Manpasand Beverages Ltd - IPO Note - Asit C Mehta Investment Intermediates Ltd

Company Background

Manpasand Beverages Ltd (MBL) is a fruit drink manufacturing company with primary focus on mango. MBL currently manufactures its products at its facilities located at Vadodara (2 Facilities) and Varanasi. Although the company has acquired a facility at Dehradun, currently, it is not carrying out production activities from this facility. The company is having a wide distribution network including 73 consignee agents and 654 distributors across 24 states in India to whom it sells directly. In addition to sale through its distribution network, MBL sells directly to Indian Railway Catering and Tourism Organization (IRCTC) approved vendors.

Issue Details

- Fresh issue of 1.37-1.25 Cr shares to raise Rs 400 cr. Funds raised from the fresh issue to be utilized on.

- Setting up a new manufacturing facility in Haryana.

- Modernization of MBL's existing manufacturing facilities of Vadodara 1 and the Varanasi Facility

- Setting up a new corporate office at Vadodara

- Repayment/prepayment of certain borrowings of MBL

Strengths

- MBL's flagship brand 'Mango Sip' has a strong brand identity, especially in the underpenetrated semi-urban and rural markets in India.

- MBL has a wide distribution network of 73 consignee agents and 654 distributors across 24 states in India to whom it sells directly. Further, the company serves IRCTC approved vendors, which provides opportunity to build brand awareness and recall value for products.

- MBL added new fruit flavors under 'Fruits Up,' which includes carbonated drinks and energy drink - Manpasand ORS, in July last year. This move has been successful, with the two brands quickly making up 7.7% and 5% of revenue respectively, bringing the dependence on Mango Sip down to 86.7%.

- MBL's net sales has grown from Rs 85.726 cr in FY12 to Rs 294.30 cr in FY14, showing a CAGR cr 85.29%. whereas, EBITDA of the company has grown from Rs 14.33 cr to Rs 45.74 cr, respectively, showing a CAGR of 78.63%.

Weaknesses

- MBL depends heavily on its mango based fruit drink 'Mango Sip', which is the company's flagship product offering, for a significant portion of its sales. For the Fiscal 2014 and the nine month period ended Dec 31, 2014, 'Mango Sip' contributed 96.85% and 86.87% respectively of the company's net sales.

- It has tough competition with bigger players such as Parle Agro India, Coca Cola India, and Pepsi India, which have far greater firepower to push sales and gain market share.

- Mangoes are the chief input accounting for 60% of sales. Wayward rains have affected mango production this year. MBL may not have enough pricing power to hike prices and protect margins. The company does not have long term contract with suppliers for raw materials and even for water.

- The factory license for one facility at Vadodara has expired. Further, the company has not yet obtained the factory license in relation to its second Vadodara facility. Furthermore, MBL manufactures its tin can packaged products as well 500 ml PET packaged "Fruits Up" fruit drink at third-party facilities, exposing the company to risks in terms of quality and taste.

- The new capacity planned for which funds are being raised will commence production only in Jan 2017. Thus, revenue boost from higher capacity addition will play out only over the long term

Risk Factor

The company has shown good revenue growth in the last three years posting good margins and company has also attracted investment from SAIF Partners India IV Ltd for Rs 90 Cr , however there are some concerns too like it depends heavily on its mango drink and may face stiff competition with other established majors and substitute products and inability to retrieve license for its production facilities could impact the stock. Also, with limited operational history it might be too early to take a call on this company.

Source : Equity Bulls

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