company name - Axis Direct

Initiating Coverage

18 April 2018

Company Report

18 Apr 2018

Buy Target Price: Rs. 528 CMP Potential Upside

: Rs. 422 : 25%

MARKET DATA : 11.44 Cr. : Rs. 4,828 Cr : 56%

No. of Shares Market Cap Free Float Avg. daily vol (6mth) 52-w High / Low Bloomberg Promoter holding FII / DII

Manpasand Beverages Ltd. Sector: FMCG

A Cool “SIP UP”

: 1,90,269 : 511/336 : MANB IN : 44.1% : 33.1%

Price performance

120 110 100

90 80 Apr-17

Jul-17

Oct-17

BSE Sensex

Financial Summary

Apr-18

Manpasand Bever.

Key Drivers

Y/E March

Net Sales (Rs Cr)

EBITDA (Rs Cr)

PAT (Rs Cr)

EPS (Rs)

Change (%)

P/E (x)

RoE (%)

RoCE (%)

FY16

511

110

50

4.4

69%

80

13%

12%

36

0.4

FY17

691

140

73

6.3

44%

56

8%

8%

29

0.6

Volume Growth

FY18E

957

179

90

7.9

24%

53

8%

8%

22

1.6

FY19E

1,292

246

122

10.7

36%

39

10%

11%

16

2.2

FY20E

1,812

351

178

15.5

46%

27

13%

14%

11

3.1

Source: Company, Axis Securities

Jan-18

EV/EBITDA DPS (Rs) (x)

Y/E March

FY18E

FY19E

FY20E

32%

30%

42%

Gross Margin

36.9%

37.2%

37.4%

EBITDA Margin

18.6%

18.9%

19.2%

CMP as on April 17, 2018

Suvarna Joshi Sr. Manager - Research |  [email protected] |  (+91 22 4267 1740)

2

18 Apr 2018

Contents

Company Report

Manpasand Beverages Ltd Sector: FMCG

Page



Executive Summary

5-6



Industry Overview

7-12



Company Overview

13-17



Product Portfolio Expansion

18-23



Distribution Expansion = Network Growth

24-28



Financial Commentary

29-35



Key Risks



Appendix – I : Indian Soft Drink Industry

36 37-43

2

Executive Summary

18 Apr 2018

Executive Summary

Company Report


Largest & Fast Growing Category -

Indian Soft Drink Market to grow at 17% volume CAGR versus Global Soft Drink Market’s ~3.4% CAGR by CY2021 Indian Juices Drink segment to outgrow Carbonates segment with 23% volume CAGR over CY16-21 as against 9.6% CAGR expected for the Carbonated Soft Drinks (CSD) segment in the Indian Market, we believe, Mango based drinks to continue to dominate MANB sweetly positioned in the Non-Carbonates/ Juice Drinks segment which is growing at 2x of Carbonates Bottled Water an emerging category likely to touch a value size of Rs. 395bn in 2021 reporting 23% CAGR over 2016-21E with volume growth of 20%

Low per capita consumption huge growth opportunity -

-

Indian Soft Drinks per capita consumption at ~5 litres/year is very low compared to global average of 91.9 litres/year, 100 litres/year in USA, 64 litres/year in China & 127 litres /year in Brazil Per Capita Soft Drink Consumption volume wise is 1/20th that of the USA, 1/10th of Kuwait, 1/8th of Thailand & Phillipines and 1/3rd of Malaysia Government thrust on enhancing agri income (1.5x MSP for crops) to aid soft drink consumption

Bharat – an untapped growth opportunity -

Bharat estimated to contributes ~40% of overall FMCG sales of USD 20 bn and USD 100 bn over 2018 and 2020 respectively Huge under-penetration in Rural India with rural market share at 1/3rd of urban market Rural sales of juices grown at 26% CAGR over FY10-15 and estimated to grow to Rs. 41,700 Cr by 2020 from Rs. 13,200 Cr in 2015 Rural growing faster than Urban as indicated by 24% share in the volume mix in 2015 vs 21% in 2010

1.2x Capacity Expansion to power growth over FY18-20E -

FY2018 combined capacity at 2,25,000 cases/day; MANB to expand capacity by 1.2x over FY17-20E Target setting up facilities in each zone in Phase I; Vision 2030 – to set up manufacturing facility in each state Greenfield capacity at Andhra Pradesh and Orissa enables MANB to increase it addressable market areas Capacity expansion to aid consistent volume growth; expect a 35% volume CAGR over FY18-20E

5

18 Apr 2018

Executive Summary

Company Report


Deepening Distribution – Parle Products tie up a kicker -

Parle Products has a 33% market share in biscuits with access to 45 lakh retail selling points mainly in the Off-Trade segment

-

MANB’s current distribution network dominated by Off-Trade segment is 1/9th that of Parle Products

-

Revenues of ~5% from Parle Products generated in Q3FY18 (just 1 quarter) from West Bengal alone in Phase 1

-

MANB’s distribution to grow 2x YoY over FY18-20E. MANB intends to touch 1,000 distributors going forward from 450 in Q3FY18

MANB’s Growing Market Share -

2016 market share in Juice Drinks (Rs. 162bn) category nearly doubled to 5%; grown by 240bps over CY2015 (2.6%)

-

Tie up with Parle Products to aid market share gains given the huge untapped potential in Bharat

-

Juice Drinks (up to 24% Juice) segment expected to report 24% value CAGR over CY16-2021E at Rs. 350bn size with 17% volume CAGR

-

Parle Products dominance in South India to allow MANB to make in-roads into South which forms c.~10% of revenues

Robust Financial Growth to continue over FY17-20E -

Expect MANB to reported strong 38% Revenue CAGR at Rs. 1,812 cr driven by 35% volume CAGR over FY18-20E

-

Estimate 60bps EBITDA Margin expansion by FY20E at 19.2% driven by improving utilization levels

-

We believe, MANB to report a 41% PAT CAGR over FY18-20E driven by strong operating performance; ROE expected to improve albeit gradually to 13% by FY20E

-

At CMP, MANB trades at 27.2x FY20E earnings, at a discount to some of its FMCG peers and Global peers. Given robust revenue and earnings growth we value MANB at 34x P/E arriving at a Target Price of Rs. 528 per share (25% upside) over 12-18 months horizon

6

Industry Overview

18 Apr 2018

Company Report

Manpasand Beverages Ltd

India Soft Drink (CY16): Market overview

Sector: FMCG

India Soft Drinks (Rs 603 bn; 13,574 mn ltr)

Carbonates (Rs 276 bn; 4,927 mn ltr)

Cola based (Rs 111 bn; 1,986 mn ltr)

Bottled water (Rs 142 bn; 6,427 mn ltr)

Low Calorie Cola Carbonates (Rs 2 bn; 27 mn ltr)

Others (Rs 21 bn; 100 mn ltr) Juice Drinks (up to 24% Juice) (Rs 119 bn; 1,757 mn ltr)

Non-cola based (Rs 165 bn; 2,941 mn ltr) Regular Cola Carbonates (Rs 109 bn, 1,959 mn ltr)

Fruit Juices (Rs 162 bn; 2,120 mn ltr)

Lemonade/Lime (Rs 101 bn; 1,804 mn ltr) Mixers (Rs 10 bn; 254 mn ltr)

Nectars (25-99% Juice) (Rs 28 bn; 252 mn ltr)

Concentrates (Rs. 9.3bn; 41 mn ltr) Sports and Energy Drinks (Rs. 11.1bn; 42 mn ltr) Ready To Drink Tea (RTD) ((Rs.1.4bn; 17 mn ltr)

100% Juice (Rs14.7 bn; 112 mn ltr)

Orange Carbonates (Rs 30 bn; 526 mn ltr)

Other Non-Cola Carbonates (Rs 22 bn; 358 mn ltrr)

Indian Soft Drink category - Rs. 603 bn the largest FMCG category 8

18 Apr 2018


Sustainable Category = Robust Growth

Sector: FMCG

Soft Drink Per Capita Consumption - Global 15.1%

CAGR 2016-21

3.4%

1.8%

Per Capita Bottles

2000

1,616 1,489

1500 1000 500

2.8%

44 84

271 313

-0.1%

0.7%

3.3%

China

Brazil

391 434

Mexico

2016

Germany

USA

India vs

1,496 bottles in USA

and 537 bottles in

 Growing middle class: aspiring and affluent households

0 India

 Low Per Capita Consumption in India: 44 bottles in

Brazil

1,496 1,490 1,2211,203

537 566

Company Report

World

2021E

to rise to 100mn from 48mn over next 10 years  Rising Affordability: Avg. consumer expenditure is likely to increase 3x over next decade to Rs. 150 trillion by

2020

Soft Drinks Industry - India Million Cases

2016

2017

2022E

CAGR

 Rurbanization: Rural-Urban percent share stood at

Bottled Water

1,967

2,351

6,006

20.6%

24:76 in 2015 against 21:79 in 2010. Dependence

Carbonates

919

949

1,122

3.4%

on cyclical agri reduced significantly to 30% of total

Juices

313

336

495

8.1%

rural household income

18

19

25

5.6%

3,217

3,655

7,648

15.9%

Others*

Total

2022E

2017 3,655 Million Cases

Source: Industry, Axis Securities Research

CAGR 15.9%

 Government Thrust on Rural Income: Announcement of a minimum1.5x MSP on crops to aid agri income in rural areas

7,648 Million Cases

 Distribution Penetration: Growing distribution especially in rural areas is critical for a fast paced growth (distribution in rural is negligible because of lack of consistent electricity, poor infrastructure and low scale) 9

Company Report

18 Apr 2018


Low Per Capita Consumption = High Growth

Sector: FMCG

Indian Per Capita Soft Drink Consumption (litres/year) 120 100

100

80 60 40 20

5

0 USA

Saudi

Lebanon

Kuwait

Qatar

Thailand

UAE

Oman

Uganda Phillipines Malaysia

Vietnam

China

India

Source: Industry, Axis Securities Research





Indian per capita Soft Drink consumption is 1/20 th of USA, 1/10th of Kuwait, 1/8th of Thailand and Phillipines and 1/3rd of Malaysia Low Per Capita Consumption in India lower than global average  Lower average disposable income  Hugely under penetrated segment  Price sensitive market



Opportunities for increasing Per Capita Consumption  Thrust on raising consumer disposable incomes especially in rural areas  Focus on expanding distribution network  Leverage the Small Pack growth potential  Improvement in overall infrastructure facilities with rural at the heart  Healthy products pipeline catering to the changing consumer taste – a critical success factor

 Inadequate infrastructure facilities (roads, electricity etc)  Lack of new product innovations

10

Company Report

18 Apr 2018


Soft Drink Market in India – Growth Potential

Sector: FMCG

"Market Size of ~ Rs. 603.36bn, Off-Trade Market growth ~17% CAGR (2011-16); Off-Trade market expected to grow at 16% CAGR over 2016-21E Soft Drink Industry - Classification by Category 2016

Volume (mn litres) Juices: 1,846mn litres; 20%

Others; 94 mn litres 1%

Soft Drink Industry - Classification by Geography 2015

Value (Rs. bn) Bottled Water: 4,437mn litres; 47%

Carbonates 2,975mn litres; 32%

Others : Rs. 18bn, 6%

Juices : Rs. 125bn; 38%

Volume (mn litres) Bottled Water: Rs. 70bn; 21%

Carbonates : Rs. 115bn; 35%

Value (Rs. bn)

East & North East 11%

2016 Market Volume : 13,574 mn litres

West 30%

North 36%

West 30%

South 23%

North 37%

East & North East 11%

South 22%

2016 Market Size : Rs. 603bn (USD 9.28bn)

Off-Trade Value Growth

Juices

Carbonates

Bottled Water

CAGR 2011-16

26.5%

11.8%

27.2%

CAGR 2016-21E

16.9%

3.7%

16.5%

 2016 Volume and Value split for Off-Trade and On-Trade Segments is about 69:31 and 54:46 resp; On-Trade segment has better pricing realizations  Off-Trade channel is where sales take place through traditional grocery stores, hypermarkets, super markets etc.  On-trade channel is that where sales happen through restaurants, food service outlets, bars & clubs

 Within the off-trade channel, a significant majority of sales of soft drinks in India constitutes to take place through traditional grocery retailers; they contributed to 87.8%, 69.7% and 63.8% of the Total off-trade volume sales for carbonated drinks, juices and bottled water resp in 2016  Rural consumers constitute ~24.3% of Off-Trade volume sales in (2015) and it is price sensitive market with weak distribution linkages Source: Company, Axis Securities Research

11

Company Report

18 Apr 2018


Off-trade Juices Segment

Sector: FMCG

Strong growth in Juice Drinks Category (value)

300 250

CY16-21E CAGR : 24.5%

Nectar (25%-99% Juice)

268

Juice Drinks (up to 24% Juice)

CY11-16 CAGR : 27.3%

Category

200

49

34

90

Nectars

0 2011

2012

2013

2014

2015

Fruit Content

Juice Drinks

23

12

72 10

20

56 17

8

44 15

6

5

8

50

27

100

34 11

150

3

Rs. Billion

100% Juice

Juices Segment Sub-category

2016

Low Mid

26.2%

24.0%

25 - 99%

Med-High

22.0%

15.8%

100%

High

29.0%

23.4%

Mango Drinks form a significant share of Juice Drinks 4.10% 5%

4.90%

Juice Drinks Market Shares

1%

8%

2%

Juice Drinks Off-Trade Market Share

100% Juice

Nectar Share by Fruits

Juice Drinks

9%

23%

13%

32% 14% 36%

42% 85% Mango

Lemon

Orange

Other Flavours

Estm. Value CAGR 2016-21E