Manpasand Beverages Limited (MBL) is tapping the capital markets with its fresh issue in a price band of Rs 290-320. The issue has opened on Wednesday the 24th of June and closes on Friday 26th of June. The company is raising Rs 400 crs which means the issue at the lower price band would be for 137.93 lac shares while at the higher band it would be for 125 lac shares.

The company has completed its allocation to anchor investors where there are a total of 11 anchors comprising of 30 entities who were allotted 60% of the QIB portion. The allocation in this issue is 75% for QIB’s, 15% for HNI’s and 10% for retail. This effectively means that 45% of the entire book has already been allotted to anchors at the top end of the price band of Rs 320 and Rs 180 crs received.

MBL is in the business of fruit drink manufacturing with a primary focus on mango drink. In India mango based fruit drinks are the leading fruit drink and would account for a very dominant market share as high as 85% of the fruit drinks market. Fruit drinks or fruit juices market comprises of drinks where fruit pulp constitutes upto 24% of juice. This segment has been growing at a 23.4% CAGR over the last 5 years (2009-2014) and is expected to grow at 21.8% CAGR in the period 2014-2019.

The main objects of the issue are three fold where it is to fund a new expansion at Ambala in Haryana state. Secondly modernise the existing Vadodara and Varanasi facilities and thirdly to repay certain debt that the company has. The estimated amounts for the same are Rs 153 crs for new expansion at Haryana, Rs 39 crs for modernisation and Rs 100 crs for repayment of existing debt.

Fruit juice business is highly seasonal and the bulk of the sales happens in the first half of the calendar year which corresponds to the 1st quarter and 4th quarter of the financial year. Typically manufacturer’s ramp up operations from the beginning of January and continue to June. The company has been reporting a very robust growth in sales. Total revenue has increased fromRs 240.56 crs for the year ended March 2013 to Rs 294.36 crs in March 2014 and Rs 239.47 crs in the nine month period ended December 2014.. A simple annualising of numbers for the year March 2015 would bring sales to Rs 319.29 crs without the seasonality factor. Assuming the seasonality factor it would be prudent to assume that sales could be anywhere between Rs 330-350 crs and a conservative figure would be Rs 335-340 crs.

The Profit after tax or PAT for the corresponding periods was Rs 22.41 crs, Rs 20.43 crs and Rs 12.68 crs. The Baroda facility has gone on stream as of 1st April 2015 adding to the capacity significantly and would contribute fully in the financial year 2015-16.

The company sells its products under the brand “Mango Sip” which is the flagship brand. In July14 two new product ranges were introduced under the brand “Fruits Up” which was a carbonated fruit drink and part of the premium segment and Manpasand ORS which was a health drink. Its early days for these products and while the initial success of the same id visible the actual demand and growth of these new product lines would be visible in the coming few quarters. The company has also launched a packaged water product.

MBL has a very strong presence in the institutional sales segment where its products are available and sold/served on the Indian Railways. Premium trains serve breakfast/lunch/dinner and snacks which are prepaid and also one has employees of the railway catering company selling products on the train. Secondly the railway stations are big consumers of various food stuffs. MBL is an approved manufacturer for IRCTC and does between 20-25% of its turnover to this single consumer. The beauty of this segment is that the demand just keeps growing and though seasonality is a factor for other markets, while travelling one consumes the drink as it typically comes as part of a package. The product becomes a big advertisement for the company and benefits the company immensely. The product is supplied across the entire network and is an assured sale.

MBL is not a market leader in the segment and certainly does not enjoy pricing power in the same. One has competition from various players some of whom have deep pockets for advertising as well. In such a scenario having 20-25% assured market from one single customer who wants timely delivery across the network and assured supplies throughout the year is a win-win situation for both the consumer and the manufacturer.

There are no listed players in this segment so comparing this company becomes difficult. On a rough cut number if one were to look at the numbers as mentioned by the company in the issue advertisement the EPS and PE make the issue look expensive based on the nine month numbers. What one has to factor in is that the second round of investment by the private equity players which has come in July and August 2014 is around Rs 230. Post this round of investment the company has successfully commissioned the Vadodara2 plant and operated it for close to three months from the beginning of this financial year. Secondly the strong anchor book and interest shown by QIB’s indicates the confidence that institutional investors have in this FMCG product.

Fruit juice is no rocket science technology and is a simple product to manufacture. It’s all about logistics and managing the supply chain. With units in Vadodara, Varanasi, Dehradun and an upcoming one in Ambala, the company has its hands full currently for next 4-6 quarters. Operating these plants to their optimum levels will see the turnover moving up from the expected FY15 topline of around Rs 335-340 crs doubling in FY17. While margins would be under pressure as the company ramps up even further as advertising and marketing expenses would rise, a PAT margin of between 9-10% is easily achievable.

I believe that investing in this company would be rewarding provided one looks at the investment from a longer term and invests with a minimum period of 12 months.

SEBI Disclaimer: – I intend to subscribe in the retail category.