Varun Beverages IPO subscribed 1.8 times

The IPO comprises a new issue of 15 mn shares and an Offer for Sale of 10 mn shares by the existing promoters

The Rs 1,100-crore Initial Public Offer (IPO) of equity in Varun Beverages got a positive response from the Street, with the issue being subscribed 1.85 times as of 6:30 pm on the final day of the offering.

There was strong support from institutional investors, with their quota being subscribed 4.9 times. On the other hand, high net worth individuals (HNIs or wealthy investors) bid only 0.42 times the shares reserved for them. The retail (small investor) quota was subscribed 0.79 times. The employee quota was subscribed only 0.05 times.

During the week, the bottler had raised Rs 327 crore by allotting shares to anchor investors. Those allotted include Abu Dhabi Investment Authority, Morgan Stanley and Merrill Lynch.

The company had fixed a price band of Rs 440-445. The IPO comprises a new issue of 15 million shares and an Offer for Sale of 10 mn shares by the existing promoters. Kotak Investment Banking, Axis Capital, CLSA and YES Securities were lead managers for the issue.

The company had said it would use the proceeds to partially repay debt taken to fuel expansion in recent years. Varun is one of the largest franchisees of carbonated and non-carbonated beverages sold under brands owned by PepsiCo outside America. It accounts for 45 per cent of PepsiCo’s volume in India, being sole bottler and distributor for Pepsi in a majority of northern and eastern India.

The brokerages had a mixed response to the issue. Some felt it was expensive. According to Reliance Securities, the valuations of Varun are stretched, even after considering the performance in the first half of 2016 and factoring in the debt repayment.

“Based on reported profit of Rs 87 crore in 2015, the stock would trade at a price to equity ratio of 93 times the calendar year 2015 earnings at the upper end of the price band, while the enterprise value to operating earnings multiple stands at 14.9. While there are no listed peers in India, there are several bottlers listed overseas which trade at a significant discount to these multiples,” Reliance securities said in a note to investors.

Varun has spent Rs 2,459 crore in the past three years on modernisation and expansion of its production capacity.