographies both domestic as well as international markets. VBL s revenue needs to be seen on an annual basis as the soft drinks business is seasonal in nature with H1 contributing 65% of volumes, of which 20% is in Q1 and 45% in Q2. Chart 16: Revenue trajectory 45,000 39,000 (INR mn) 33,000 27,000 21,000 15,000 2012 2013 2014 2015 2016 Net revenues Going forward, geographic expansion, increased penetration and new product launches will be revenue drivers for VBL. Increased traction in overall juices and packaged water segment should be the strong growth driver followed by the carbonated non colas. Margin story A look at VBL s gross and EBITDA margins trends in past 5 years reinforces the fact that the company is much more than a mere bottler. 22 Edelweiss Securities Limited

Chart 17: Sustainable improvement in margin trajectory 60.0 50.0 (%) 40.0 30.0 20.0 10.0 2012 2013 2014 2015 2016 Gross Margins EBITDA Margins The above charts highlights beyond any doubts, that as VBL straddles across the beverages value chain, it has also been able to improve efficiencies and in turn curtail costs. The company also initiated several steps to achieve backward integration set up units for manufacture of PET bottles, crowns, caps, corrugated boxes and pads, plastic crates and shrink-wrap film as well as acquired co-packers and contiguous geographies to optimise on freight, logistics and distribution costs. That apart, VBL also has centralised sourcing of its raw materials this has ensured the company fetches the best rates and discounts. Consequently, not only did VBL s gross margin spurt by 1,200bps during CY12-16, but EBITDA margin too expanded by a massive 800bps during that period. Gross margin expanded irrespective of the fact that the price of concentrate (~21% of net revenues) is fixed by PepsiCo and hence VBL has limited control on same. For products which does not have concentrate usage, VBL pays royalty: 5% for Aquafina and 4% for Evervess Soda. Balance sheet sprucing up Not only has VBL s adjusted gross debt / EBITDA (after considering compulsorily convertible debentures, CCDs, of INR4,150mn as Equity which was otherwise categorised as Debt under Indian Accounting Standard) improved from 5.6x in CY13 to 1.7x in CY16, but it s free cash flows has also stabilised and turned positive. On strenghtening balance sheet, VBL has also achieved multiple ratings upgrades CRISIL has upgraded credit rating from CRISIL A/positive to CRISIL A+/Positive to CRISIL AA-/Stable for long term debt and from CRISIL A1 to CRISIL A1+ for short term debt. This will positively aid in reducing interest cost. To elucidate: In CY16, VBL s cost of funds was at 10.25-10.6%, but post ratings upgrades cost of funds declined to ~8.4% on term loans and 7.7% for listed NCDs. Also, majority of VBL s capex is now over and hence cash flows will be used to further strengthen its balance sheet and cut debt. The only pending payment is deferred consideration payable to PepsiCo of INR3,000mn, which is payable in February 2018. 23 Edelweiss Securities Limited

Consumer Goods Return ratios charting perfect track VBL raised INR6,675mn of growth capital through its IPO in 2016. This businesses have high scope of operating leverage and with increasing volumes return ratios should further improve. Historically, RoCE and RoE have improved manifolds the dip in return ratios in CY16 was solely owing to expansion of share capital and hence purely technical in nature. Further, if CCDs of INR4,150mn which have been considered as Debt (per Indian accounting standards) are considered as Equity, then RoE for CY15 and CY16 RoE would stand at 10.5% and 9.6% respectively against 19.1% and 11.1% reported currently. Going forward, major driver for expansion in return ratios would be improvement in margins and asset turnover ratio. VBL s asset turnover for Nepal operations stands at ~4x whereas the same at company level was at 1.1x in CY16. This shows that even a slight improvement in asset turnover can improve return ratios. Chart 18: Improving return ratios 21.0 12.0 (%) 3.0 (6.0) Dip owing to fund raising (15.0) (24.0) 2013 2014 2015 2016 RoCE (pre-tax) RoE 24 Edelweiss Securities Limited

Key Risks Termination or non-renewal of PepsiCo India s agreements VBL has been granted franchisee rights for certain Indian and some international geographies. Under the PepsiCo agreements, PepsiCo India / PepsiCo Inc. are entitled to unilaterally terminate such agreements. In addition, the franchises are on non-exclusive basis and PepsiCo is entitled to undertake production, distribution or sale of the PepsiCo products and brands either themselves or appoint other third-party franchisees for these territories and sub-territories licensed to VBL. Further, in the event that the agreement is terminated, it may materially and adversely affect VBL s ability to carry on its business. Price paid for concentrate The concentrate is purchased from PepsiCo or its authorised suppliers at a price determined price by PepsiCo. The price of concentrate is linked to MRP of products and is mutually decided taking into cognizance any adverse change in input cost or the tax structure. In a scenario where the terms changes, it may impact VBL s COGS. Growth plans VBL continues to evaluate acquisition of additional production facilities as well as franchises. The company also intends to obtain franchises for other existing or newly introduced beverage products of PepsiCo. Under the existing agreement such expansion would require prior approval from PepsiCo and hence VBL s growth hinges on PepsiCo s approvals. Heavy exposure to seasonal variation Approximately 45% of sales of PepsiCo beverages happens during April June. Bad weather conditions, including disturbed summers, untimely rains during peak sales season of summer, or other internal/external factors may adversely affect sales volumes thereby impacting annual performance. Change in consumption pattern CSD and NCB segments are subject to continuous changes in consumption patterns. In the event of significant changes in consumer preferences, it may result in lost volumes not temporary but rather more permanent. Further, the health drink segment is picking and in case VBL and PepsiCo jointly is unable to tap the increasing salience towards that segment then it may hamper VBL s growth and hence profitability. 25 Edelweiss Securities Limited

Consumer Goods Company Description VBL is one of the largest franchisees in the world (outside US) for CSD and NCB sold under the PepsiCo-owned trademarks. PepsiCo s product range manufactured and sold by VBL include the following: Table 9: Product range along with description Carbonated Soft Drink Non-carbonated beverages Packaged Drinking Water VBL has been associated with PepsiCo since 1990s (>2.5 decades of business association), increasing the number of PepsiCo licensed territories and sub-territories, producing and distributing a wide range of PepsiCo beverages, introducing various SKUs, and expanding distribution network. As at March 31, 2017, VBL was granted franchises for PepsiCo products spread across 17 States and 2 Union Territories in India. The company s share of PepsiCo beverages volume sales increased from 26.5% in CY11 to 44.1% in CY15. Even though India has been largest market, VBL has also bagged franchise for various PepsiCo products for international geographies too such as Nepal, Sri Lanka, Morocco and Zambia. In addition, VBL is also in the process of setting up a green-field facility in Zimbabwe in anticipation of franchise rights being granted by PepsiCo Inc. for such territory. 26 Edelweiss Securities Limited

Fig. 9: VBL s presence VBL has also set up backward integration facilities for production of preforms, crowns, corrugated boxes and pads, plastic crates and shrink-wrap films in certain production facilities to ensure operational efficiencies and quality standards. Table 10: Key milestones Year Milestones 1995 Incorporation as public limited company 1996 VBL started operation at Jaipur in 1996 1999 Started operations in Alwar, Jodhpur and Kosi 2004 Merger of DBL with VBL 2012 Merger of VBIL with VBL 2013 Acquired the business of manufacturing and marketing of soft drink beverages in Delhi, India 2015 Business transfer agreement through which VBL acquired Pepsi India s business of manufacturing, marketing, selling and distributing soft drink beverages and syrup mix in the Indian states of Uttar Pradesh, Uttarakhand, Himachal Pradesh, Haryana and the Union Territory of Chandigarh 2015 Business transfer agreement through which VBL acquired Pepsi India s business of manufacturing, marketing, selling and distributing soft drink beverages and syrup mix in Bazpur, Jainpur, Satharia and Panipat 2015 VBL acquired the business of selling and distribution of soft drinks beverages and syrup mix in one district undertaking situated in Punjab 2015 Incorporation of Varun Beverages Zimbabwe 2016 VBL acquired entire shareholding of Arctic International in Varun Beverages (Zambia) 27 Edelweiss Securities Limited

Consumer Goods Management Overview Mr. Ravi Kant Jaipuria: Promoter and Chairman Ravi Kant Jaipuria has nearly three decades of experience in conceptualising, executing, developing and expanding food, beverages and dairy business in South Asia and Africa. He is the only Indian company s promoter to receive PepsiCo s International Bottler of the Year award, which was awarded in 1997. Mr. Varun Jaipuria: Whole-time Director Varun Jaipuria has attended Millfield School, Somerset, England. He has seven years of experience in the soft drinks industry. He has also led VBL s new business initiatives, including implementation of tools for sales automation. Mr. Raj Gandhi: Whole-time Director Raj Gandhi is a commerce graduate from University of Delhi, Qualified Chartered Accountant, and has over three decades of rich experience in the field of finance, accounts, strategy, legal and M&A. He has been with the group since 1993 and has been instrumental in strategizing its diversification, expansion, mergers & acquisitions, capex funding and institutional relationship. Mr. Kapil Agarwal: CEO &Whole time Director Kapil Agarwal holds a bachelor s degree in commerce from Lucknow University. He holds a post graduate diploma in business management from the Institute of Management Technology, Ghaziabad. He has over two decades of experience in the field of sales and marketing and has been with the group since 1991. Mr. Kamlesh Kumar Jain: CFO &Whole-time Director He holds a bachelor s degree in commerce from Rajasthan University. He is a qualified chartered accountant and a member of the Institute of Chartered Accountants of India. He has over two decades of experience in the field of accountancy, taxation and financial management and has been with the group since 1993. Mr. Girish Ahuja: Independent Director He holds a bachelor s degree in commerce from University of Delhi. He got his Ph.D from University of Delhi. He is a qualified and practicing chartered accountant for the past 45 years and a member of the Institute of Chartered Accountants of India. He is a member of a committee on direct tax matters constituted by the government of India. He is also on the board of directors of State Bank of India as a part time non official director appointed for a period of three years with effect from January 28, 2016. Mr. Naresh Kumar Trehan: Independent Director He holds a bachelor s degree in medicine and surgery from University of Lucknow. He attended the residency training program of the New York University Medical Center at Bellevue Hospital University Hospital and Manhattan V.A. Hospital, New York. He is an honorary fellow of Royal Australasian College of Surgeons. He was awarded the Padma Bhushan in 2001. He has over 40 years of experience in the field of medicine. He is certified in Thoracic and Cardiac Surgery by the American Board of Thoracic Surgery. 28 Edelweiss Securities Limited

Mr. Pradeep Sardana: Independent Director He holds a bachelor s degree in mechanical engineering from Indian Institute of Technology, Delhi. He has 19 years of experience in the field of food and beverages. He has previously worked with PepsiCo as Executive Director (Operations). Mrs. Geeta Kapoor: Independent Director She holds a bachelor s degree in arts from University of Delhi. She holds diploma in tourism and travel management from BharatiyaVidyaBhavan. She has over 30 years of experience in the field of travel and hospitality. She has previously worked with Air India as an Assistant General Manager. Mr. Sanjoy Mukerji: Independent Director He holds a bachelor s degree in mechanical engineering from Indian Institute of Technology, Bombay. He has over a decade s experience in the field of foods and beverages. He has previously worked with Vodafone India Limited as Chief Commercial Officer and with PepsiCo India as Unit Manager Sales (Mumbai Unit). 29 Edelweiss Securities Limited

Consumer Goods Financial Statements Income statement (INR mn) Year to December CY13 CY14 CY15 CY16 Net revenues 21,151 25,024 33,941 38,520 Cost of materials 11,992 13,761 17,165 17,363 Gross profit 9,159 11,263 16,777 21,157 Employee costs 1,830 2,168 3,238 4,264 Power and fuel 1,009 1,136 1,312 1,564 Freight, octroi & insurance paid 795 983 1,540 2,052 Others 2,614 3,131 4,317 5,325 EBITDA 2,911 3,845 6,371 7,952 Depreciation & amortisation 1,844 2,101 3,174 3,724 EBIT 1,068 1,745 3,197 4,228 Less: Interest Expense 1,697 1,854 1,688 2,148 Add: Other income 174 147 143 348 Profit before tax (456) 38 1,652 2,428 Less: Provision for Tax (52) 248 789 829 Profit after tax (404) (210) 863 1,600 Add: Min. Int. & Adjustments 8 9 13 (87) Add: Prior period items - - 255 - Add: Excep. items (Net of tax) - - - - Reported Profit (395) (202) 1,130 1,513 Less: Prior Period (Net of Tax) - - 171 - Less: Excep. Items (Net of Tax) - - - - Adjusted Profit (395) (202) 960 1,513 No. of Diluted SO (mn) 127.5 133.8 134.7 169.1 Adjusted Diluted EPS (3.1) (1.5) 7.1 8.9 Adjusted Cash EPS 11.4 14.2 30.7 31.0 Dividend per share (DPS) 0.0 0.0 0.0 0.0 Dividend Payout Ratio (%) - - - - Tax rate NM 657.3 47.7 34.1 Common size metrics (%) Year to March CY13 CY14 CY15 CY16 Cost of materials 56.7 55.0 50.6 45.1 Employee costs 8.7 8.7 9.5 11.1 Power and fuel 4.8 4.5 3.9 4.1 Freight, octroi & insurance paid 3.8 3.9 4.5 5.3 Others 12.4 12.5 12.7 13.8 EBITDA margin 13.8 15.4 18.8 20.6 EBIT margin 5.0 7.0 9.4 11.0 Net profit margin (1.8) (0.8) 3.4 3.7 Growth metrics (%) Year to March CY13 CY14 CY15 CY16 Revenues 17.5 18.3 35.6 13.5 EBITDA 27.7 32.1 65.7 24.8 PBT NM NM NM 47.0 Adjusted Profit NM NM NM 57.6 EPS NM NM NM 25.5 Balance sheet (INR mn) As on 31st March CY13 CY14 CY15 CY16 Share capital 1,338 3,338 5,838 1,823 Reserves & Surplus 416 93 905 17,116 Share application money 400 - - - Shareholders' funds 2,154 3,431 6,743 18,939 Minority interest 0 - - 1 Long term borrowings 16,952 16,302 15,795 9,633 Short term borrowings 3,376 5,085 2,524 4,056 Total Borrowings 20,328 21,388 18,319 13,688 Long Term Liab. & Provisions 490 370 6,806 4,079 Deferred tax liability 638 812 1,482 2,226 Sources of funds 23,610 26,000 33,350 38,932 Net block 22,157 22,132 31,117 34,131 Capital work in progress 274 248 379 956 Intangible Assets 1,493 1,321 3,839 3,370 Total Fixed Assets 23,925 23,701 35,335 38,457 Goodwill on Consolidation 95 95-2,132 Deferred tax assets 38 34 53 68 Non current investments 9 18 33 56 Cash and cash equivalents 509 3,364 581 657 Inventories 2,464 2,893 4,247 4,899 Sundry debtors 652 973 979 1,303 Loans & advances 2,079 1,697 2,994 4,577 Other Current Assets 123 176 144 142 Total Current Assets (ex cash) 5,317 5,739 8,364 10,921 Trade payable 1,392 1,806 1,846 2,746 Short Term Provisions 4,891 5,144 9,170 10,613 Total Current Liab. & Provisions 6,283 6,950 11,016 13,359 Net current assets (ex cash) (966) (1,211) (2,651) (2,438) Uses of funds 23,610 26,000 33,350 38,932 Free cash flow Year to March CY13 CY14 CY15 CY16 Reported Profit (395) (202) 1,130 1,513 Add: Depreciation 1,844 2,101 3,174 3,724 Interest (Net of Tax) 1,137 1,242 1,131 1,439 Others (1,106) 1,042 (7,764) 4,568 Less:Changes in WC (1,491) (125) (7,876) 2,940 Operating cash flow 2,971 4,309 5,548 8,303 Less: Capex 8,240 1,592 14,188 6,113 Free cash flow (5,269) 2,717 (8,640) 2,190 Long term borrowings for CY13-15 includes INR4,150mn of Compulsorily Convertible Debentures (CCDs) which has been shown as borrowings per Indian accounting standards. 30 Edelweiss Securities Limited