Business Analysis & Valuation Report

Varun Beverages Ltd.

Prepared By: Krushna Akele

Company Overview
Introduction Product Wise Breakup
Varun Beverages Ltd (herein referred as VBL) was incorporated on
16th June 1995 at New Delhi as a public limited company under the 5%
Companies Act, 1956. The company obtained a certificate of
commencement of business on 4 July 1995. The company started its 23%
operations at Jaipur in 1996. In 1999, the company started
operations at Alwar, Jodhpur and Kosi.

It is part of the RJ Corp group, a diversified business conglomerate

with interests in beverages, quick-service restaurants, dairy and 72%
healthcare, is the second largest franchisee in the world (outside US)
of carbonated soft drinks (CSDs) and non-carbonated beverages
(NCBs) sold under trademarks owned by PepsiCo. The company
produces and distributes a wide range of CSDs, as well as a large Juice-Based Drinks Packaged Drinking Water Carbonated Soft Drinks
selection of NCBs, including packaged drinking water.

Business Presence
Share Price Performance
The Company has presence in 27 States and 7 Union Territories in 1400
India and 5 other countries across the world viz. Nepal, Sri Lanka, 1300
Morocco, Zambia & Zimbabwe. Further, It is having 37 manufacturing 1200
facilities, of which 31 are in India and 6 in International Geographies 1100
with more than 2,500 owned vehicles, more than 2,000 primary
1000
distributors and more than 100 depots.
900
Key Products/Brands 800
700
PepsiCo CSD brands produced and sold by the company include
Pepsi, Diet Pepsi, Seven-Up, Mirinda Orange, Mirinda Lemon, 600
Mountain Dew, Seven-Up Nimbooz Masala Soda, Evervess Soda, Sting 500
3-2023
1-2023
2-2023
2-2023

3-2023
4-2023
5-2023
5-2023
5-2023
6-2023
6-2023
7-2023
8-2023
8-2023
9-2023
9-2023
10-2023
10-2023
11-2023
11-2023
12-2023
12-2023
1-2024
1-2024
and Gatorade. PepsiCo NCB brands produced and sold by the
company include Tropicana (100%, Essentials & Delight), Tropicana
Slice, Tropicana Fruitz, Seven-Up Nimbooz and brand Aquafina.
2
Global Economy
Overview Global GDP Projections (%)
The global economy continues to recover slowly from the blows of
0.50% 2.50% 4.50% 6.50% 8.50%
the pandemic, Russia’s invasion of Ukraine, and the cost-of-living
crisis. In retrospect, the resilience has been remarkable. Despite the 3.50%
disruption in energy and food markets caused by the war, and the World

unprecedented tightening of global monetary conditions to combat

decades-high inflation, the global economy has slowed, but not 2.60%
Advanced Economics
stalled. Yet growth remains slow and uneven, with growing global
divergences. The global economy is limping along, not sprinting.
Global activity bottomed out at the end of last year while inflation— 4.10%
Emerging Economics
both headline and underlying (core)—is gradually being brought
under control. But a full recovery toward pre-pandemic trends
appears increasingly out of reach, especially in emerging market and Euro Aread
3.30%
developing economies.

According to IMF’s latest projections, global growth will slow from 2.10%
US
3.5 percent in 2022 to 3 percent this year and 2.9 percent next year, a
0.1 percentage point downgrade for 2024 from our July projections.
1.00%
This remains well below the historical average. Headline inflation Japan
continues to decelerate, from 9.2 percent in 2022, on a year-over-
year basis, to 5.9 percent this year and 4.8 percent in 2024. Core
1.10%
inflation, excluding food and energy prices, is also projected to UK
decline, albeit more gradually than headline inflation, to 4.5 percent
in 2024. As a result, projections are increasingly consistent with a
3.00%
“soft landing” scenario, bringing inflation down without a major China
downturn in activity, especially in the United States, where the
forecast increase in unemployment is very modest, from 3.6 to 3.9 7.20%
percent by 2025. India

But important divergences are appearing. The slowdown is more

2022A 2023P 2024P
pronounced in advanced economies than in emerging market and Source: IMF WEO
developing ones. 3
Indian Economy
Overview India vs Global GDP Growth (%)
The Indian economy has demonstrated tremendous resilience in the 7.20%
6.80% 6.50%
face of a challenging external environment. Despite the impact of a 6.30% 6.30%
tightening global monetary policy cycle, slowing global growth and 3.90%
elevated commodity prices, the economy is relatively well-positioned
to weather global headwinds compared to most other emerging
markets.
FY23 was an year of significant achievement for India, where it 2018 2019 2020 2021 2022 2023P 2024P
surpassed the UK to become 5th largest economy. India has posted
growth of 7.2% in FY23 which was above the global average of 3.5%.

Despite the global economic challenges viz post COVID impact, supply -5.80%

chain disruption, increased inflation and interest rate hikes, Indian India Global
economy was resilient towards growth which was fueled by
government initiatives on multiple fronts such as PLI scheme,
National Logistic reforms, increased infrastructure spending, robust Indian GDP Quarterly Growth
local demand, fast paced digitization. Actual vs Projected
16.00%
India will become the third largest economy by FY28, two years

15.20%
14.00%
earlier than projected, said SBI Research economists in a note. SBI

13.50%
economists said India will likely grow 8.1% in the first quarter of FY24, 12.00%
pushing the overall growth rate of 6.5%. India recorded a 13.5%
10.00%
growth in the first quarter of FY23. The forecast aligns with RBI
projections of 6.5% growth in FY24 but is more optimistic than the 8.00%

8.40%
8.40%
International Monetary Fund’s revised forecast of 6.1%. Earlier IMF

7.80%
7.70%
6.00%
revised its growth forecast upwards by 0.2 percentage points on the

6.30%
6.20%

6.10%
6.00%
5.40%
back of strong domestic investment.

4.00%

4.60%

4.60%
4.00%

4.10%

4.40%
2.00%
Indian economy is robustly progressing over becoming 3rd largest
economy with $5tn GDP.
Actual Projected
Source: World Bank – India Development Update – November 2022
4
Varun Beverages Ltd – Growth Story
Overview Volume Growth - In Billion Liters
India’s non-alcoholic beverages market may expand at a compound 5
annual growth rate of 8.7% to reach ₹1.47 trillion by 2030. 4.54 4.58
Carbonate Drinks market in India registered a positive compound 4.5 4.39
annual growth rate (CAGR) of 9.78% during the period 2016 to 2021 4.23
4.09
whereas, overall market grew at 14.5 % in terms of total sales 3.95
4 3.85 3.83
volume, and 13.72% in terms of total sales value. 3.69
3.6
3.53
The Indian soft drink market is expected to see significant growth as 3.5 3.36
3.2
consumption is anticipated to increase steadily, which will deliver 3.03
sustainable and healthy volume to the market. 3

The Indian beverages industry presents significant growth 2.5

opportunities in the future, driven by shifting population
demographics, rising spending power of young consumers,
accelerated urbanisation, and growing rural consumption. As 80% of
non alcoholic beverage sector in India is informal, it creates immense 2
Price per unit (In US$)
growth opportunities for organised player.
1.56 1.6
1.52 1.54
1.45 1.47 1.49
1.43
Consumers' changing preferences, coupled with innovation in 1.5 1.38 1.34 1.36
1.22 1.22 1.26
product packaging and sizing to improve affordability, has led to a
rise in the consumption of non-alcoholic beverages in the country
due to agile adaptability by the companies. 1

0.53
The main segments constituting the soft drinks market in India are 0.43 0.44 0.45 0.48 0.46 0.47 0.49 0.49 0.5 0.5 0.51 0.51 0.52

carbonates, juices, and bottled water. Carbonates is the largest 0.5

category in value terms but witnessed slow growth due to saturation

in the market, increasing health awareness and sector is also heavily
0
taxed to deter consumers from excessive consumption of sugary
beverages. Most non-alcoholic beverages are taxed at a standard rate
of 12-18% or at the highest rate of 28%.
CSD (at home) CSD (out of home)
5
Capacity Expansion Capex (In Crores)
VBL has limited capacity to meet the demand of Juices and Value 2000 1900
1750
Added Dairy (VAD) Beverages. Historically, company has done major 1800
growth capex of ~1000 Crores and ~2000 Crores in 2015 and 2019 1600
1400
respectively. For the year 2023, the company has committed the 1400
capex cash outflow of ~1900 Crores and Asset turn of 2x. The 1200
majority capex is greenfield to expand the capacity of CSD, Value 1000 809 815
733
added daily beverages, and Sport drinks which are high margin 800
536
products. 600
400
Further, the company has also done the brownfield capex of ~300 200
crores for international business and ~100 crores to purchase the 0
land for future capex. The company is aggressive about future capex
as the new products viz Dairy and Juices which has growth potential
and uncaptured geographies.

Market Dominance Operating Efficiency

The company has focused to acquire market share in unchartered or
less penetrated territories through efficient go to market execution.
Sighting which, the company has recently commissioned its Bihar
plant and it has started gaining the market share.
Positive Demographic Characteristics
India has a large young population with individuals in the group of
15-64 years making up the majority of the overall population, which
creates a sizable workforce to support economic growth. Due to the
shifting population demographics, the rising spending power of
young consumers, accelerated urbanization, and growing rural
consumption, are likely to drive the demand for soft drinks in India.
The company has control over end to end value chain such as
Manufacturing, distribution, customer management, in-market
execution, cost efficiencies, and cash management. This lead to
superior and robust margins with contribution of highly efficient
manufacturing systems and distribution network.
Rapid Urban Growth and Increasing Earnings
Over 50% of India’s population falls within the working age group,
resulting in an increase in disposable income and a shift in
spending habits. Furthermore, the growing number of women
joining the workforce in India has led to higher family disposable
income, which has contributed to increased consumer spending.

6
Financials
Revenue Product Wise Revenue % Brand Wise Revenue %
The company has posted revenue of INR 13173 CRORE in CY 2022. 5%
The revenue has been growing at a CAGR of 22.70% and 26.9% 4%
10%
Juice-Based 23% Mountain
during the last 3 and 5 years respectively. The management is Drinks 47%
extremely optimistic on overall growth of Indian soft drink market Pepsi 17%
due to factors such as Increase in Household Income, Consumer Packaged Mirinda
Spending, Migration of population to urban areas, etc. Drinking
Water Seven-Up

The company was facing capacity constraints in Juices & Sports Carbonated
72% Others
Soft Drinks 22%
Juices, Value added dairy Beverages and sports drink, for which
company has done significant CAPEX (estimates triple the current
capacity) and betting on these product mix for the next leg of the Revenue Growth
growth. The company has given guidance of 26%.
30000 60%
49%

25000 50%
The Analyst consensus growth for CY23 is INR 16122 crores which is 40%
37%
40%
23.5% growth over the CY22 revenues of INR 13173 Crores, 20000 30%
21%
considering the challenges company might face such as unfavourable 15000
19% 17% 14% 20%
weather conditions, Health awareness, stringent marketing policies 10000 -10%
10%
by the government, increased tax rate etc. 0%
5000 -10%
We foresee the company would maintain the double digit growth of 0 -20%

21 % due to increase in popularity of its energy drink brand " sting"

and recent capex conducted by the company to tripe the capacity f
Revenue Chart
Sports drinks, Juices, dairy beverages which will be the main growth
main drivers for the company in next 2-5 years. Revenue YoY Growth %

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7
Gross Margins
An integral part of VBL’s strategy is to maximize cost efficiencies, While, historically the company has posted gross margins ~57% -
focusing on actively reducing the cost of goods sold, minimizing ~54% with median of 54.8% in the last 6 years. Basis our research,
operating expenses efficiently and increasing cash flows. It also the gross margin posted by non-alcoholic beverage sector in India
leverages on its scale of operations to achieve better bargaining was 52.2% by the sector in global emerging markets was43.7% and
power with suppliers, resulting in better working capital global sector margin was 49.13%.
management. The Company is focused on optimally utilizing its
assets to help achieve higher operating efficiency and to amortize The reduction in margins during CY22 was majority due to
overheads costs on a wider case. inflationary pressure, we assume that margin will retract to ~54% in
short term which is also in line with street estimate of ~53.8% and
During CY22, Gross Margins were declined by 180 bps to 52.5% converge with global sector margin of ~49% in long term.
primarily due to a surge in PET preform prices by more than 30 %.
Despite inflationary pressures in raw material costs, gross margins
were minimally impacted during the year due to early stocking of Gross Margin
crucial raw materials and an increase in realizations as explainned by
the management. 58% 57%
56.0%
The raw material constitutes ~90%+ of the total cost of goods sold 56% 55.0% 54.8% 54.8%
and ~45% of the revenues. The major cost of the raw material is 54%
54%
sugar and PET chips which have faced inflationary pressure in CY22. 52% 53%

52% 52%
The sugar production in India is more than its consumption and 50%
exports of sugar from India has been increase to fifth year straight. It 50%
is unlikely that the country will face shortage of sugar and witness
spike in sugar prices. Further, inflationary cycle is expected to slow 48%
down in coming years which should keep the price of sugar in check.
46%

The company has done Backward integration to increase efficiency

by reducing packaging cost and also focused on economy of scale to
have better bargaining power with raw material suppliers.

8
SG&A Expenses SG&A % Revenue
During CY22, the company has reported EBITDA margin of 21.3% 4500
38%
40%
which is 230bps higher than CY21 (19.0%). The reason for rise in 4000
36%
EBITDA margin is softening of key raw material prices. The 3500
34% 35%
management is determined to keep operating expenses in check and 3000 34% 34% 35%
has given EBITDA Margin of ~21-22%. 2500
2000 30% 31%
1500 29% 29% 30%
Basis our research, we have identified that historically, SG&A
1000
expenses is 33.9% of revenue where four expenses viz Employee 500
Benefits, Power & Fuel, Selling & Distribution, Other SG&A Expenses 0 25%
contributes ~86.4%of total SG&A expenses. These four key expenses
are directly linked in with sales.
SG&A Expense SG&A % Revenue
We assumed SG&A expenses at 33.9% level as % of revenues, which
is also in line with the street estimate and management guidance.

Inventory Inventory Days

The company increase inventory levels during Oct-Dec Quarter and 2500 150
Jun-March Quarter to prepare for season demand. Also during this 131
2000 123 130
period resin prices are cheapest, thus company gets an edge in gross 116
profitability by restocking the raw material. The company follows 1500 103 110
100
90 94
same strategy for PET chips also to increase overall efficiency. 89
1000 77 90
75
Historically, the company is maintaining inventory levels at ~12.5% of 500 70
Revenues. With inventory turnover ration being consistent around 0 50
8.7x and inventory days of 42.

We assume our inventory levels to go up by 6 days from 48 days to Inventory Inventory Days (COGS)
54 days in year 2023 & 2024 due to new products launched by the
company in energy drink, value based dairy, sports drink and juices,
for which company may increase the company levels. Post that
inventory levels are expected to normalize at 48 days. 9
Trade Receivables Trade Receivable Days
The company usually has increased receivable levels during April- 350 14 16
June Quarter due to seasonality. The company has robust collection 14 14
300 12 14
mechanism due to which receivable levels were normalized by the 11 10 12
250
end of the year. Further ~84% of receivable were due for less than 6 9 9 9 10
200 8
months and company is not exposed to any significant credit risk 8
150
from a single counterparty. The company has policy to deal with 6
creditworthy counterparties whose security deposit is kept with the 100 4
company at the time of onboarding. 50 2
0 0
The receivables are spread across larger number of customer at
various scale and geographies. We don't foresee any significant credit
impairment by the company in near future. Historically, the company Trade Receivable Receivable Days
is maintaining receivable levels at ~2.8% of the revenues. With
median receivable turnover ratio of ~35.0x and inventory days at 10.
Further, street estimates suggest the receivable levels to remain flat
from existing receivable days with consensus estimate of 9.5 days.

We assume receivable levels to be flat at 10 days. Trade Payables Days

900 80
Trade Payables 800 68 64 70
700 58 54
Company has maintained consistent payable of ~50 - 51 days except 52 60
600 48 48 50
COVID year where the payables were delayed. However, in year 500
42 39 39
2022, the payables were reported to normal level of 48 days. The 400
40
Trade Payables is~14% of COGS and 7% of Revenue. 30
300
200 20
Further, street estimate suggests the payable levels to remain flat 100 10
from existing receivable days. 0 0

In absence of management guidance and basis our research, we

assume the payable days to remain at 50 days. Trade Payables Trade Payable Days

10
Borrowings Long Term and Short Term Borrowings
In the recent years, the company has substantially reduced the long
100%
terms debt from ~ 83% of the total debt in year 2017 to 47% in year 90% 17.3% 16.0% 16.5%
25.2% 26.5%
2022 with Debt to Equity ratio is consistent at 0.8x, Debt to Capital 80% 45.7%
ratio 0.5x, Debt to Asset Ratio at 0.3x and Debt to EBITDA Ratio of 70%
53.3%

2.0x. The management provided the guidance to reduce Debt to 60%

EBITDA ratio at 1x from 1.3x in year 2022. 50%
84.0% 83.4%
40% 74.8%
82.7%
73.5%

The management is committed to reduce the debt levels further in 30% 54.3%
46.7%
future. Also the company has increased the usage of short term 20%
10%
borrowings to fund its cyclical operations. Due to which debt levels
0%
are usually high preseason (December) and at the lowest level post
season (June). The company has guided for debt levels at constant in
short-term. We foresee the long term debt to grow by 5% for the LTB % TB STB % SB
next three years due to higher capex and eventually grow at 1% for
the future. Also, the short term debt to grow at 10% of the revenue.

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11
3 Statement Model
1. Income Statement
Actual Explicit Forecast Period Maturity Period
In INR Crores unless stated otherwise FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032

Revenue 5,105 7,130 6,450 8,823 13,173 15,939 18,928 22,051 25,194 28,217 31,603 35,395 39,643 44,400 49,728
Less: Cost of Goods Sold 2,244 3,219 2,764 4,035 6,261 7,332 8,944 10,695 12,534 14,391 16,117 18,052 20,218 22,644 25,361
Gross Profit 2,861 3,910 3,686 4,789 6,912 8,607 9,985 11,356 12,660 13,826 15,485 17,344 19,425 21,756 24,367

Gross Margin 56.0% 54.8% 57.1% 54.3% 52.5% 54.0% 52.8% 51.5% 50.3% 49.0% 49.0% 49.0% 49.0% 49.0% 49.0%

Less: Selling & General Expenses

(Excluding Depreciation & Interest)
Employee Benefit Expenses 583 811 890 1,008 1,217 1,769 2,101 2,448 2,796 3,132 3,508 3,929 4,400 4,928 5,520
Power & Fuel Expense 195 279 267 330 479 622 738 860 983 1,100 1,233 1,380 1,546 1,732 1,939
Selling and distribution exp 154 168 157 316 418 414 492 573 655 734 822 920 1,031 1,154 1,293
Other Operating Expenses 624 824 873 1,074 1,532 1,833 2,177 2,536 2,897 3,245 3,634 4,070 4,559 5,106 5,719
Other Misc. SG&A Expenses 299 381 297 406 478 685 814 948 1,083 1,213 1,359 1,522 1,705 1,909 2,138

EBITDA 1,006 1,448 1,202 1,654 2,788 3,284 3,663 3,991 4,245 4,402 4,930 5,522 6,184 6,926 7,758

EBITDA Margin % 19.7% 20.3% 18.6% 18.8% 21.2% 20.6% 19.4% 18.1% 16.9% 15.6% 15.6% 15.6% 15.6% 15.6% 15.6%

Less: Depreciation & Amortization 385 489 529 531 617 753 853 953 1,065 1,173 1,294 1,429 1,581 1,751 1,941
EBIT 621 959 673 1,123 2,171 2,531 2,810 3,038 3,180 3,229 3,636 4,092 4,603 5,175 5,816

EBIT Margin % 12.2% 13.5% 10.4% 12.7% 16.5% 15.9% 14.8% 13.8% 12.6% 11.4% 11.5% 11.6% 11.6% 11.7% 11.7%

Less: Interest 213 310 281 185 186 250 224 179 126 125 137 151 166 184 203
Add: Other Income 22 43 37 68 39 - - - - - - - - - -
Share of Profits /Loss of Associated
Companies Before Tax 3 4 - - (0) - - - - - - - - - -
Exceptional Items Before Tax - - (67) - - - - - - - - - - - -
Profit Before Tax 434 696 363 1,006 2,024 2,280 2,586 2,860 3,054 3,104 3,499 3,941 4,437 4,992 5,613

Less: Taxes 134 224 5 261 474 482 546 604 645 655 739 832 937 1,054 1,186
Net Income 300 472 358 746 1,550 1,799 2,040 2,256 2,409 2,448 2,760 3,109 3,500 3,937 4,428

Revenue Growth % - 39.7% -9.5% 36.8% 49.3% 21.0% 18.8% 16.5% 14.3% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%
Gross Profit Margins % 56.0% 54.8% 57.1% 54.3% 52.5% 54.0% 52.8% 51.5% 50.3% 49.0% 49.0% 49.0% 49.0% 49.0% 49.0%
EBITDA Margins % 19.7% 20.3% 18.6% 18.8% 21.2% 20.6% 19.4% 18.1% 16.9% 15.6% 15.6% 15.6% 15.6% 15.6% 15.6%
EBIT Margins % 12.2% 13.5% 10.4% 12.7% 16.5% 15.9% 14.8% 13.8% 12.6% 11.4% 11.5% 11.6% 11.6% 11.7% 11.7%
Actual Tax Rate % 30.9% 32.2% 1.4% 25.9% 23.4% 21.1% 21.1% 21.1% 21.1% 21.1% 21.1% 21.1% 21.1% 12
21.1% 21.1%
Net IncomeMargin % 5.9% 6.6% 5.5% 8.5% 11.8% 11.3% 10.8% 10.2% 9.6% 8.7% 8.7% 8.8% 8.8% 8.9% 8.9%
2. Balance Sheet
Actual Explicit Forecast Period Maturity Period
In INR Crores unless stated otherwise FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032

Assets
Non Current Assets:
Property, Plant & Equipements 3,860 5,893 5,827 5,155 5,442 6,704 7,366 7,928 8,550 9,003 9,517 10,099 10,757 11,500 12,337
Right-of-Use Assets - - - 582 916 831 747 662 578 493 409 324 240 155 71
Capital Work in Progress 352 64 67 497 607 - - - - - - - - - -
Goodwill 19 242 242 242 242 242 242 242 242 242 242 242 242 242 242
Investments in Subsidiaries, Associates
and Joint venture 11 - - - - - - - - - - - - - -
Other Intangible Assets 507 344 339 341 333 302 271 241 210 179 149 118 87 56 26
Non Current Financial Assets 21 45 42 42 49 49 49 49 49 49 49 49 49 49 49
Other Non Current Assets 86 115 130 184 627 627 627 627 627 627 627 627 627 627 627
Deferred Tax Assets 33 13 11 2 - - - - - - - - - - -
Total Non Current Asset 4,891 6,717 6,659 7,045 8,214 8,755 9,302 9,749 10,255 10,593 10,992 11,459 12,002 12,629 13,352

Current Assets:
Cash 43 138 105 151 154 448 1,264 1,463 2,369 3,826 5,405 7,166 9,134 11,331 13,787
Bank 51 33 85 186 131 131 131 131 131 131 131 131 131 131 131
Inventory 578 882 929 1,448 1,994 2,358 2,800 2,900 3,313 3,711 4,156 4,655 5,213 5,839 6,540
Trade Receivables 128 173 242 221 299 437 519 604 690 773 866 970 1,086 1,216 1,362
Other Current Assets 341 447 439 531 825 478 568 662 756 847 948 1,062 1,189 1,332 1,492
Total Current Assets 1,141 1,672 1,800 2,537 3,403 3,852 5,282 5,760 7,259 9,287 11,505 13,984 16,753 19,850 23,311

Total Assets 6,031 8,388 8,458 9,582 11,617 12,607 14,584 15,509 17,514 19,881 22,498 25,443 28,755 32,479 36,663

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13
 Actual Explicit Forecast Period Maturity Period
In INR Crores unless stated otherwise FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032

Equity & Liabilities

Equity:
Share Capital 183 289 289 433 650 650 650 650 650 650 650 650 650 650 650
Other Equity 1,816 3,040 3,235 3,647 4,453 5,982 7,715 9,633 11,560 13,519 15,726 18,213 21,013 24,163 27,705
Total Stockholders’ Equity 1,999 3,328 3,524 4,080 5,102 6,631 8,365 10,282 12,210 14,168 16,376 18,863 21,663 24,813 28,355
Minority Interest 8 31 65 117 113 113 113 113 113 113 113 113 113 113 113
Total Equity 2,006 3,359 3,589 4,197 5,215 6,745 8,478 10,396 12,323 14,281 16,489 18,976 21,776 24,926 28,468

Non-Current Liabilities:

Long Term Borrowings 1,980 2,355 1,980 1,813 1,727 1,382 1,105 663 332 335 338 342 345 349 352
Lease Liabilities - - - 31 165 165 165 165 165 165 165 165 165 165 165
Other Financial Liabilities - Long Term - - 24 - - - - - - - - - - - -
Long Term Provisions 105 170 204 209 204 204 204 204 204 204 204 204 204 204 204
Deferred Tax Liabilities (Net) 192 283 226 311 337 337 337 337 337 337 337 337 337 337 337
Other Non-Current Liabilities 7 1 1 1 1 1 1 1 1 1 1 1 1 1 1
Total Non-Current Liabilities: 2,284 2,809 2,435 2,365 2,434 2,088 1,812 1,370 1,038 1,041 1,045 1,048 1,052 1,055 1,059

Current Liabilities:

Trade Payables 317 478 511 712 824 1,004 1,225 1,465 1,717 1,971 2,208 2,473 2,770 3,102 3,474
Short Term Borrowings 378 467 714 1,529 1,968 1,594 1,893 1,103 1,260 1,411 1,580 1,770 1,982 2,220 2,486
Lease Liabilities - - - 14 24 24 24 24 24 24 24 24 24 24 24
Others Financial Liabilities - Short
Term 851 1,026 854 393 559 559 559 559 559 559 559 559 559 559 559
Current Tax Liabilities - Short Term 33 15 4 14 76 76 76 76 76 76 76 76 76 76 76
Provisions 16 30 33 50 29 29 29 29 29 29 29 29 29 29 29

Total Equity and Liabilities 6,032 8,389 8,458 9,583 11,618 12,608 14,584 15,509 17,514 19,881 22,498 25,443 28,755 32,479 36,664

Net Working Capital (601) (549) (635) (485) (565) 78 988 2,016 3,106 4,729 6,541 8,565 10,825 13,351 16,174
Debtor Days 9 14 9 8 10 10 10 10 10 10 10 10 10 10
Inventory Days 37 51 49 48 54 54 48 48 48 48 48 48 48 48
Trade Payable Days 54 67 64 48 50 50 50 50 50 50 50 50 50 50

14
3. Cashflow Statement
Actual Explicit Forecast Period Maturity Period
In INR Crores unless stated otherwise FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032

Net Income (Profit Before Tax) 431 692 363 1,007 2,024 2,280 2,586 2,860 3,054 3,104 3,499 3,941 4,437 4,992 5,613
Add: Depreciation 385 489 529 531 617 753 853 953 1,065 1,173 1,294 1,429 1,581 1,751 1,941
Add: Interest Expense (Net) 199 297 264 171 163 250 224 179 126 125 137 151 166 184 203
Add: Other Items 109 35 45 (84) (55) - - - - - - - - - -
Less: Change in Working Capital (50) (85) (111) (269) (585) 25 (393) (39) (342) (317) (403) (451) (506) (566) (634)
Less: Taxes Paid (73) (120) (78) (124) (373) (482) (546) (604) (645) (655) (739) (832) (937) (1,054) 1,186)
Cash Flow from Operations 1,000 1,308 1,012 1,231 1,790 2,827 2,724 3,348 3,258 3,430 3,788 4,238 4,742 5,306 5,938

Net Purchase of Fixed Assets (809) (733) (536) (815) (1,750) (1,900) (1,400) (1,400) (1,571) (1,512) (1,693) (1,896) (2,124) (2,379) (2,664)
Addition of CWIP 607 - - - - - - - - -
Net Purchase of Investment - (73) - - - - - - - - - - - - -
Interest Received 6 5 9 13 23 - - - - - - - - - -
Acquisition of Companies - (8) - - - - - - - - - - - - -
Others (134) (1,583) 55 (205) (42) - - - - - - - - - -
Cash Flow from Investing Activities (937) (2,393) (472) (1,008) (1,769) (1,293) (1,400) (1,400) (1,571) (1,512) (1,693) (1,896) (2,124) (2,379) (2,664)

Net Proceeds from Long Term Borrowings 732 560 (460) 214 340 (345) (276) (442) (332) 3 3 3 3 3 3
Net Proceeds from Short Term Borrowings 24 89 247 (85) (1) (374) 299 (790) 157 151 169 190 212 238 266
Dividend Paid (46) (69) (72) (108) (162) (270) (306) (338) (482) (490) (552) (622) (700) (787) (886)
Interest Paid (189) (303) (277) (179) (172) (250) (224) (179) (126) (125) (137) (151) (166) (184) (203)
Net Proceeds from Issue of Debenture (300) - - - - - - - - - - - - - -
Proceeds from Share Issue 1 900 - - - - - - - - - - - - -
Redemption of Financial Liabilities - - (11) (19) (23) - - - - - - - - - -
Others (308) (69) - - - - - - - - - - - - -
Cash Flow from Financing Activities (84) 1,107 (574) (178) (18) (1,239) (507) (1,749) (782) (460) (517) (580) (651) (730) (818)

Net Change in Cash (22) 22 (33) 46 3 294 816 199 905 1,458 1,578 1,762 1,967 2,197 2,455
Opening Cash Balalance 65 43 138 105 151 154 448 1,264 1,463 2,369 3,826 5,405 7,166 9,134 11,331
Closing Cash Balance 43 65 105 151 154 448 1,264 1,463 2,369 3,826 5,405 7,166 9,134 11,331 13,787

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15
Common Size Statement
1. Income Statement
Actual Explicit Forecast Period
In INR Crores unless stated otherwise FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027

Revenue 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Less: Cost of Goods Sold 44% 45% 43% 46% 48% 46% 47% 49% 50% 51%
Gross Profit 56% 55% 57% 54% 52% 54% 53% 52% 50% 49%

Less: Selling & General Expenses

(Excluding Depreciation & Interest)
Employee Benefit Expenses 11% 11% 14% 11% 9% 11% 11% 11% 11% 11%
Power & Fuel Expense 4% 4% 4% 4% 4% 4% 4% 4% 4% 4%
Selling and distribution exp 3% 2% 2% 4% 3% 3% 3% 3% 3% 3%
Other Operating Expenses 12% 12% 14% 12% 12% 12% 12% 12% 12% 12%
Other Misc SG&A Expenses 6% 5% 5% 5% 4% 4% 4% 4% 4% 4%
0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
EBITDA 20% 20% 19% 19% 21% 21% 19% 18% 17% 16%

Less: Depreciation & Amortization 8% 7% 8% 6% 5% 5% 5% 4% 4% 4%

EBIT 12% 13% 10% 13% 16% 16% 15% 14% 13% 11%

Less: Interest 4% 4% 4% 2% 1% 2% 1% 1% 0% 0%
Add: Other Income 0% 1% 1% 1% 0% 0% 0% 0% 0% 0%
Share of Profits / Loss of Associated Companies Before Tax 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Exceptional Items Before Tax 0% 0% -1% 0% 0% 0% 0% 0% 0% 0%
Profit Before Tax 8% 10% 6% 11% 15% 14% 14% 13% 12% 11%

Less: Taxes 3% 3% 0% 3% 4% 3% 3% 3% 3% 2%
Net Income 6% 7% 6% 8% 12% 11% 11% 10% 10% 9%

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16
2. Balance Sheet
Actual Explicit Forecast Period
In INR Crores unless stated otherwise FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027

Assets
Non Current Assets:
Property, Plant & Equipment 64% 70% 69% 54% 47% 53% 51% 51% 49% 45%
Right of Use Assets 0% 0% 0% 6% 8% 7% 5% 4% 3% 2%
Capital Work in Progress 6% 1% 1% 5% 5% 0% 0% 0% 0% 0%
Goodwill 0% 3% 3% 3% 2% 2% 2% 2% 1% 1%
Investments in Subsidiaries, Associates and Joint venture 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Other Intangible Assets 8% 4% 4% 4% 3% 2% 2% 2% 1% 1%
Non Current Financial Assets 0% 1% 0% 0% 0% 0% 0% 0% 0% 0%
Other Non Current Assets 1% 1% 2% 2% 5% 5% 4% 4% 4% 3%
Deferred Tax Assets 1% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Total Non Current Asset 81% 80% 79% 74% 71% 69% 64% 63% 59% 53%

Current Assets:
Cash 1% 2% 1% 2% 1% 4% 9% 9% 14% 19%
Bank 1% 0% 1% 2% 1% 1% 1% 1% 1% 1%
Inventory 10% 11% 11% 15% 17% 19% 19% 19% 19% 19%
Trade Receivables 2% 2% 3% 2% 3% 3% 4% 4% 4% 4%
Other Current Assets 6% 5% 5% 6% 7% 4% 4% 4% 4% 4%
Total Current Assets 19% 20% 21% 26% 29% 31% 36% 37% 41% 47%

Total Assets 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

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17
 Actual Explicit Forecast Period
In INR Crores unless stated otherwise FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027

Equity & Liabilities

Equity:
Share Capital 3% 3% 3% 5% 6% 5% 4% 4% 4% 3%
Other Equity 30% 36% 38% 38% 38% 47% 53% 62% 66% 68%
Total Stockholders’ Equity 33% 40% 42% 43% 44% 53% 57% 66% 70% 71%
Minority Interest 0% 0% 1% 1% 1% 1% 1% 1% 1% 1%
Total Equity 33% 40% 42% 44% 45% 53% 58% 67% 70% 72%

Non-Current Liabilities:

Long Term Borrowings 33% 28% 23% 19% 15% 11% 8% 4% 2% 2%

Lease Liabilities 0% 0% 0% 0% 1% 1% 1% 1% 1% 1%
Others Financial Liabilities - Long-term 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Long-term Provisions 2% 2% 2% 2% 2% 2% 1% 1% 1% 1%
Deferred Tax Liabilities (Net) 3% 3% 3% 3% 3% 3% 2% 2% 2% 2%
Other Non-Current Liabilities 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Total Non-Current Liabilities: 38% 33% 29% 25% 21% 17% 12% 9% 6% 5%

Current Liabilities:

Trade Payables 5% 6% 6% 7% 7% 8% 8% 9% 10% 10%

Short Term Borrowings 6% 6% 8% 16% 17% 13% 13% 7% 7% 7%
Lease Liabilities 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Others Financial Liabilities - Short-term 14% 12% 10% 4% 5% 4% 4% 4% 3% 3%
Current Tax Liabilities - Short-term 1% 0% 0% 0% 1% 1% 1% 0% 0% 0%
Provisions 0% 0% 0% 1% 0% 0% 0% 0% 0% 0%
Other Current Liabilities 2% 2% 4% 3% 4% 4% 3% 3% 3% 2%
Total Current Liabilities 29% 26% 29% 32% 34% 30% 29% 24% 24% 23%

Total Equity and Liabilities 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

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18
Valuation
Objective
The objective is to reach at the intrinsic value of VBL’s stock. The
analysis aims to assist the company’s worth basis its ability to
generate cash flows, future growth and risk associated with the
business. We have carefully considered management’s guidance
while performing this analysis.
Valuation Methodology
There are primarily three approaches in Valuation (viz., Cost
Approach, Market Approach, and Income Approach.)
For any valuation, all the approaches may not be relevant and
therefore will not give a fair estimate of value. Hence, the approach
most suitable for specific business/company must be applied in the
valuation exercise based on common practices.
The three approaches generally adopted in valuation are as under:
• Market Approach: Comparable Companies Method and
Comparable Transaction Method.
• Asset Approach: Net Asset Value Method.
• Income Approach: Discounted Cash Flow Method.
1. Market Approach
Under this approach, we measure the value of business of the
company by applying the market multiples of listed companies which
trade actively and posses attributes similar and comparable with the
target company. This methodology is based on the principle that such
market pricing taking place between informed buyers and informed
sellers while taking into account all the relevant factors.
Not all multiples are applicable to every company. Therefore, the
relevant multiples should be chosen carefully and adjusted for
differences between the comparable. For the purpose of valuation
of VBL, we have chosen EV/EBITDA multiple.
2. Asset Approach
Under this approach, the value of business is derived basis
difference between the value of assets and liabilities. This approach
focuses on determining the value of net assets from the
perspective of equity valuation. The value of net assets can be
determined as follows:
Net assets = Total Assets – Total External Liabilities. The value of net
assets is also known as Total Equity.
3. Income Approach
Under this approach, the value of business is derived by considering
free cash flows, future growth and weighted average cost of capital
which signifies risk.
There are four major steps in Income Approach.
1. Forecasting future cash flows for explicit growth period.
2. Discounting these cash flows to present value at the rate of
return which depicts the risk in realizing the future cash flows
and expected growth,
3. Calculation of terminal value of free cash flows post explicit
growth period.
4. Addition of present value of terminal cash flows and free cash
flows and free cash flows during explicit forecast period.
19
DCF Valuation
Actual Explicit Forecast Period
In INR Crores unless stated otherwise FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032

Free Cash Flow to Firm

EBITDA 1,202 1,654 2,788 3,284 3,663 3,991 4,245 4,402 4,930 5,522 6,184 6,926 7,758
Less: Depreciation & Amortization (529) (531) (617) (753) (853) (953) (1,065) (1,173) (1,294) (1,429) (1,581) (1,751) (1,941)
EBIT 673 1,123 2,171 2,531 2,810 3,038 3,180 3,229 3,636 4,092 4,603 5,175 5,816
Less: Tax (5) (261) (474) (482) (546) (604) (645) (655) (739) (832) (937) (1,054) (1,186)
EBIT (1-T) 668 863 1,697 2,049 2,264 2,434 2,535 2,573 2,897 3,260 3,666 4,121 4,631
Add: Depreciation & Amortization 529 531 617 753 853 953 1,065 1,173 1,294 1,429 1,581 1,751 1,941
Cash NOPAT 1,197 1,394 2,315 2,802 3,117 3,387 3,600 3,746 4,191 4,689 5,247 5,872 6,572
Less: Reinvestments
Change in Working Capital (111) (269) (585) 25 (393) (39) (342) (317) (403) (451) (506) (566) (634)
Capex During the Year (536) (815) (1,750) (1,900) (1,400) (1,400) (1,571) (1,512) (1,693) (1,896) (2,124) (2,379) (2,664)
Free Cash flow to Firm 550 310 (20) 927 1,324 1,948 1,687 1,918 2,095 2,342 2,618 2,927 3,274

Discount Period (Years) Mid Year ? Yes 0.5 1.5 2.5 3.5 4.5 5.5 6.5 7.5 8.5 9.5
Discount Rate(WACC) 10%
PresentValue Factor 0.953 0.867 0.788 0.716 0.651 0.592 0.538 0.489 0.445 0.404

Present Value of Free Cash Flow to Firm 884 1,147 1,535 1,209 1,249 1,240 1,260 1,281 1,302 1,324

DCF Calculation - Perpetuity Growth DCF Calculation - Exit Multiple

WACC
Market Price - 9% 10% 11% 12% 13% 14%
Perpetual Growth Rate 4.97% Exit Multiple 16.0x INR 185,041 Crs

Terminal Growth %
4% 48862 39464 32779 27789 23928 20856
Terminal Year FCFF*(1+PGR) 3,436 Terminal Year EBITDA 4,402
Terminal Value 68,260 Terminal Value 70,429 5% 60968 47281 38189 31721 26893 23155
Present Value of Terminal Value 44,453 Present Value of Terminal Value 45,865 6% 81146 59007 45762 36964 30704 26030
Intrinsic Value
Present Value of FCFF's 6,024 Present Value of FCFF's 6,024 7% 121501 78549 57122 44303 35786 29725
INR 46,963 Crs
Enterprise Value 50,477 Enterprise Value 51,890 8% 242567 117635 76056 55312 42900 34653
Implied Exit Multiple 11.5x Implied Exit Multiple 11.8x
Implied EV/EBITDA 18.1x WACC
Implie EV/EBITDA 18.6x
Less: Debt (3,695) Less: Debt (3,695) WACC - 9% 10% 11% 12% 13% 14%
Add: Cash 285 Add: Cash 285 10% 13.0x 41641 39931 38302 36751 35273 33863

Exit Multiple
Less: Minority Interest (113) Less: Minority Interest (559) 14.0x 44628 42797 41054 39394 37812 36304
Add: Non Operating Asset 49 Add: Non Operating Asset 650 15.0x 47615 45664 43807 42038 40352 38745
Equity Value 47,003 Equity Value 48,571 Terminal Growth 16.0x 50602 48530 46559 44681 42892 41186
Less: Value of Equity Options (40) Less: Value of Equity Options (40) 5% 17.0x 53588 51397 49311 47324 45431
20 43627
Equity Value for Shareholders 46,963 Equity Value for Shareholders 48,530
Weighted Average Cost of Capital (WACC)
WACC Inputs
Country India Debt to Capital (Gearing) 0.4147
Local Currency 10Y Government Bond Yield 7.32% Marginal Tax Rate Company Credit Rating available? 25.00%
India's Moodys Soveriegn Rating Baa3 Company Credit Rating Available? No
Credit Default Spread as per Dr Damodaran 2.35% Company is Large Firm or Small Firm? Small
Implied US Equity Risk Premium 4.39% Provide Credit Rating Aaa/AAA
Asset Beta 0.4 Interest Coverage Ratio 11.7
Asset Beta Variation (+/-) 0.05 ICR Based Spread 0.007
Debt to equity Ratio 72% Small Size Premium 0%

Particulars Low Mid High Risk Free Rate

We have considered 4.97% as the risk free rate in estimation of Cost of Equity of 9.62%.
Risk Free Rate 4.97% 4.97% 4.97% The Risk Free Rate of India is calculated by considering local currency 10 Years
Equity Risk Premium 6.74% 6.74% 6.74% Government Bond Yield adjusted for Default Spread of India.
Asset Beta 0.35 0.40 0.45
D/E Ratio 0.72 0.72 0.72 Asset Beta
Equity Beta 0.54 0.69 0.78 We have estimated an asset beta range of 0.35 to 0.45, with a mid point of 0.40 based
CAPM Cost of Equity 8.60% 9.62% 10.20% on observed median of 5 year monthly asset beta of benchmark listed companies
adjusted for the Blume effect.
Small Size Premium 2.70% 2.70% 2.70%
Asset Specific Premium 0.00% 0.00% 0.00% Equity Risk Premium (ERP)
Modified Cost of Equity 11.30% 12.32% 12.90% An ERP of 6.74% has been adopted based on US implied Equity Risk Premium, Relative
Equity Volatility of ICE BoFA Public Sector Issue Emerging Mkts Index, S&P Emerging BMI
Pre Tax Cost of Debt 8.02% 8.02% 8.02% Index and country risk premium of India.
Marginal Tax Rate 25.12% 25.12% 25.12%
Post Tax Cost of Debt 6.00% 6.00% 6.00% Cost of Debt
For the purpose of assessing the cost of debt, we have used country's Risk Free,
Capital Gearing (D/D+E) 41.47% 41.47% 41.47% Country's Default Spread & Corporate Default Spread based on company's debt rating
Weighted Average Cost of Capital 9.11% 9.70% 10.04% and interest coverage ratio.
Weighted Average Cost of Capital (Rounded) 10.00% 10.00% 11.00%
Small Size Premium
Empirically small sized assets have exceeded the returns as compared to large sized
1. Tax Rate considered as Marginal Tax Rate of India. assets. We have used the study on size premium conducted by Incwert which is based
2. Asset Beta is considered as median of 5 years beta of comps adjusted for the Blume effect. on
3. Equity Beta= Asset Beta*{1+(1-Tax Rate%)*Debt/Equity} difference between Actual Returns & CAPM Expected Returns arranged in decile basis
market capitalization of Indian companies.
21
Beta Analysis
Beta Analysis - 2 Years Weekly
25.12%
No. of Weekly Market Asset 2 Years Avg Equity 2 Years Avg
Comparable Company Ticker Observation Cap Beta D/E Beta D/D+E Considered ?

PepsiCo.Inc NasdaqGS:PE 104 23235 0.17 240% 0.47 66% Y

The Coca-Cola Company NYSE:KO 104 245311 0.24 164% 0.52 58% Y
Rormento Economico mexicano, S.A.B.de.C.V. BMV:FEMSA I 104 38947 0.10 84% 0.17 38% N
Coca-Cola Europacific Parteners PLC ENXTAM:CCE 104 28049 0.24 162% 0.54 52% Y
Coca-Cola FEMSA, S.A.B.de.C.V. NYSE:KOF 104 17132 0.34 64% 0.51 35% Y
Coca-Cola HIB AG LSE:CCH 104 9642 0.36 101% 0.63 52% Y
Suntory Beverage & Food Limited TSE:2587 104 9443 0.10 12% 0.11 8% N
Monster Beverage Corporation NasdaqGS:MI 104 57806 0.57 1% 0.58 0% Y
Coca-Cola Bottlers Japan Holding Inc. TSE:2579 104 2394 - 38% - 29% N
Coca-Cola Icecek Anonim Sirketi IBSE:CCOLA 104 3751 0.11 91% 0.19 44% N

Median - Broad Set 0.24 88% 0.51 41%

Average - Broad Set 0.25 96% 0.41 38%

Median - Considered Set 0.17 0.84 0.47 0.38

Average - Considered Set 0.19 1.12 0.36 0.40
Beta Analysis - 5 Years Monthly

No. of Weekly Market Asset 5 Years Avg 5 Years Avg

Comparable Company Ticker Observation Cap Beta D/E Equity Beta D/D+E Considered ?

PepsiCo.Inc NasdaqGS:PE 60 23235 0.58 240% 0.47 66% Y

The Coca-Cola Company NYSE:KO 60 245311 0.60 164% 0.52 58% Y
Rormento Economico mexicano, S.A.B.de.C.V. BMV:FEMSA I 60 38947 0.43 84% 0.17 38% N
Coca-Cola Europacific Parteners PLC ENXTAM:CCE 60 28049 0.71 162% 0.54 52% Y
Coca-Cola FEMSA, S.A.B.de.C.V. NYSE:KOF 60 17132 0.79 64% 0.51 35% Y
Coca-Cola HIB AG LSE:CCH 60 9642 0.90 101% 0.63 52% Y
Suntory Beverage & Food Limited TSE:2587 60 9443 0.061 12% 0.11 8% N
Monster Beverage Corporation NasdaqGS:MI 60 57806 0.826 1% 0.58 0% Y
Coca-Cola Bottlers Japan Holding Inc. TSE:2579 60 2394 - 38% - 29% N
Coca-Cola Icecek Anonim Sirketi IBSE:CCOLA 60 3751 0.55 91% 0.19 44% N

Median - Broad Set 0.60 88% 0.51 41%

Average - Broad Set 0.60 96% 0.41 38%

Median - Considered Set 0.58 0.84 0.47 0.38

Average - Considered Set 0.51 1.12 0.36 0.40
22
Blume Beta Analysis - 5 Years Monthly

2/3 - Beta + 1/3*Market Beta

No. of Weekly Market Asset 5 Years Avg Equity 5 Years AvG

Comparable Company Ticker Obseravaiton Cap Beta D/E Beta D/D+E Considered ?

PepsiCo.Inc NasdaqGS:PE 60 23235 0.23 240% 0.63 66% Y

The Coca-Cola Company NYSE:KO 60 245311 0.30 164% 0.66 58% Y
Rormento Economico mexicano, S.A.B.de.C.V. BMV:FEMSA I 60 38947 0.27 84% 0.44 38% N
Coca-Cola Europacific Parteners PLC ENXTAM:CCE 60 28049 0.30 162% 0.67 52% Y
Coca-Cola FEMSA, S.A.B.de.C.V. NYSE:KOF 60 17132 0.44 64% 0.65 35% Y
Coca-Cola HIB AG LSE:CCH 60 9642 0.42 101% 0.73 52% Y
Suntory Beverage & Food Limited TSE:2587 60 9443 0.37 12% 0.40 8% N
Monster Beverage Corporation NasdaqGS:MI 60 57806 0.70 1% 0.70 0% Y
Coca-Cola Bottlers Japan Holding Inc. TSE:2579 60 2394 - 38%- 29% N
Coca-Cola Icecek Anonim Sirketi IBSE:CCOLA 60 3751 0.27 91% 0.45 44% N

Median - Broad Set 0.30 88% 0.65 41%

Average - Broad Set 0.37 96% 0.59 38%

Median - Considered Set 0.30 0.84 0.63 0.38

Average - Considered Set 0.32 1.12 0.56 0.40

We have taken 0.40 as asset beta of bottling unit.

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23
Ratio Analysis
Actual Explicit Forecast Period
In INR Crores unless stated otherwise FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 Trend

Liquidity Ratios

Current Assets 1,141 3,403 3,852 5,282 5,760 7,259 9,287 11,505
Current Liabilities 3,022 3,968 3,775 4,294 3,744 4,153 4,559 4,964
Current Ratio 0.4x 0.9x 1.0x 1.2x 1.5x 1.7x 2.0x 2.3x

Inventory Days 47.7 Days 54.0 Days 54.0 Days 48.0 Days 48.0 Days 48.0 Days 48.0 Days
Debtor Days 8.3 Days 10.0 Days 10.0 Days 10.0 Days 10.0 Days 10.0 Days 10.0 Days
Creditor Days 48.0 Days 50.0 Days 50.0 Days 50.0 Days 50.0 Days 50.0 Days 50.0 Days
Cash Conversion Days 7.9 Days 14.0 Days 14.0 Days 8.0 Days 8.0 Days 8.0 Days 8.0 Days

Leverage Ratio/Solvency Ratio

Total Debt 5,386 6,402 5,863 6,106 5,114 5,191 5,600 6,009
Total Equity 4,080 5,102 6,631 8,365 10,282 12,210 14,168 16,376
Debt to Equity Ratio 132.0% 125.5% 88.4% 73.0% 49.7% 42.5% 39.5% 36.7%

Total Debt 5,386 6,402 5,863 6,106 5,114 5,191 5,600 6,009
Total Assets 6,031 11,617 12,607 14,584 15,509 17,514 19,881 22,498
Debt to Assets Ratio 89.3% 55.1% 46.5% 41.9% 33.0% 29.6% 28.2% 26.7%

Total Equity 4,080 5,102 6,631 8,365 10,282 12,210 14,168 16,376
Total Assets 6,031 11,617 12,607 14,584 15,509 17,514 19,881 22,498
Debt to Assets Ratio 67.6% 43.9% 52.6% 57.4% 66.3% 69.7% 71.3% 72.8%

Efficiency Ratio

Sales 5,105 13,173 15,939 18,928 22,051 25,194 28,217 31,603

Total Assets 6,031 11,617 12,607 14,584 15,509 17,514 19,881 22,498
Asset Turnover Ratio 84.6% 113.4% 126.4% 129.8% 142.2% 143.9% 141.9% 140.5%

Change in Revenue - 8,068 2,766 2,989 3,123 3,142 3,023 3,386

Change in Total Assets - 5,586 990 1,977 925 2,005 2,367 2,617
Reinvestment Ratio 1.4x 2.8x 1.5x 3.4x 1.6x 1.3x 1.3x

COGS (₹ 2244) (₹ 6261) (₹ 7332) (₹ 8944) (₹ 10695) (₹ 12534) (₹ 14391) (₹ 16117)

Inventory ₹ 1448 ₹ 1994 ₹ 2358 ₹ 2800 ₹ 2900 ₹ 3313 ₹ 3711 ₹ 4156
Inventory Turnover Ratio -1.5x -3.1x -3.1x -3.2x -3.7x -3.8x -3.9x -3.9x
24
 Actual Explicit Forecast Period
In INR Crores unless stated otherwise FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 Trend

Profitability/Margin Ratio

Gross Profit 2,861 6,912 8,607 9,985 11,356 12,660 13,826 15,485
Total Sales 5,105 13,173 15,939 18,928 22,051 25,194 28,217 31,603
Gross Margin 56.0% 52.5% 54.0% 52.8% 51.5% 50.3% 49.0% 49.0%

EBITDA 1,006 2,788 3,284 3,663 3,991 4,245 4,402 4,930

Total Sales 5,105 13,173 15,939 18,928 22,051 25,194 28,217 31,603
EBITDA Margins 19.7% 21.2% 20.6% 19.4% 18.1% 16.9% 15.6% 15.6%

EBIT 621 2,171 2,531 2,810 3,038 3,180 3,229 3,636

Total Sales 5,105 13,173 15,939 18,928 22,051 25,194 28,217 31,603
EBIT Margins 12.2% 16.5% 15.9% 14.8% 13.8% 12.6% 11.4% 11.5%

Net Profit 300 1,550 1,799 2,040 2,256 2,409 2,448 2,760
Total Sales 5,105 13,173 15,939 18,928 22,051 25,194 28,217 31,603
Net Profit Margins 5.9% 11.8% 11.3% 10.8% 10.2% 9.6% 8.7% 8.7%

Net Income 300 1,550 1,799 2,040 2,256 2,409 2,448 2,760
Total Assets 6,031 11,617 12,607 14,584 15,509 17,514 19,881 22,498
Return on Assets 5.0% 13.3% 14.3% 14.0% 14.5% 13.8% 12.3% 12.3%
Net Income 300 1,550 1,799 2,040 2,256 2,409 2,448 2,760
Total Equity 4,080 5,102 6,631 8,365 10,282 12,210 14,168 16,376
Return on Equity 7.3% 30.4% 27.1% 24.4% 21.9% 19.7% 17.3% 16.9%

Coverage Ratio

Total Debt ₹ 5386 ₹ 6402 ₹ 5863 ₹ 6106 ₹ 5114 ₹ 5191 ₹ 5600 ₹ 6009
EBITDA ₹ 1006 ₹ 2788 ₹ 3284 ₹ 3663 ₹ 3991 ₹ 4245 ₹ 4402 ₹ 4930
Debt to EBITDA Ratio 5.4x 2.3x 1.8x 1.7x 1.3x 1.2x 1.3x 1.2x

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DuPont Analysis - Return on Equity & Return on Asset
Return on Equity (ROE)
Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22
Net Profit 45.7 214.1 299.9 472.2 357.3 746.1 1,550.1
Average Shareholder Equity 846.8 1,731.5 1,884.0 2,663.5 3,426.2 3,802.0 4,591.1
Return on Equity 5.4% 12.4% 15.9% 17.7% 10.4% 19.6% 33.8%

ROE - Dupont Equation

Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22
Net Profit 45.7 214.1 299.9 472.2 357.3 746.1 1,550.1
Revenue 4,531.5 4,516.4 5,228.1 7,248.5 6,555.8 8,958.3 13,390.6
Net Profit Margin (A) 1.0% 4.7% 5.7% 6.5% 5.4% 8.3% 11.6%

Revenue 4,531.5 4,516.4 5,228.1 7,248.5 6,555.8 8,958.3 13,390.6

Average Total Asset 2,415.7 5,057.5 5,657.5 7,209.9 8,423.4 9,020.0 10,599.5
Asset Turnover Ratio (B) 1.9x 0.9x 0.9x 1.0x 0.8x 1.0x 1.3x

Average Total Asset 2415.7 5057.5 5657.5 7209.9 8423.4 9020.0 10599.5
Average Shareholder Equity 846.8 1731.5 1884.0 2663.5 3426.2 3802.0 4591.1
Equity Multiplier (C) 2.9x 2.9x 3.0x 2.7x 2.5x 2.4x 2.3x

Return on Equity (A*B*C) 5.4% 12.4% 15.9% 17.7% 10.4% 19.6% 33.8%

Return on Assets
Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22
Net Profit 45.7 214.1 299.9 472.2 357.3 746.1 1550.1
Average Total Asset 2415.7 5057.5 5657.5 7209.9 8423.4 9020.0 10599.5
Return on Asset 1.9% 4.2% 5.3% 6.5% 4.2% 8.3% 14.6%

ROA - Dupont Equation

Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22
Net Profit 45.7 214.1 299.9 472.2 357.3 746.1 1550.1
Revenue 4531.5 4516.4 5228.1 7248.5 6555.8 8958.3 13390.6
Return on Asset (A) 1.0% 4.7% 5.7% 6.5% 5.4% 8.3% 11.6%

Revenue 4,531.5 4,516.4 5,228.1 7,248.5 6,555.8 8,958.3 13,390.6

Average Total Asset 2,415.7 5,057.5 5,657.5 7,209.9 8,423.4 9,020.0 10,599.5
Asset Turnover Ratio (B) 1.9x 0.9x 0.9x 1.0x 0.8x 1.0x 1.3x

Return on Asset (A*B) 1.9% 4.2% 5.3% 6.5% 4.2% 8.3% 14.6%
DuPont Analysis - Summary:
• The ROE of Varun Beverages Ltd. experienced a decrease to 10.4% during the COVID period, followed by an increase to pre-COVID levels, and currently stands at 33.8% as of March
31, 2023, marking the highest level to date Net Profit Margins boosted to reach new high of 11.6% as compared to Pre Covid level of 6.5% in March 2019.
• Net Profit Margins surged, reaching a new high of 11.6% compared to the pre-COVID level of 6.5% in March 2019. The ROA of VBL has risen to 14.6% post-COVID, from 4.2% in March
2020, compared to the pre-COVID level of 6.5% in March 2019. 26
• Asset Turnover ratio of VBL over the last 5 years has been 1.0x, compared to 1.9x in March 2016.
Disclaimer: This report is made as part of educational assignment and is meant for educational purpose only. The author of the report is not
liable for any losses due to actions taken basis this report. It is advisable to consult SEBI registered research analyst before making any
investments.

Prepared By: Krushna Akele

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