What Should You Do With Manpasand Beverages IPO

Issue

Manpasand Beverages, a Vadodara-based manufacturer and seller of fruit drinks with primary focus on mango fruit, is entering the capital market to raise Rs 400 crore. The price band is fixed at Rs 290-320. At lower price band it will issue approximately 1.93 crore equity shares and at higher price band it will issue 1.25 crore equity shares. The total dilution will depend upon the final pricing of the shares; however, it will be around 27 per cent of post equity expansion. The money so rise will be primarily used for setting up of a new manufacturing facility at Haryana that will company to serve north and north-eastern part of India. Rest will go in modernisation of its existing facility at Vadodara 1 facility and Varanasi, setting up new corporate office at Vadodara and repayment of loans.

Company

The company’s flagship brand is its mango based fruit drink, ‘Mango Sip’. For the nine month ending December 2014, it recorded sales of Rs 207 crore and formed 86.87 per cent of total sales. This share has come down from 96.85 per cent for the year ending March 2014. The reason for such fall in the share of ‘Mango Sip’ is the launch of new product by company under the brand name of ‘Fruits Up’ and ‘Manpasand ORS’ that are fast catching up and now form around 12.5 per cent of total sales. The company’s operation has major presence in semi- urban and rural markets and with the launch of new products it is trying expand its presence in metros.

Financials

Financially the company has been performing well as for the three year ending FY14 (company has not disclosed its FY15 results) it has posted annual sales growth of 85.29 per cent and its total sales has increased from Rs 85.72 crores in FY12 to Rs 294.3 crore in FY14. For the first nine month of FY15, it has posted total sales of Rs 239.47 crore. If we annualise it, although, company generates majority of its sales in the first half of the year, it comes to around Rs 320-330 crore after taking into account the seasonality factor and growth in newly launched products.  If we compare it with last year sales, it is showing growth of less than 10 per cent. In terms of profit after tax, company has posted profit of Rs 20.5 crore for FY14 exhibiting an annual growth of 83.48 per cent between 2012 and 2014. For 9MFY15, company has posted net profit of Rs 12.64 crore, again annualising it and adjusting for factors mentioned above, it comes to around 20-25 crore, which is almost flat or marginal growth.

Valuation

After annualizing its nine month profit and dividing it by expanded equity we get EPS of Rs 5 on higher tax band. This discounts the current offering at 64 times. Though, there are no similar listed players that have only presence in fruit drink, if we compare with other FMCG companies, it is available very high valuation. For example BSE FMCG index is trading at around PE of 40x. If we compare market cap to sales, Manpasand Beverages is asking for 5 times its FY15E sales. This is comparable to companies like ITC and HUL. Nonetheless, these FMCG majors generate much higher returns on their equity and capital employed compared company’s ROE at around 15 per cent.

Conclusion
Therefore, though company’s prospects look good especially after its expansion capacity goes into stream, the issue is highly priced and valued and hence retail investors should wait for listing after that they may get it much better price.