Varun Beverages makes tepid debut on BSE, lists at 3.4% discount to issue price

NEW DELHI: Shares of Varun Beverages, the franchisee bottler for PepsiCo, made a tepid debut on the bourses on Tuesday, as the scrip got listed on BSE at Rs 430, a 3.37 per cent discount to its issue price of Rs 445 apiece.

The Rs 1,100 crore issue, sold between October 26 and October 28, had been subscribed 1.86 times. While the qualified institutional buyer (QIB) quota had been subscribed 4.94 times, the quotas for retail individual investors (RIIs) and HNIs were left undersubscribed at 0.82 times and 0.42 times.

Analysts had a mixed view on the IPO. They cited the strategically-located advanced manufacturing facilities, low per capita consumption of soft drink in India, strong relationship with PepsiCo and robust distribution network among the factors that make the IPO attractive.

However, heightened competitive intensity, especially from Coca-Cola products, increased regulatory oversight while a highly capital-intensive business model makes the stock a bit risky.
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Some of them had also argued that valuations of the IPO were expensive compared with its global peers.

Angel Broking was ‘neutral’ on the IPO due to the company’s “inconsistent financial performance, low RoE, asset heavy business model and high valuations.” Analysts had noted that the company’s revenue grew at 23.6 per cent CAGR over CY12-15 aided by acquisition of newer territories, while Ebitda rose to 40.6 per cent, largely led by reduction in cost of raw materials.

“However, this trend looks unsustainable given the low pricing power of Varun Beverages for its product and dependence on Pepsi for souring of concentrate which forms 28-34 per cent of cost of raw materials, Centrum Broking had said in its IPO review.

Online portals discussing grey market quotes on Monday were suggesting a Rs 20-25 premium for the stock at listing.