Manpasand Beverages Ltd. Rating: BUY FMCG. Manpasand Beverages Ltd. Stock Idea

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1 Manpasand Beverages Ltd. FMCG Date February 14, 217 CMP (Rs.) 687 Target (Rs.) 858 Potential Upside 25% BSE Sensex NSE Nifty 8792 Scrip Code Bloomberg MANB IN Reuters MANB.BO BSE Group B BSE Code NSE Symbol MANPASAND Market Data Market Cap.(Rs. Cr) 3931 Equity Sh. Cap. (Rs Cr) Wk High/Low 776/389 Avg. Quarterly Volume Face Value (Rs.) 1 Shareholding Pattern (Dec-16) Comparative Price Chart DII, 31.7 Others, 3.9 FII, 2.3 Promot er, /Feb/16 5/May/16 5/Aug/16 5/Nov/16 5/Feb/17 MBL BSE Sensex Varsha Bang Research Analyst Varsha.b@systematixshares.com Arun Gopalan Vice President Research arungopalan@systematixshares.com Stock Idea Rating: BUY Manpasand Beverages Ltd (MBL) has the distinction of being the only listed player in the beverages segment in India. Having entered the beverages market through its flagship product Mango Sip, a mango based fruit drink, increasing consumer preference for healthier drinks has prompted MBL to extend its product portfolio under four new brands Fruits Up, Manpasand ORS, Pure Sip and Coco Sip. MBL plans to expand it capacities by 1.13x over FY16-18E from 1775 cases per day in FY16 to 3775 cases per day in FY18E by setting 4 new plants with each having a production capacity of 5, cases per day with a CAPEX outlay of 5 crs raised through the QIP process. With this QIP, MBL has become a debt free company and has effectively modernized its plants at its existing location. Strong brand with diversified portfolio focused on fruit juices MBL s flagship product, Mango Sip, has created strong brand identification in the underpenetrated markets of India and it dominates the revenues with a 79% share of sales at Rs. 441 crs in FY16. The brand also enjoys a market share of ~5% in juice drink category. It largely targets the Tier II & Tier III cities and has a very strong presence in rural markets (revenue share of 55-6%). Besides this, IRCTC contributes 2-22% of revenue and rest comes from urban areas. Mango Sip is a fruit-based mango drink with ~12-14% mango pulp content. With increasing preference of consumers for healthier drinks, MBL, has extended its product portfolio under the new brand Fruits up, Manpasand ORS, Pure Sip and Coco Sip. Under Fruits Up brand, MBL offers two types of products - one, a carbonated fruit drink with real fruit content and the second, a fruit drink with a relatively higher fruit content of ~16-17%. The company also launched the Manpasand ORS brand of fruit drink with energy replenishing attributes in apple and orange flavours, with ~1% fruit content and rehydration salts. In May 216, MBL launched a new brand, Coco Sip targeted for non-south markets; it s a first of its natural coconut water without any preservatives in it. MBL generates 7% of its revenue in Q1 & Q4 of the financial year due to seasonality of mango based drinks such as Mango Sip whereas other products offset the seasonality risk, as they would be sold throughout the year. The manufacturing capacities of the fruit based drinks are substitutable; hence it is possible to add new products to the portfolio without having to augment capacity. The other new products (Coco Sip and Fruits Up) are expected to grow their sales by 3 times in FY18E and therefore we expect MBL capacity utilization would help to beat the seasonality and ramp up capacity utilization from 55% in FY16 to 58% in FY18E on expanded capacities. Capacity Expansion will aid growth to diversified portfolio MBL is planning to set up manufacturing facilities across India, among existing facilities is at Vadodara and in Varanasi. Its Vadodara caters to western and southern region whereas Varanasi caters to the northern and eastern regions of India. MBL plans to expand it s capacities by 1.13x over FY16-18E from 1775 cases per day in FY16 to 3775 cases per day in FY18E. MBL is setting 4 new plants in Sri City (Hyderabad), Vadodara (Gujarat), Varanasi (UP) and in eastern India, with each having a production capacity of 5, cases per day with a capex of 5 crs through the QIP process. The fruit juice market across India has a huge potential for growth. We expect that the capacity expansion will aid robust growth in revenue generation which will be increasing at a CAGR of 45% over the period of FY16-FY19E. MBL has a strong geographic reach with a presence across 24 states, which will increase availability of product and will also decrease transportation cost. Wide distribution network enhance brand visibility MBL has over 2, retailers, 2, distributors and more than 2 super stockists across 24 states in India. It intends to add 5-1, distributors in the near to medium term with significant focus to expand in South India. For Mango Sip, MBL has adopted a unique strategy of penetrating Tier II and Tier III cities and thereafter strengthening its presence in urban cities. MBL offers higher margin to its distributors and retailers compared to other MNC and Indian companies. The company has set up different distribution network for fruits up and coco sip. MBL has entered into a tie-up with IRCTC for the supply of its products in trains and railways stations. Valuation We estimate MBL s revenue to grow at a CAGR of 45% over FY16-FY19E as it enters a high growth cycle, backed by capacity expansion, new products and strong brand. Increase in its distribution network will help increase the market share from 5% in FY16 to 7.5% in FY18E. The EBITDA margin is expected to expand to 21% in FY19E boosted by the Fruit Up and Coco Sip products which will beat the seasonality with better capacity utilization. At CMP of Rs. 687, MBL is trading at 46x FY17E EPS. We value the company at a P/E 23x for FY19E EPS and recommended a BUY with a target price of Rs. 858, an upside of 25% in a year. Year Sales (Rs.cr) Growth (%) EBITDA (Rs.cr) Margin (%) PAT (Rs.cr) Margin (%) Adj EPS (Rs) P/E (x) EV/EBITDA ROE FY % % % FY17E % % % FY18E % % % FY19E % % %

2 Mango Sip Revenue Other VADP Revenue 16. 6% 4. 14% % 4% 3% 2% 1% % 1% 8% 6% 4% 2% 1. %. FY16 FY17E FY18E FY19E % Rs. Crs Growth % Rs. Crs Growth % Capacity Utilization PAT (Rs. Cr) and PAT Margin FY15 FY16 FY17E FY18E Capacity (CPD) Utilisation % 12% 1% 8% 6% 4% 2% % PAT PAT Margin EBITDA (Rs. Cr) and EBITDA Margin Revenue and Revenue Growth % 2 6% EBITDA EBITDA Margin 2.% 15.% 1.% 5.%.% Revenue Growth 5% 4% 3% 2% 1% % Source: Company, Systematix Research

3 INDUSTRY OVERVIEW The global juice market is on a secular increasing trajectory as consumption of juices is increasing due to increasing awareness on the health and fitness aspects. The juice industry is riding a two-tier growth story, as it is recording a slower growth in developed countries where packaged juices and fresh juices have achieved a reasonable strong penetration whereas on the other side, developing countries are showing a huge potential in the juice market with their shift from carbonated to non-carbonated beverages globally. The Indian soft drinks market was pegged at 12b liters in volume terms and INR524b in value terms in 215, implying a CAGR of 17.9% and 18.7%, respectively, over Per capita consumption of soft drinks stood at ~1 liters per annum compared to ~16 liters in the US, indicating significant growth potential. Soft drinks volume trend (bn litres) % CAGR Soft drinks value trend (Rs. Bn) % CAGR Source: Euromonitor International March 216 As per Euromonitor International March 216 International March 216, the soft drinks market is expected to post a CAGR of 1.8% over and reach INR874b, with on-trade rising 8.2% and offtrade growing 12.8%. Overall, volume CAGR is estimated at 22%. Soft drinks market to post 11% CAGR over 215-2E E 217E 218E 219E 22E Shift in consumer preference towards non-carbonated fruit beverages, with rising concerns over obesity and other health issues, changes in lifestyle, affordability and availability of packaged juices in the optimal SKUs are some of the reasons behind the rise of the packaged fruit juice market. They are slowly becoming a staple part of family breakfast, and even a must at social dos. The untapped markets in the tier-ii and tier-iii cities can be epicenter of growth for this sector as people in these cities still prefer fresh juices over packaged ones. The packaged fruit juices market can be divided into three sub-categories: fruit drinks, juices, and nectar drinks. Fruit drinks, which have a maximum of 3% fruit content, are the highest-selling category, with a 6% share of the market. Frooti, Jumpin, Maaza, and so on are the most popular products in this category. Fruit juices, meanwhile, are 1% composed of fruit content, and claim a 3% market share at present. In contrast, nectar drinks have between 25 and 9% fruit content, but account for only about 1% of the market.

4 Juice Consists of three categories Category Fruit content Target Income segment Off trade Value CAGR % Juice 1% High 31% Nectors 25% and above Mid-High 26% Juice Drinks Up to 24% Low-Mid 27% There are several reasons behind the growth of the Indian packaged juices category: Changing consumer lifestyles, increased health awareness, hygiene concerns, growing category of informed buyers, rising disposable incomes, booming modern retail, habitual purchase, and introduction to new flavours. Packaged juices are gradually cementing their place in the urban household in the metros and tier-i cities; however, replicating the same success in tier- II and -III cities is still a struggle as residents in these regions still prefer fresh juices over packaged ones because they are comparatively cheaper, and also in sync with the traditional belief that juices are best consumed freshly pressed. Under off-trade, the juice drink market was the largest segment at 71% in value terms and 81% in volume terms in 215. Juice drinks posted a value CAGR of 27.2% and volume CAGR of 22.4% over Summary of the juice market (215) Rs. Bn On Trade 3 Off Trade 11 1% Juice 1 Juice Drinks 72 Nectors 2 Total 132 Mango is the largest selling flavor in the juice drink category, contributing 85% to off-trade volumes. MBL is a player in this segment, which was estimated at INR 95bn as of 215 and is expected to reach INR327bn by 22. Consumers are expected to shift from carbonated drinks to juices due to rising health awareness and changing food habits. Growth in nectars and juice drinks is estimated to be at a faster pace, vis-à-vis 1% juice, as higher prices and stressful lifestyles may restrict demand for the latter. Off Trade Juice drinks markets to post value CAGR By volume (in mn litres) By Value (Rs. In Bn) CAGR CAGR % Juice % % Juice Drinks % % Nectors % % Total % % MBL operates in the Indian packaged juice industry whose size is about Rs. 8, crore and it has been growing at more than 3% per annum in last few years and will maintain that pace in future as well. The growth potential for organized packaged fruit drink players is very high due to low penetration and small share of the total market which is largely catered to by unorganized players.

5 Company Background Manpasand Beverages Limited (MBL) is an India-based company, which is engaged in the business of manufacturing of fruit juices in the beverages segment. The Company's flagship brand is Mango Sip. It offers mango based fruit drink under the Mango Sip brand. Its other brands include Fruits Up and Manpasand ORS. Under the Fruits Up brand, the Company offers differentiated carbonated fruit drinks with real fruit content and fruit drink with relatively higher fruit content of pulp. Carbonated fruits drinks is available in grape, orange and lemon flavors while fruit drinks is available in mango, apple, guava, litchi, orange and mixed fruits flavors. Manpasand ORS consists of rehydration salts and fruits contents, and is available in two flavors, apple and orange. The Company offers its products in pet bottles and tetra packs. The Company's plants are located at Vadodara, Gujarat; Varanasi, Uttar Pradesh, and Dehradun, Uttrakhand. MBL has the unique distinction of being the sole listed company in the beverages sector. The company s revenue expanded at a CAGR of 32% over FY13 16, while net profit grew 31% during the same period. Currently MBL had three manufacturing facilities at the end of FY16: two at Vadodara and one in Varanasi; the second unit at Vadodara commenced production in April 215. The company is also setting up a facility in Haryana (expected to be commissioned by June FY17) to cater to markets in north and northeast India. MBL is setting 4 new plants in Sri City (Hyderabad), Vadodara (Gujarat), Varanasi (UP) and in eastern India, with each having a production capacity of 5, cases per day with a CAPEX of 5 crs through QIP process. Key Management Personnel Name & Designation Mr.Dhirendra Singh Chariman and MD Mr. Abhishek Singh Whole time Director Brief Profile He founder of Manpasand Beverages Limted. He holds a BA degree and was previously employed at ONGC and Petrofils Ltd. He has 15 years of experience in the food and beverages Industry. He holds an BE degree in Food Technology and has three years of experience in the food and beverages industry.

6 FINANCIAL PERFORMANCE (Rs. In Crs) Profit and Loss (Rs. Cr) FY16 FY17E FY18E FY19E Balance Sheet (Rs. Cr) FY16 FY17E FY18E FY19E Net sales , ,69.5 Share Capital % Growth 55% 34% 5% 51% Reserve & Surplus , , ,443. Operating Expenses ,34.1 Networth ,18.7 1,293. 1,5.2 EBITDA Net deffered tax Liab EBITDA Margin 2% 2% 2% 21% Long term Borrowings Depn & Amort Long term Liabilities (.7) Other Income Long term Provision Interest Total Loans (.7) Loss on FC Trade payable PBT Provisions Tax Current Liab Adj PAT Short term Borr PAT Margin 9% 11% 11% 13% Other Long term Liab Shares o/s ( No.in Cr.) Capital Deployed ,26.1 1, ,679.3 Adj EPS Net Fixed Assets Cash EPS Capital Work In progress Qterly (Rs. Cr) Q4FY16 Q1FY17 Q2FY17 Q3FY16 LT Loans & Adv Revenue Cash & Bank EBITDA Inventories Depn & Amort Debtors Other Income Loans & Advances Loss on FC Other Current assets EBIT Capital Employed ,26.1 1, ,679.3 Interest Cash Flow FY16 FY17E FY18E FY19E PBT PBT Tax Add:Depreciation PAT Add:Interest EPS Less: Other Income (9.1) (1.) (15.) (15.) Performance Ratio FY16 FY17E FY18E FY19E Change in WC (19.3) (42.5) (65.6) (98.4) EBITDA Margin (%) Tax (6.2) (1.5) (14.6) (26.4) PAT Margin (%) CF from Operations ROE (%) CAPEX (238.7) (133.9) (6.) (15.) ROCE (%) WIP (2.9) (15.4) - - Sales Growth (%) Others Income PAT Growth (%) CF from Investing (232.4) (139.3) (585.) (135.) Per Share Data FY16 FY17E FY18E FY19E Change in equity capital BV Per Share Change in borrowings (116.3) Cash Per Share Interest Paid (5.7) Dividend Per Share Dividend paid (6.2) (6.2) (6.2) (6.2) Valuation Ratio FY16 FY17E FY18E FY19E Others (1.2) Price Earnings (x) CF from Financing (6.2) (6.2) EV/EBITDA (x) Net Chg in cash (442.6) 84.5 Price/BV (x) Cash at beginning Mkt cap/sales (x) Cash at end EV/Sales (x) Turnover Ratio (x) FY16 FY17E FY18E FY19E Valuation Ratio FY16 FY17E FY18E FY19E Debtors Days D/E (x) (.2) (.5) (.1) (.1) Creditors Days Interest Coverage (X) Inventory Days

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