Manpasand Beverages Research Reports By Motilal Oswal & Ventura

Research report by Motilal Oswal

Growth continues to remain strong; Maintain buy

Cutting estimates on delay in fourth plant

– Part of new capex to be delayed: Post QIP of INR5b, Manpasand Beverages’ (MANB) plan to double capacity from 177,500cpd to 377,500cpd is largely on track. The company has already finalized land for three work-in-progress plants at Vadodara, Varanasi and Sri City (South). Each of these plants is expected to contribute capacity of 50,000 cases per day (cpd). The Vadodara plant is expected to be commissioned in 4QFY18, while the Varanasi and Sri City plants are scheduled for commissioning in 1QFY19. The fourth plant planned to be set up in Jharkhand/Orissa to cater to the north-east region is expected to be delayed (by one year to 4QFY19/1QFY20) with land not yet finalized.

– Fruits Up on strong footing: Our channel checks suggest that growth in Fruits Up remains strong, driven by the company’s focus on advertisement/promotion and the launch of Fruits Up mini pack (160ml) in the carbonates category at an attractive price point of INR10/bottle. The company focuses on advertisement through print/television, and is also active on various social media platforms. Fruits Up contributed 23% of revenue in 3QFY17 (v/s 20% in the year-ago period), with the share expected to increase further to ~30% by FY19. Focusing on the health agenda, the company is planning to launch a drink based on a mix of vegetables and fruits in FY18.

– Summer season demand very strong, expecting stockouts: Post adverse impact of demonetization in 3QFY17, MANB is expected to bounce back sharply, aided by the addition of new capacities at the Ambala facility (came on stream in August 2016). Our channel checks suggest that demand at the onset of summer is very encouraging, with most dealers facing stockouts. We observe that its key SKU of 250ml and below continues to be in good demand, especially in the Mango SIP category. In our view, MANB continues to operate at full utilization to cater to growing demand.

– Valuation and view: We believe strong summer, along with the focus on advertisement, will drive superior performance at MANB. Demand continues to be strong in the fruit drinks category. However, on account of capacity delay of the fourth plant, we cut earnings estimates by 19% for FY19. The company’s presence in low-ASP/SKU products, addition of new capacities and foray into newer geographies provide comfort. Also, the planned advertisement campaign for Fruits Up should complement its recent Fruits Up capacity addition at Ambala. Thus, we expect a robust revenue and PAT CAGR of 45% and 52%, respectively, over FY16-19E. We value the stock at a P/E of 27x FY19E EPS, with a target price of INR841 (20% upside). Reiterate Buy.

Research report by Ventura

We spoke to the Manpasand management to get an update on the capacity expansion timeline and new business opportunities emerging. The key takeaways are as under:

1. The company recently completed a private placement of Rs 500 crore to part fund the Rs 600 crore capex for capacity addition (balance to be met from internal accruals). This entire Rs 600 crore expansion is expected to double the bottling capacity over the next 18-24 months. Capacities are expected to come up in Vadodara (Q3FY18), Sricity in Andhra Pradesh and Varanasi (both of which are expected to come up in Q1FY19). Another plant is expected to come up in the east and will be a while before it is set up. Land is not yet identified for the same.

2. Manpasand’s flagship brand, Mango Sip is growing by leaps and bounds and is expected to grow at a CAGR of 33.1% to Rs 1,408 crore by FY20. The recent backlash against carbonated cola drinks especially in the south and the upcoming Sricity facility (45-50,000 units on a 3 shift basis) will help mark the foray of Manpasand in the southern markets. This coupled with the shift in user preferences to healthier fruit based beverages would mean better demand dynamics for the company. This will not only add to revenues but help diversify its markets from being primarily north and west dependant.

3. FruitsUP, its fuzzy fruit drink has achieved great success with its Rs 10 sku. We estimate revenues from the same to grow at a CAGR of 42% to Rs 439.4 crore by FY20 from the current Rs 108 crore in FY16.