Mumbai: Varun Beverages Ltd, the world’s second largest PepsiCo Inc. bottler, on Wednesday said its Rs1,100 crore initial public offering (IPO) will open on 26 October. The company has set a price band of Rs440-445 per share for the IPO, which will close on 28 October.
Promoters Ravi Jaipuria and his son Varun Jaipuria will sell 5 million shares each in the IPO, while the company will sell 15 million new shares. The beverages manufacturer has hired Kotak Mahindra Capital Co. Ltd, Axis Capital Ltd and CLSA India Pvt. Ltd and YES Securities (India) Ltd to manage the IPO.
The company will use proceeds from the IPO to repay part of its Rs1,700 crore debt, taken on to fuel its expansion in the last few years. Rs600 crore of the debt is from PepsiCo and interest-free. However, the company still pays close to Rs110 crore in interest charges per annum on the remaining Rs1,100 crore, which will reduce by Rs70 crore following the IPO, said Raj Gandhi, president and group chief finance officer.
Varun Beverages accounts for 45% of PepsiCo’s volumes in India. The company is the sole bottler and distributor for the North and East with the exception of Jammu and Kashmir, Odisha, Bihar and Jharkhand regions, Ravi Jaipuria said at a press conference.
Between fiscal 2013 and June this year, the company invested Rs2,459.14 crore on expansion and modernization of its production capacities and increasing the penetration of its chilling equipment such as visi-coolers.
In 2015, the company expanded its operations by acquiring new sub-territories in the North, including four production facilities in Uttar Pradesh, Uttarakhand and Haryana. In 2016, it acquired two production facilities in Goa. It is also in the process of setting up a greenfield facility in Zimbabwe in anticipation of getting franchise rights for the region.
The inorganic growth helped it grow revenues on a compounded annual basis by 31.5%, from Rs1,147.25 crore in financial year 2011 to Rs3,394.14 crore in financial year 2015, even as the overall beverages industry was impacted by excessive rain in 2013 and then two consecutive years of drought in 2014 and 2015.
The company continues to look at additional consolidation opportunities of PepsiCo’s production and distribution operation in South Asia and Africa. “We strategically target territories that either have significant growth opportunities for PepsiCo products or are located in close proximity to our existing licensed territories and sub-territories,” the company said in its offer document, adding that it is working closely with PepsiCo to identify such strategic consolidation opportunities.
According to V. Jayasankar, senior executive director and head of equity capital markets at Kotak Mahindra Capital, the company has strong organic growth potential, given that it has the distribution rights in 17 states in India.
“Comparable peers are not available in the Indian stock markets, but when you compare the valuation of the company with listed bottlers in emerging markets such as Mexico, Turkey and Chile, we think that valuation-wise there is a greater upside for Varun Beverages, as the growth in the Indian market is expected to be stronger than these markets,” he said.
So far in 2016, 21 companies have tapped the capital market through their IPOs. They have together raised about Rs19,379.1 crore, as per data from Prime Database, a primary market tracker.
Last year, 21 firms went public to raise almost Rs13,614 crore through the IPO route, the best in five years, data from Prime Database showed.