Varun Beverages IPO: First Look


Varun Beverages Limited engaged in manufacturing, selling, bottling and distribution of beverages of Pepsi brand in geographically pre-defined territories as per franchisee agreement with PepsiCo India plans to raise an estimated 1400 crores via an IPO expected any time in  the month of October 2016.. Varun Beverages Ltd is  the world’s second largest PepsiCo Inc. bottler. The IPO is expected to include sale of 15 million new shares and an offer for sale of as many as 10 million shares by the Jaipuria family.

 Issue Details:  

Date of Issue:   26 Oct – 28 Oct, 2016

Price Band : Rs. 440-445

IPO Size:  Total 25 million shares. sale of 15 million new shares and an offer for sale of  10 million shares. This represents 13.7 percent of the expanded capital

Lead managers :   Kotak Mahindra Capital, Axis Capital , Citic Clsa Securities , Yes Securities

Purpose of the Issue : Varun Beverages will utilize the money raised to get over its debt & General corporate purpose. At present, the debt-to-equity ratio is about 2, which will reduce to 1 after the IPO.

 About The Company :

Varun Beverages, is a Delhi based company incorporated on 16 June 1995 and a distributor of PepsiCo products in north and east India and is the largest bottler for the US-based beverage maker in South Asia. It operates in India, Nepal and Sri Lanka & some African nations as well . It is  the second largest bottler of PepsiCo beverages in the world.

Varun Beverages manufactures, sells and distributes PepsiCo beverages in Nepal, Sri Lanka, Mozambique, Zambia and Morocco. In addition, it is in the process of setting up a greenfield facility in Zimbabwe in anticipation of franchise rights being granted by PepsiCo Inc. for such territory

It 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. It produces and distributes a wide range of CSDs, as well as a large selection of NCBs, including packaged drinking water. PepsiCo CSD brands produced and sold by the company  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 Varun Beverages  include Tropicana Slice, Tropicana Frutz (Lychee, Apple and Mango), Nimbooz as well as packaged drinking water under the brand Aquafina. In addition, Varun Beverages  have also been granted the franchise for Ole brand of PepsiCo products in Sri Lanka.

Varun Beverages  have been associated with PepsiCo since the 1990s and have over two and half decades consolidated our business association with PepsiCo, increasing the number of licensed territories and sub-territories covered by it, producing and distributing a wider range of PepsiCo beverages, introducing various SKUs in our portfolio, and expanding its distribution network. As of March 31, 2016, Varun Beverages has been granted franchises for various PepsiCo products across 17 States and two Union Territories in India. India is its largest market and contributed 82.48%, 80.67% and 84.38% of  company’s revenues from operations (net) in Fiscal 2013, Fiscal 2014 and Fiscal 2015, respectively.

As of April 30, 2016, Varun Beverages operated 16 production facilities across India and five production facilities in r international licensed territories.. As of March 31, 2016, Varun Beverages had an estimated aggregate annual production capacity of 3,438.38 million litres (equivalent to 605.56 million unit cases) in India and an estimated aggregate annual production capacity of 991.57 million litres (equivalent to 174.63 million unit cases) in our international production facilities. In addition, it has set up backward integration facilities for production of preforms, crowns, corrugated boxes and pads, plastic crates and shrink-wrap films in certain of our production facilities to ensure operational efficiencies and quality standards. Additionally, Varun Beverages  have two facilities dedicated to backward integration located at Jaipur and Alwar which manufacture crowns, plastic shells, corrugated boxes and pads and shrink wrap film. We have over the years developed a wide-spread, integrated distribution network across our licensed territories and sub- territories. As of December 31, 2015, Varun Beverages distribution network in India included 57 depots and 1,389 delivery vehicles. Its distribution network covers urban, semi-urban and rural markets, targeting a wide range of consumers. Varun Beverages has also developed an extensive distribution network in its international markets which as of December 31, 2015 included six depots and 342 delivery vehicles. As of December 31, 2015, we had 578 primary distributors in India and 244 distributors in its international operations.

Brand wise off-trade sales market share in carbonates in terms of % value (at current prices):


Brand (GBO) 2010 2011 2012 2013 2014 2015 CAGR (2010-15)
Sprite (The Coca Cola Co) 15.7 16.5 18.2 19.5 20.3 20.0 18.2%
Thums Up (The Coca Cola Co) 16.7 16.9 17.0 17.1 16.6 15.7 11.4%
Pepsi (PepsiCo Inc) 15.4 15.9 15.4 14.9 14.1 13.7 10.1%
Limca (The Coca Cola Co) 8.2 8.0 8.3 8.7 9.1 9.0 14.9%
Coca-Cola (The Coca Cola Co) 8.9 8.9 8.6 9.2 9.3 8.8 12.5%
Mountain Dew (PepsiCo Inc) 5.4 5.7 6.0 6.4 6.7 7.1 19.2%
7-Up (PepsiCo Inc) 4.9 5.1 5.0 5.1 5.3 5.8 16.3%
Mirinda (PepsiCo Inc) 8.2 7.4 6.9 6.5 5.9 5.4 3.9%
Fanta (The Coca Cola Co) 7.7 7.0 6.4 6.0 5.6 5.2 4.2%
Kinley (The Coca Cola Co) 1.7 1.5 1.4 1.4 1.3 1.2 5.5%
Evervess (PepsiCo Inc) 1.7 1.6 1.5 1.3 1.3 1.2 4.1%
Others 5.5 5.5 5.3 3.9 4.5 6.9 18.6%
Total 100.0 100.0 100.0 100.0 100.0 100.0 12.8%


It is evident that coca cola is No. 1 in market share followed by Pepsi. Multinational companies CocaCola and PepsiCo have occupied the first and second positions respectively in the off-trade soft drinks market in India in the period between 2011 and 2015, with a market share of 34.6% and 21.1% respectively, in 2015. The third place has been held by Parle Bisleri, with an off-trade market share of 10.8% by volume in 2015, all of which can be attributed to its mineral water brand Bisleri.


Financials:  ( This shall be updated on availability of latest figures and then updated with financial ratios as well ) Figures in Rs.Millions

Particulars For the year ended
31-Dec 31-Dec 31-Dec 31-Dec
2015 2014 2013 2012
Revenue from operations (gross) 39,058.94 28,110.74 23,511.73 19,861.18
Less : Excise duty 5,117.45 3,086.67 2,360.24 1,861.24
Revenue from operations (net) 33,941.49 25,024.07 21,151.49 17,999.94
Other income 142.81 146.89 173.54 441.96
Total 34,084.30 25,170.96 21,325.03 18,441.90
Cost of materials consumed 14,253.08 13,162.23 11,502.69 9,731.59
Purchases of stock in trade 3,201.51 597.00 573.94 513.12
Changes in inventories of finished goods, work- in-process and traded goods -289.85 1.94 -84.54 33.13
Employee benefits expense 3,237.51 2,167.99 1,829.91 1,524.24
Finance costs 1,687.91 1,853.95 1,697.09 1,155.96
Depreciation and amortisation 3,174.09 2,100.55 1,843.58 1,357.89
Other expenses 7,198.63 5,249.55 4,418.26 3,917.48
Total 32,462.88 25,133.21 21,780.93 18,233.41
Net profit/(loss) bef tax 1,621.42 37.75 -455.90 208.49
Tax expense:
Current tax 530.45 187.44 59.10 102.30
MAT credit entitlement -468.20 -120.60 -88.90
Deferred tax expense 703.96 181.28 -111.28 -56.01
Net profit/(loss) 855.21 -210.37 -403.72 251.10
Add: Share of profit in associate 15.17 8.81 8.41
Less  :  Share  of  (loss)/profit ;minority interest -0.01 0.02
Profit/(Loss) aft tax 870.38 -201.56 -395.30 251.08


share capital (estimate) 182.5 (fig in crore)
Net Profit eps PE @ Rs. 445
Yr ended 31st Dec 2015 87.04 4.77 93
HY  ended june 2016 209 11.45

In half year 2016 (till june 2016) , Varun Beverages has churned out a Net profit of 209 crore translating into an EPS of 11.5. The 2nd half is normally weak compared to first half. If Varun can deliver EPS of 20  in the year, its PE  will stand at 22.25


  • The company is present in almost all segments of bottled beverages and these segments are expected to have healthy growth going forward.
  • Total carbonates segment grew at a CAGR of 7% by volume in the five year period between 2010 and 2015. However, it is likely to grow at a CAGR of 7.8% by volume over the period 2015 to 2020.
  • In the bottled water segment is likely to grow at a CAGR of 2% by volume and 22.2% by value between 2015 and 2020.
  • Te Indian juice industry is likely to grow at CAGR of 5% and 26.0%, by total volume and value in the five year period from 2015 to 2020.
  • Varun Beverages has successfully leveraged its association with PepsiCo to expand its operations internationally and have been granted franchises for PepsiCo products in Nepal, Sri Lanka, Morocco, Zambia and In addition, it is are in the process of setting up a greenfield facility in Zimbabwe .
  • The company bankers who have provided loan to company include HDFC Bank, RBL Bank, axis Bank, Indusind Bank, IDBI Bank
  • Varun Beverages has Strategically located large and technologically advanced production capabilities;
  • Varun Beverages has wide spread and integrated sales and distribution network that ensures effective market penetration;
  • Varun Beverages believes that none of the listed companies in India, engaged in our line of business, are of comparable size or product
  • The company has bank debt of Rs1,450 crore and Rs623 crore of deferred payment obligation towards PepsiCo Inc. for territory acquisition in north India last year.
  • Varun Beverages incurred losses of ₹ 30 million and ₹ 201.56 million in Fiscal 2013 and Fiscal 2014, respectively. In addition, some of its subsidiaries have incurred losses in the past.
  • For the six months to June, Varun Beverages reported a profit of Rs 209 crore on a revenue of Rs2,530 crore. The first half of the year is usually much better than the second half on higher consumption of cold drinks during the summer.  Comparing with previous half  year company has reported 25.36% rise in profit after tax at Rs 209.75 crore in the six months ended June 30, 2016 compared to a profit of Rs 167.32 crore in the six months ended June 30, 2015. As total profit for year ended Dec 2015 is 87 crore only, this indicates that due to seasonality  varun made a loss in 2nd half.
  • Investors in Varun Beverages include Standard Chartered Private Equity and Aion Capital Partners and they are not exiting their holdings.
  • Varun Beverages promoter RJ Corp is a franchisee for Yum Restaurants-owned KFC and Pizza Hut, UK coffee chain Costa Coffee and Singapore-based tea salon firm TWG. It also owns the South Indian restaurant chain Vaango and ice-cream brand Cream Bell.
  • At this stage, if if see Dec 2015 annual results, the valuation seems higher . While there seems to be some the momentum in fist half of 2016, the 2nd half is generally very poor compared to Ist half.
  • It also needs to be factored that Varun Beverages profitability record has not been consistent and it has become profitable only last year. Lack of consistency may mar its valuations and hence there is need for caution and wait for more details to emerge.

(to be updated  as details become available)

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