Business Analysis & Valuation Report

Varun Beverage Ltd

As on June 2024

Prepared by – CA Rohit Pagade

 1 Company Overview

2 Economy Overview

3 Indian Beverage Industry

4 Business – Growth Story

TABLE OF
5 Financial Assumptions
CONTENTS
6 3 Statement Model

7 Valuation

8 Ratio Analysis

9 Dupont Analysis
Company Overview
About the Company
Varun Beverages Ltd (hear in after referred as "VBL") was incorporated as In addition to PepsiCo products, Varun Beverages makes their own drinks.
Varun Beverages Limited on 16 June 1995 at New Delhi as a public limited These include CSD’s like Refreshhh and Coo-ee, energy drinks like Reboost
company. The company started its operations at Jaipur in 1996. Energy, and dairy-based drinks under the Cream Bell brand. They also
offer their own packaged drinking water.
VBL is the part of the RJ Corp group, a diversified business conglomerate
with interests in beverages, quick-service restaurants, dairy and
Product Wise Breakup
healthcare, is the second largest franchisee in the world (outside US) of
carbonated soft drinks (CSD) and non-carbonated beverages (NCB) sold
22%
under trademarks owned by PepsiCo. The company produces and
distributes a wide range of CSD, as well as a large selection of NCB,
including packaged drinking water. VBL has been associated with PepsiCo 6%
since the 1990s and is a key player in beverage industry and one of the
largest franchisee of PepsiCo in the world
72%
Business Presence
VBL has been granted franchise rights for various PepsiCo products across
27 States and 7 Union Territories in India, responsible for approximately Carbonated Soft Drinks Juice Packaged drinking water
90% of the beverage sales volume of PepsiCo India. VBL also has a
presence in neighboring Indian subcontinental countries such as Nepal
and Sri Lanka, as well as African nations such as Morocco, Zambia, and Stock Price Performance
Zimbabwe.
1600
India is the largest market for the company. It serves nearly 1/6th of the 1500
world’s population through its extensive national and international 1400
presence. 1300
1200
1100
Key Products/Brands 1000
900
Varun Beverages Limited sells a wide range of drinks. It produces and sells 800
popular brands licensed by PepsiCo like Pepsi, Mountain Dew, Mirinda, 700
7UP, and Sting Energy. They also sell juice drinks like Tropicana, Slice, and
Nimbooz, sports drinks like Gatorade, and packaged drinking water.
Global Economy Overview
The global economy has shown remarkable resilience, with growth Global GDP Projections (%)
remaining steady as inflation trends back toward target levels. This period
has been marked by significant events, including supply-chain disruptions 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
following the COVID-19 pandemic, the war in Ukraine initiated by Russia,
which caused a global energy and food crisis, and a significant surge in World
inflation. These challenges were met with a coordinated tightening of
monetary policies worldwide.
Advanced Economis
Despite numerous bleak forecasts, the world managed to avoid a
recession. The banking system demonstrated significant resilience, and
major emerging market economies did not experience sudden economic Emerging Econms
halts. Although the surge in inflation led to a cost-of-living crisis, it did not
result in uncontrolled wage-price spirals as feared. Remarkably, global
inflation has been decreasing almost as quickly as it had increased. Euro Area

According to latest IMF report, the world economy will continue to grow
at 3.2 percent during 2024 and 2025, at the same pace as in 2023. This US

forecast states that the growth will remain same as 2023 for 2024 and
2025. While, Global inflation is forecast to decline steadily, from 6.8
Japan
percent in 2023 to 5.9 percent in 2024 and 4.5 percent in 2025, with
advanced economies returning to their inflation targets sooner than
emerging market and developing economies.
UK

In 2024, overall inflation around the world is expected to go down mainly

because the prices of many basic goods and services are decreasing
China
(decline in core inflation). This is different from what happened in 2023.
In 2023, the prices of basic goods and services only went down a little bit,
and the overall inflation decrease was mostly because fuel and food India
prices dropped (decline in headline inflation).

These forecasts are based on assumptions of declining fuel and nonfuel 2023A 2024P 2025P
commodity prices in 2024 and 2025, along with expected decreases in
interest rates in major economies Source : IMF World Economic Outlook
Indian Economy Overview
India showed strong economic resilience in 2023, becoming the world’s Indian GDP Vs Global GDP
5th largest and fastest-growing major economy with a growth rate of
7.8%. This growth attracted a lot of investment because India can support 11.0% 9.7%
large-scale operations for big companies, has many skilled workers, and is 9.0% 7.8%
6.8% 7.2% 6.8% 6.5%
good at technology and innovation. Even though there were global 7.0%
6.2%
economic challenges, high inflation, and rising interest rates, India's 5.0% 3.9%
3.3% 3.2% 3.2% 3.2%
economy did well because of strong domestic demand, significant 3.0% 3.2%
2.6%
spending on public infrastructure, and a stronger financial sector. 1.0%
-1.0% 2018A 2019A 2020A 2021A 2022A 2023A 2024P 2025P
Despite global economic challenges like the post-COVID impact, supply
-3.0% -3.1%
chain disruptions, increased inflation, and interest rate hikes, the Indian
-5.0%
economy remained resilient and continued to grow. This growth was
driven by government initiatives such as the Production Linked Incentive -7.0% -5.8%
(PLI) scheme, increased infrastructure spending, strong local demand, India Global
and rapid digitization.

As 2024 approaches, India is set to keep its status as the fastest-growing India’s Consumer Price Inflation trend
major economy. With a positive outlook, the country’s economic future
7.00% 6.65%
looks promising, laying the groundwork for further acceleration in the
coming years. 6.50% 6.17%

6.00% 5.51%
India will become the third largest economy by FY28, two years earlier
5.50%
than projected, said SBI Research economists in a note. SBI economists
said India will likely grow 8.1% in the first quarter of FY24, pushing the 5.00% 4.77%
4.60%
overall growth rate of 6.5%. India recorded a 13.5% growth in the first 4.50% 4.38% 4.20%
quarter of FY23. The forecast aligns with RBI projections of 6.5% growth
4.00%
in FY24 but is more optimistic than the International Monetary Fund’s 3.41%
revised forecast of 6.1%. Earlier IMF revised its growth forecast upwards 3.50%
by 0.2 percentage points on the back of strong domestic investment 3.00%
2018A 2019A 2020A 2021A 2022A 2023A 2024P 2025P

Source : World bank, IMF, SBI Research, VBL MDA

Indian Non-Alcoholic Drinks Market
The Non-Alcoholic Drinks market consists of various types of ready-made Revenue (in billion US$)
drinks. These include Bottled Water, Soft Drinks (split into Carbonated and
Non-Carbonated varieties, as well as Energy & Sports Drinks), Juices, and 26
24.55
Ready-to-Drink (RTD) Coffee & Tea. This market covers beverages 24 23.03
consumed both at home (purchased from retail outlets) and outside the 21.60
22
home (served in food service establishments). 20.21
20 18.90
In general, the Non-Alcoholic Drinks market is expected to grow at a 17.59
18
16.21
nominal annual rate of 3.8% between 2014 and 2027. Driven by a trend
16
towards healthier lifestyles, particularly strong growth is expected in the
Bottled Water segment. While changes in nutrition put pressure on 14
sugared soft drinks and juices, The leading players in the market, Coca- 12
Cola, PepsiCo, Suntory and Nestle are employing diverse strategies to
10
address the growing health-conscious trend. 2022 2023 2024 2025 2026 2027 2028

In 2024, revenue in the non-alcoholic drinks sector in India amounts to

total of ₹1.56 trillion (US$ 18.90 billion) in revenue, selling a volume of
34.5 billion litres. This can be split into two main parts:
Volume (in billion liters)
a) Revenue from Home Consumption: This includes sales from 40 38.8
supermarkets and convenience stores, making up ₹1.37 trillion (US$ 37.7
16.57 billion) from a volume of 33.7 billion litres. 36.6
37
35.6
34.5
b) Revenue from Out-of-Home Consumption: This covers sales from 34 33.4
restaurants and bars, adding ₹0.193 trillion (US$ 2.329 billion) from 0.80 32.3
billion litres of Volume. 31

From this, we see that, home consumption accounts for nearly 88% of the
28
non-alcoholic drinks sector revenue and almost 98% of the total non-
alcoholic drinks market volume in India.
25
2022 2023 2024 2025 2026 2027 2028
Additionally, the revenue is expected to grow annually by 6.76%, and the
volume is expected to grow by 2.98% annually from 2024 to 2028 (CAGR)
Indian Soft Drinks Market
The main segments constituting the soft drinks market in India are Revenue (in billion US$)
carbonates, juices, and bottled water. In 2023, Indian soft drinks industry
encountered a challenging yet progressive year. Following substantial 13 12.61
growth in 2022 attributed to the resurgence of out-of home 11.89
12
consumption, the industry confronted unseasonal rains that disrupted 11.19
sales during the critical summer season. Nevertheless, the sector adeptly 11 10.51
adjusted to evolving consumer preferences and maintained a steady
9.88
growth trajectory. This resilience was particularly evident in the energy 10
drinks segment. 9.23
9 8.55
Moreover, the advancement of electrification and improved electricity
supply, especially in rural areas, contributed significantly to the industry’s 8

growth. Enhanced infrastructure facilitated better cold storage and

7
distribution capabilities, crucial for the beverage industry, and enabled 2022 2023 2024 2025 2026 2027 2028
broader market reach and product availability in under-penetrated
markets. This amalgamation of infrastructural advancements and
demographic shifts bodes well for the future prospects of India’s dynamic
and growing soft drinks industry.
Volume (in billion liters)
In 2024, revenue in the soft drinks sector in India amounts to total of ₹ 8.0
7.8
820 billion (US$ 9.88 billion) in revenue, selling a volume of 7.2 billion 7.8 7.7
liters. This can be split into two main parts: 7.6 7.5
a) Revenue from Home Consumption: This includes sales from
7.4 7.3
supermarkets and convenience stores, making up ₹ 668 billion (US$ 8.05 7.2
billion) from a volume of 6.9 billion liters. 7.2
7.0
7.0
6.8
b) Revenue from Out-of-Home Consumption: This covers sales from 6.8
restaurants and bars, adding ₹ 152 billion (US$ 1.83 billion) from 0.28 6.6
billion liters of Volume.
6.4

The Indian soft drink market revenue is expected to grow annually by 6.2
2022 2023 2024 2025 2026 2027 2028
6.29%, and the volume is expected to grow by 2.02% annually from 2024
to 2028 (CAGR).
Varun Beverages Ltd – Growth Story
Overview VBL Revenue (in ₹ Crores)
Varun Beverages Limited holds a prestigious position in the beverage 18,000
industry as one of the largest franchisees of PepsiCo globally (outside the 16,043
USA), with more than 32 years of business association with PepsiCo. The 16,000
Company possesses the rights to manufacture, distribute and sell 14,000 13,173
carbonated soft drinks, fruit juice-based drinks, packaged drinking water
and sports and energy drinks. 12,000

10,000 8,823
VBL could grow its revenue at a 22.5% CAGR from CY2019 to CY2023,
while its volume grew at a rate of 17% over the same period. Its robust 8,000 7,130
6,450
operational and financial performance, along with significant expansion in
6,000
manufacturing capabilities, have all contributed to this impressive growth.
Furthermore, management is confident in achieving double-digit volume 4,000
growth. Its newly launched product, 'Sting Blue,' is performing well, and 2019 2020 2021 2022 2023
'Gatorade,' a sports drink, is experiencing nearly 50% growth. The value-
added dairy product portfolio will significantly enhance the company’s
value, as it offers higher revenue realization and benefits from a lower tax
structure. With a GST rate of 12% compared to the 40% GST for Total Sales Volume (Million Cases)
carbonated soft drinks (CSD), any incremental cost in the case of dairy is 800 737
offset by the favorable tax structure.
700 653

New Acquisitions 600

500 454
In February 2024, management announced the acquisition of Beverage 404
Company (BevCo), which holds franchise rights for PepsiCo beverage 400 337
products in South Africa, Lesotho, and Eswatini, along with distribution 300
rights in Namibia and Botswana. The PepsiCo holds market share about 149 176
200
89 88 115
1.5% and the BevCo share is about 12%, the combined market share is 100
about 14%. With this acquisition, the top-line contribution from South
0
Africa and other small countries is expected to be around ₹1,600 crores. 2019 2020 2021 2022 2023
The acquisition will be completed by the end of February 2024. Besides,
India International
VBL has incorporated a new subsidiary, VBL Mozambique, SA, in South
Africa, to carry on the business of distribution.
Capacity Expansion Capex (in Crores)
In CY 2023, the company undertook a total capex of Rs 2100 Cr. Out of 2700 2573
this, Rs 850 Cr was allocated for a Greenfield expansion, Rs 800 Cr for
Brownfield expansion in 6 existing facilities across India and in the
2200 2004
international market. Additionally, Rs 150 Cr was allocated for land
1822
acquisition in Buxar, Bihar, and Kangra in Himachal Pradesh for future
expansion in CY24/25E. The remaining balance of the capex comprises 1700
international expenses, net of write-offs, and adjustments for forex 1300
fluctuations. 1200 1031

For CY 2024, the management is guiding for a total capex of Rs 3600 Cr

700 537
(including CWIP of approx. 2000 Crore, carrying on 31st Dec 2023). Out of
377
this, Rs 3000 Cr will be allocated for expenditure within India, while Rs 288
600 Cr will be allocated for international operations. The combined 200
capital expenditure for CY 2023 and CY 2024 is expected to boost the 2018A 2019A 2020A 2021A 2022A 2023A 2024P 2025P
peak month capacity in India by approximately 45% over CY 2022. The Year
company has undertaken expansions for value-added dairy products, with
new plants becoming operational.

Distribution Reach Strong supply chain management

There are approximately 12 million FMCG outlets in India, and Varun
Beverages Limited (VBL) has a reach of nearly 3.8 million of these outlets,
representing more than 30% presence in the country. Additionally, the
management is committed to adding 4 to 5 lakh outlets every year.
Accelerated Urbanization
In 2022, approximately a third of the total population in India lived in
cities. The trend shows an increase of urbanization by more than 4
percent in the last decade, meaning people have moved away from rural
areas to find work and make a living in the cities. This has led to higher
family disposable income, which has contributed to increased consumer
spending.
VBL's supply chain is exceptionally robust, featuring over 120 depots, a
fleet of 2,500 owned vehicles, more than 2,400 primary distributors, and
the installation of over 100,000 visi-coolers across various markets. This
extensive network enables effective local-level promotion, in-store
activation, customer relationship management, and brand building.
Moreover, the company is investing in Electric Vehicles (EVs) through its
distributors, with plans to establish a fleet of over 600 EVs for sustainable
last-mile delivery and beverage distribution. Addressing challenges such
as reliable electricity supply, refrigeration and cooling equipment, and
robust logistics infrastructure.
Financials
Revenue Revenue growth rate - actual (CY2014 - CY2023)
In the financial year 2023, company has posted revenue of Rs 16,043. The 55.0% 49.3%
revenue has grown at a CAGR of 35.5% & 25.7% during the last 3 & 5
years respectively. The management has positive future outlook for 45.0% 39.7%
35.6% 36.8%
overall growth of Indian soft drink market due to factors such as increase
35.0%
in consumer spending, migration of population to urban areas, rural 27.5%
advancements and enhanced electrification, etc. 25.0% 21.8%
18.3%
13.8%
As of now, the company runs 40 manufacturing facilities with 34 located 15.0%
in India and 6 in international territories. It has also established a strong 3.7%
5.0%
supply chain, with numerous storage places, over 120+ depots, its own
fleet of 2500+ electric vehicles, 2400+ distributors, and over 10 Lakhs -5.0% 2014A 2015A 2016A 2017A 2018A 2019A 2020A 2021A 2022A 2023A
cooling machines set up in different markets.
-15.0% -9.5%

The analyst consensus projects a growth for CY24 with revenues reaching
INR 19,605 crores, representing a 22.2% increase over the CY23 revenues
of INR 16,044 crores. Additionally, the growth estimate for CY25 is around Revenue growth rate - projected (CY2024 -
21%.
CY2033)
Considering the company's product portfolio, which includes popular 25.0%
22.0%
energy drink products like 'Sting' and a value-added dairy segment, 20.3%
20.0% 18.5%
alongside ongoing capital expenditures, and considering that the 16.8%
company has tripled its capacity in value-added dairy products, we 15.0%
15.0% 13.6%
anticipate that the company will be capable of sustaining double-digit 12.2%
10.8%
growth of 22% for upcoming CY 2024. 9.4%
10.0% 8.0%

We anticipate that as the revenue base expands from CY2024 onward,

5.0%
the growth rate will gradually moderate to around 15% by CY2028.
Furthermore, as the company transitions into its maturity phase, the
0.0%
growth rate is expected to decline further, reaching 8% by CY2033. 2024P 2025P 2026P 2027P 2028P 2029P 2030P 2031P 2032P 2033P
Gross Margins
In CY2023, the company achieved an impressive gross margin of 53.8%. The company is focused on optimally utilizing its assets to achieve higher
Historically, the company has consistently maintained gross margins operating efficiency and to amortize overhead costs over a larger base.
ranging between 52% and 57%. Our research indicates that the non- Additionally, the company continues to invest in innovative solutions to
alcoholic beverage sector in India reports average gross margins of boost operational efficiencies and streamline work processes. These
approximately 53%, while the global sector margin stands at around efforts ensure consolidated operational data from production, scheduled
49.5%. sourcing, and superior monitoring of the supply chain from
manufacturers to the retail point of sale.
Upon analyzing the company, we conclude that raw materials constitute
over 90% of the Cost of Goods Sold (COGS) and approximately 45-50% of
the revenue. The primary raw material components are sugar and PET Gross Margins %
chips. Looking ahead, the company, in collaboration with Pepsi, is shifting 58.0%
57.1%
towards a healthier product portfolio. It is actively promoting products in
57.0%
the mid-calorie and no-sugar segments. Consequently, the cost of sugar
as a raw material is expected to decrease, leading to improved gross 56.0%
margins. 54.8% 54.8%
55.0%
54.3% 54.2% 54.4% 54.6%
53.8% 54.0%
54.0%
The company has established backward integration facilities for the
production of preforms, crowns, plastic closures, corrugated boxes, 53.0% 52.5%
corrugated pads, plastic crates, and shrink-wrap films at certain locations 52.0%
to ensure operational efficiencies and high-quality standards. To address
51.0%
the challenges posed by higher raw material costs, the company has
implemented a prudent raw material sourcing strategy. Additionally, 50.0%
selective price increases on specific products have been employed to help 2019A 2020A 2021A 2022A 2023A 2024P 2025P 2026P 2027P 2028P

maintain its margins and mitigate the effects of rising costs.

The reduction in margins during CY22 was primarily due to inflationary

pressures. However, as the company transitions towards a healthier
product portfolio and sugar raw material costs are expected to decrease,
we anticipate a slight improvement in gross margins. Consequently, the
company is projected to achieve and maintain a gross margin of
approximately 55% going forward.
Selling, general, and administrative expenses SG&A % Revenue
In 2023, the company achieved significant financial progress, with EBITDA 40.0% 38.5%
margin reaching to 22.5%, which is 133 basis points higher than in 2022. 38.0%
35.5%
36.0% 34.5%
This increase in EBITDA margin can be attributed to the decline in raw 33.8% 33.8% 33.8% 33.8% 33.8%
34.0%
material prices during the period. Management has provided guidance for 32.0% 31.3% 31.3%
EBITDA margins in the range of 20-21%. Analysis of historical expense
30.0%
trends reveals that SG&A (Selling, General, and Administrative) expenses
28.0%
have consistently ranged between 31% and 34% of total revenue.
26.0%
Notably, this aligns with the management's EBITDA guidance of 20-21%.
24.0%

We assume that total SG&A expenses will remain stable at 33.8% of 22.0%
revenue, which closely aligns with both street estimates and 20.0%
management guidance. 2019A 2020A 2021A 2022A 2023A 2024P 2025P 2026P 2027P 2028P

Inventory
The Company typically accumulates inventory during the October to Inventory days
December quarter and the January to March quarter in anticipation of 60 16.4% 18.0%
increased demand during the summer peak season. This proactive 15.1%
14.4% 16.0%
approach helps mitigate the risk of stockouts and ensures readiness to 50 13.4% 13.4% 13.4% 13.4% 13.4% 13.4%
12.4% 14.0%
meet demand effectively. Additionally, another reason for this inventory
40 12.0%
accumulation is that the company procures raw materials such as resin at
47 10.0%
lower prices during the months of November and December, thereby 30 48 49 49 49 49 49
51 8.0%
improving gross margins. 49
20 6.0%
37
Historically, the company has kept its inventory at about 13% of sales, 4.0%
10
with an inventory turnover ratio of approximately 8.5 times and inventory 2.0%
days of 45. However, in the recent period (from CY 2021 to CY 2023), the - 0.0%
2019A 2020A 2021A 2022A 2023A 2024P 2025P 2026P 2027P 2028P
company has maintained inventory days of 49, 48, and 47 respectively.
We anticipate that going forward, the company will continue to maintain Inventory Days Inventory % Revenue
inventory days at around 49, which is also in line with street estimates.
Trade receivables Trade receivables days
The company's strong collection system ensures it collects 95% of its 16 3.8% 4.0%
debts within six months from the due date. Additionally, the company is 14 3.5%
not exposed to significant credit risk from any single counterparty. 12 3.0%
Historically, the company has maintained an average of 9 debtor days. 2.4% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
10 2.3% 2.2% 2.5%
However, in FY 22 and FY 23, this decreased to 8 days. Moreover, the
company has typically kept trade receivables at 2.5% of revenue, but this 8 2.0%
14
decreased to 2.0% in FY 22 and 2.1% in FY 23. 6 1.5%
4 8 9 9 9 9 9 1.0%
9 8
According to street estimates, the company is projected to have debtor 9
2 0.5%
days of 9 days and 10 days for FY 22 and FY 23, respectively. We assume - 0.0%
that the company will continue to maintain debtor days of 9 days going 2019A 2020A 2021A 2022A 2023A 2024P 2025P 2026P 2027P 2028P
forward.
Trade receivable days Trade receivable % Revenue

Trade payables
Historically, excluding the COVID-19 affected period of CY 2020 and CY Trade payable days
2021, the company has maintained payable days within the range of 50 to 18.5%
80 17.6% 20.0%
55 days. However, in CY 2023, the company notably reduced payable days 18.0%
70
to 37 days. Moreover, apart from CY 2023, the company has typically kept 14.8% 16.0%
60 13.2% 13.7% 13.7% 13.7% 13.7% 13.7%
payables at around 14% of COGS, but in CY 2023, this decreased to 10%. 14.0%
50 10.2% 12.0%
However, street estimates indicate that the company will maintain 40 10.0%
payable days of 42 days and 44 days for CY 2024 and CY 2025, 30
68 64 8.0%
54 50 50 50 50 50
respectively. 20
48 6.0%
37 4.0%
10 2.0%
In the absence of specific management guidance, we expect payable days
- 0.0%
to stay at the historical median of 50 days.
2019A 2020A 2021A 2022A 2023A 2024P 2025P 2026P 2027P 2028P

Trade payable days Trade payable % COGS

Borrowings Long Term and Short Term Borrowings
In recent years, the company has steadily reduced its long-term 100%
borrowing, decreasing from a peak of 84% of total borrowing to 47% in 17% 16% 17%
25% 27%
80% 39%
CY 2022. However, it increased to 62% in CY 2023. Despite these 46% 53%
fluctuations, the debt-to-equity ratio has remained consistently at or 60%
below 0.8x. Additionally, the debt-to-asset ratio stands at 0.35x, and the
debt-to-EBITDA ratio is 2.0x. Notably, over the past two financial years, 40% 83% 84% 83%
75% 74%
the company has successfully reduced its debt-to-EBITDA ratio, which 54% 61%
20% 47%
stood at 1.44x in CY 2023.
0%
Management has provided guidance regarding the company's debt 2016 2017 2018 2019 2020 2021 2022 2023
position, stating that it has already peaked at CY 2023 levels. Additionally, Current Borrowings % Total Borrowings
the company is poised to generate a substantial amount of cash profit,
Non- Current Borrowings % Total Borrowings
which will be more than sufficient to fund future capital expenditures.
Furthermore, management is committed to further reducing the debt
level in the future and is confident about maintaining the debt-to-equity
ratio below 0.67x. Debt to EBITDA Ratio
3.00x
The company has experienced a significant increase in total borrowings
due to substantial capital expenditures in recent years. However, with 2.45x
2.34x
2.50x 2.24x
new capacities being commissioned and expected to generate substantial
2.05x 2.02x
cash flows, it is anticipated that the company will no longer need to take 1.95x
2.00x
on new borrowings. Instead, it will begin to repay its existing debt starting
1.44x
from CY 2024. Our projections indicate that the company plans to repay 1.50x 1.33x
20% of its debt in CY 2024, CY 2025, and CY 2026, respectively.
Furthermore, it plans to repay 50% of its debt in CY 2027, followed by full 1.00x
repayment in 2028. This strategy will enable the company to become
0.50x
debt-free, especially considering the significant cash reserves it is
expected to accumulate on its balance sheet.
0.00x
2016 2017 2018 2019 2020 2021 2022 2023
3 Statement Model
1. Income Statement
Actual Explicit Forcast Period Maturity Period
In INR Crores unless stated otherwise FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033

Revenue 7,130 6,450 8,823 13,173 16,043 19,572 23,536 27,890 32,562 37,446 42,538 47,728 52,883 57,854 62,482
Less: Cost of Goods Sold (3,219) (2,764) (4,035) (6,261) (7,405) (9,003) (10,779) (12,718) (14,783) (16,926) (19,227) (21,573) (23,903) (26,150) (28,242)
Gross Profit 3,910 3,686 4,789 6,912 8,638 10,569 12,756 15,172 17,779 20,520 23,311 26,155 28,980 31,704 34,240

Gross Margin 54.8% 57.1% 54.3% 52.5% 53.8% 54.0% 54.2% 54.4% 54.6% 54.8% 54.8% 54.8% 54.8% 54.8% 54.8%

Less: SG&A (Excluding Depreciation & Interest)

Employee Benefit Expenses (811) (890) (1,008) (1,217) (1,447) (2,153) (2,589) (3,068) (3,582) (4,119) (4,679) (5,250) (5,817) (6,364) (6,873)
Power & Fuel Cost (279) (267) (330) (479) (550) (763) (918) (1,088) (1,270) (1,460) (1,659) (1,861) (2,062) (2,256) (2,437)
General and Admin Cost (242) (221) (304) (318) (454) (607) (730) (865) (1,009) (1,161) (1,319) (1,480) (1,639) (1,793) (1,937)
Selling & Distribution Cost (168) (157) (316) (418) (510) (568) (683) (809) (944) (1,086) (1,234) (1,384) (1,534) (1,678) (1,812)
Misc. Cost (124) (63) (79) (142) (216) (215) (259) (307) (358) (412) (468) (525) (582) (636) (687)
Other Expenses (839) (886) (1,097) (1,550) (1,852) (2,310) (2,777) (3,291) (3,842) (4,419) (5,020) (5,632) (6,240) (6,827) (7,373)
EBITDA 1,448 1,202 1,655 2,788 3,609 3,954 4,801 5,745 6,773 7,864 8,933 10,023 11,105 12,149 13,121

EBITDA Margin 20.3% 18.6% 18.8% 21.2% 22.5% 20.2% 20.4% 20.6% 20.8% 21.0% 21.0% 21.0% 21.0% 21.0% 21.0%

Less: Depreciation & Amortization (489) (529) (531) (617) (681) (649) (774) (831) (888) (943) (998) (1,051) (1,102) (1,150) (1,194)
EBIT 959 673 1,123 2,171 2,928 3,304 4,027 4,914 5,885 6,920 7,935 8,972 10,004 11,000 11,927

EBIT Margin 13.5% 10.4% 12.7% 16.5% 18.3% 16.9% 17.1% 17.6% 18.1% 18.5% 18.7% 18.8% 18.9% 19.0% 19.1%

Less: Interest (310) (281) (185) (186) (268) (369) (295) (236) (158) (53) - - - - -
Add: Other Income 43 37 68 39 79 98 118 139 163 187 213 239 264 289 312
EBT 692 429 1,007 2,024 2,739 3,033 3,849 4,817 5,891 7,055 8,148 9,211 10,268 11,289 12,239

Extraordinory Items 4 (67) - - - - - - - - - - - - -

EBT & After Extraordinary Items 696 363 1,007 2,024 2,739 3,033 3,849 4,817 5,891 7,055 8,148 9,211 10,268 11,289 12,239

Less: Taxes (224) (5) (261) (474) (638) (758) (962) (1,204) (1,473) (1,764) (2,037) (2,303) (2,567) (2,822) (3,060)
Net Income 472 357 746 1,550 2,101 2,275 2,887 3,613 4,418 5,291 6,111 6,908 7,701 8,467 9,180

Revenue Growth % -9.5% 36.8% 49.3% 21.8% 22.0% 20.3% 18.5% 16.8% 15.0% 13.6% 12.2% 10.8% 9.4% 8.0%
Actual Tax Rate % 32.4% 1.2% 25.9% 23.4% 23.3% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
Net Income Margin % 6.6% 5.5% 8.5% 11.8% 13.1% 11.6% 12.3% 13.0% 13.6% 14.1% 14.4% 14.5% 14.6% 14.6% 14.7%
2. Balance Sheet
Actual Explicit Forcast Period Maturity Period
In INR Crores unless stated otherwise FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033

Assets

Non-Current Assets
(a) Property, Plant & Equipment 5,893 5,827 5,155 5,442 6,803 6,969 7,945 7,908 7,811 7,649 7,416 7,107 6,716 6,238 5,667
(b) Capital Work-in -Progress 64 67 497 607 1,922 1,822 382 381 188 185 180 174 166 157 145
(c) Right of Use Assets - - 572 916 1,035 1,035 1,035 1,035 1,035 1,035 1,035 1,035 1,035 1,035 1,035
(d) Goodwill 24 24 24 24 24 24 24 24 24 24 24 24 24 24 24
(e) Other Intangible Assets 562 557 559 551 547 547 547 547 547 547 547 547 547 547 547
(f) Other Financial Assets 45 42 42 49 65 65 65 65 65 65 65 65 65 65 65
(g) Other Non-Current Assets 115 130 184 627 555 555 555 555 555 555 555 555 555 555 555
Total Non-Current Assets 6,704 6,648 7,033 8,215 10,951 11,017 10,553 10,515 10,226 10,060 9,823 9,507 9,108 8,621 8,039

Current Assets
(a) Cash Balance 138 105 151 154 242 990 2,128 3,099 3,655 3,964 5,679 7,394 9,049 11,008 13,284
(b) Bank Balance 33 85 186 131 218 218 218 218 218 218 218 218 218 218 218
(c) Inventory 882 929 1,448 1,994 2,151 2,628 3,160 3,744 4,371 5,027 5,711 6,407 7,099 7,767 8,388
(d) Trade Receivables 173 242 221 299 359 483 580 688 803 923 1,049 1,177 1,304 1,427 1,541
(e) Other Financial Assets 227 187 247 398 739 587 706 837 977 1,123 1,276 1,432 1,586 1,736 1,874
(f) Other Current Assets 220 252 293 428 527 643 773 916 1,069 1,229 1,397 1,567 1,736 1,899 2,051
Total Current Assets 1,672 1,800 2,546 3,404 4,236 5,548 7,564 9,502 11,093 12,485 15,330 18,195 20,993 24,054 27,356

Total Assets 8,376 8,448 9,579 11,619 15,187 16,565 18,117 20,016 21,319 22,546 25,152 27,702 30,101 32,675 35,395
2. Balance Sheet
Actual Explicit Forcast Period Maturity Period
In INR Crores unless stated otherwise FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033

Equity & Liabilities

Equity
Share Capital 289 289 433 650 650 650 650 650 650 650 650 650 650 650 650
Other Equity 3,040 3,235 3,647 4,453 6,287 8,107 10,128 12,295 14,504 16,621 18,760 20,832 22,757 24,874 27,169
Total Shareholder's Equity 3,328 3,524 4,080 5,102 6,937 8,756 10,777 12,945 15,154 17,270 19,409 21,482 23,407 25,524 27,818
Minority Interest 31 65 117 113 148 148 148 148 148 148 148 148 148 148 148
Total Equity 3,359 3,589 4,197 5,215 7,085 8,904 10,925 13,093 15,302 17,418 19,557 21,630 23,555 25,672 27,966

Non-Current Libilities
(a) Financial Libilities
(i) Borrowings 2,355 1,980 1,813 1,727 3,189 2,551 2,041 1,633 816 - - - - - -
(ii) Lease Libilities - - 31 165 198 198 198 198 198 198 198 198 198 198 198
(b) Provisions 170 204 209 204 213 213 213 213 213 213 213 213 213 213 213
(c) Deferred tax liabilities (Net) 270 215 309 337 343 343 343 343 343 343 343 343 343 343 343
(d) Other non-current liabilities 1 25 1 1 7 7 7 7 7 7 7 7 7 7 7
Total Non-Current Liabilities 2,796 2,424 2,363 2,434 3,949 3,312 2,801 2,393 1,577 760 760 760 760 760 760

Current Libilities
(a) Financial Libilities
(i) Borrowings 467 714 1,529 1,968 2,005 1,604 1,283 1,027 513 - - - - - -
(ii) Lease Libilities - - 14 24 39 39 39 39 39 39 39 39 39 39 39
(iii) Trade Payables 478 511 712 824 758 1,233 1,477 1,742 2,025 2,319 2,634 2,955 3,274 3,582 3,869
(iv) Other financial liabilities 1,026 854 393 559 764 764 764 764 764 764 764 764 764 764 764
(b) Other Current Liabilities 204 318 309 490 465 587 706 837 977 1,123 1,276 1,432 1,586 1,736 1,874
(c) Provisions 30 33 50 29 83 83 83 83 83 83 83 83 83 83 83
(d)Current tax liabilities (Net) 15 4 14 76 39 39 39 39 39 39 39 39 39 39 39
Total Current Liabilities 2,221 2,435 3,019 3,969 4,153 4,349 4,391 4,530 4,440 4,367 4,835 5,312 5,786 6,243 6,668

Total Liabilities 5,017 4,859 5,382 6,403 8,102 7,661 7,192 6,923 6,017 5,127 5,595 6,072 6,546 7,003 7,428

Total Liabilities and Shareholders' Equity 8,376 8,448 9,579 11,619 15,187 16,565 18,117 20,016 21,319 22,546 25,152 27,702 30,101 32,675 35,395
3. Cashflow Statement
Actual Explicit Forcast Period Maturity Period
In INR Crores unless stated otherwise FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033

Earning Before Tax ₹ 696 ₹ 363 ₹ 1,007 ₹ 2,024 ₹ 2,739 ₹ 3,033 ₹ 3,849 ₹ 4,817 ₹ 5,891 ₹ 7,055 ₹ 8,148 ₹ 9,211 ₹ 10,268 ₹ 11,289 ₹ 12,239
Add: Interest Expenses ₹ 297 ₹ 264 ₹ 171 ₹ 163 ₹ 244 ₹ 369 ₹ 295 ₹ 236 ₹ 158 ₹ 53 - - - - -
Add: Depreciation ₹ 489 ₹ 529 ₹ 531 ₹ 617 ₹ 681 ₹ 649 ₹ 774 ₹ 831 ₹ 888 ₹ 943 ₹ 998 ₹ 1,051 ₹ 1,102 ₹ 1,150 ₹ 1,194
Less: Change in Working Capital (₹ 85) (₹ 111) (₹ 269) (₹ 585) (₹ 673) ₹ 33 (₹ 517) (₹ 569) (₹ 613) (₹ 643) (₹ 661) (₹ 674) (₹ 669) (₹ 645) (₹ 601)
Add: Other Items ₹ 31 ₹ 45 (₹ 84) (₹ 55) ₹ 68 - - - - - - - - - -
Less: Tax Paid (₹ 120) (₹ 78) (₹ 124) (₹ 373) (₹ 668) (₹ 758) (₹ 962) (₹ 1,204) (₹ 1,473) (₹ 1,764) (₹ 2,037) (₹ 2,303) (₹ 2,567) (₹ 2,822) (₹ 3,060)
Cash Flow from Operations ₹ 1,308 ₹ 1,012 ₹ 1,231 ₹ 1,790 ₹ 2,392 ₹ 3,326 ₹ 3,440 ₹ 4,111 ₹ 4,850 ₹ 5,644 ₹ 6,448 ₹ 7,285 ₹ 8,134 ₹ 8,971 ₹ 9,773

Net Purchase of Fixed Assets (₹ 733) (₹ 536) (₹ 815) (₹ 1,750) (₹ 3,195) (₹ 715) (₹ 310) (₹ 793) (₹ 599) (₹ 778) (₹ 760) (₹ 735) (₹ 703) (₹ 662) (₹ 612)
Net Purchase of Investments ₹0 - ₹0 ₹0 - - - - - - - - - - -
Interest Received ₹5 ₹9 ₹ 13 ₹ 23 ₹ 22 - - - - - - - - - -
Investment in Group companies - - - - (₹ 22) - - - - - - - - - -
Acquisition of Companies (₹ 8) - - - (₹ 10) - - - - - - - - - -
Others (₹ 1,583) ₹ 55 (₹ 205) (₹ 42) (₹ 84) - - - - - - - - - -
Cash Flow from Investing Activities (₹ 2,320) (₹ 472) (₹ 1,008) (₹ 1,769) (₹ 3,289) (₹ 715) (₹ 310) (₹ 793) (₹ 599) (₹ 778) (₹ 760) (₹ 735) (₹ 703) (₹ 662) (₹ 612)

Net Proceeds from Long Term Borrowings ₹ 560 (₹ 460) ₹ 214 ₹ 340 ₹ 1,506 (₹ 638) (₹ 510) (₹ 408) (₹ 816) (₹ 816) - - - - -
Net Proceeds from Short Term Borrowings ₹ 89 ₹ 247 (₹ 85) (₹ 1) - (₹ 401) (₹ 321) (₹ 257) (₹ 513) (₹ 513) - - - - -
Proceeds from Issue of Shares ₹ 900 - - - ₹4 - - - - - - - - - -
Proceeds from Financial Liabilities - (₹ 11) (₹ 19) (₹ 23) (₹ 59) - - - - - - - - - -
Dividend Paid (₹ 69) (₹ 72) (₹ 108) (₹ 162) (₹ 227) (₹ 455) (₹ 866) (₹ 1,445) (₹ 2,209) (₹ 3,175) (₹ 3,972) (₹ 4,836) (₹ 5,776) (₹ 6,350) (₹ 6,885)
Interest Paid (₹ 303) (₹ 277) (₹ 179) (₹ 172) (₹ 269) (₹ 369) (₹ 295) (₹ 236) (₹ 158) (₹ 53) - - - - -
Others (₹ 69) - - - ₹ 30 - - - - - - - - - -
Cash Flow from Financing Activities ₹ 1,107 (₹ 574) (₹ 178) (₹ 18) ₹ 985 (₹ 1,863) (₹ 1,993) (₹ 2,346) (₹ 3,696) (₹ 4,557) (₹ 3,972) (₹ 4,836) (₹ 5,776) (₹ 6,350) (₹ 6,885)

Net Change in Cash ₹ 95 (₹ 33) ₹ 46 ₹4 ₹ 88 ₹ 748 ₹ 1,138 ₹ 972 ₹ 555 ₹ 309 ₹ 1,715 ₹ 1,714 ₹ 1,655 ₹ 1,959 ₹ 2,276
Opening Cash Balance ₹ 43 ₹ 138 ₹ 105 ₹ 151 ₹ 154 ₹ 242 ₹ 990 ₹ 2,128 ₹ 3,099 ₹ 3,655 ₹ 3,964 ₹ 5,679 ₹ 7,394 ₹ 9,049 ₹ 11,008
Closing Cash Balance ₹ 138 ₹ 105 ₹ 151 ₹ 154 ₹ 242 ₹ 990 ₹ 2,128 ₹ 3,099 ₹ 3,655 ₹ 3,964 ₹ 5,679 ₹ 7,394 ₹ 9,049 ₹ 11,008 ₹ 13,284
Valuation
Objective
The goal is to determine the intrinsic value of the company. This analysis
is designed to assess the company's worth based on its ability to generate
cash flows, future growth, and the risks associated with its business. We
have carefully considered management’s guidance while conducting this
analysis.
2. Asset Approach
Under this approach, the business value is calculated by subtracting the
liabilities from the assets. This method focuses on determining the net
asset value from an equity valuation perspective. The net asset value is
calculated as follows: Net assets = Total Assets – Total External Liabilities.
The net asset value is also referred to as Total Equity.

Valuation Methodology 3. Income Approach

There are three main approaches to valuation: the Cost Approach, the
Market Approach, and the Income Approach. Not all approaches are
relevant for every valuation, so it's important to choose the one most
suitable for the specific business or company.
The commonly used approaches are:
• Market Approach: This includes the Comparable Companies Method
and the Comparable Transaction Method.
• Asset Approach: This uses the Net Asset Value Method.
• Income Approach: This involves the Discounted Cash Flow Method.
1. Market Approach
The market approach is a way to determine an asset's value based on the
sale prices of similar assets. Using this approach, we estimate the value of
a company by applying market multiples from publicly traded companies
that are active and comparable to the target company. This method relies
on the idea that the market prices reflect transactions between
knowledgeable buyers and sellers who consider all relevant factors.
This approach determines the value of a business by considering free cash
flows, future growth, and the weighted average cost of capital, which
indicates risk.
There are four main steps in the Income Approach:
1. Forecasting future cash flows for the explicit growth period.
2. Discounting these cash flows to their present value at a rate of return
that reflects the risk of realizing the future cash flows and expected
growth.
3. Calculating the terminal value of free cash flows after the explicit
growth period.
4. Adding the present value of the terminal cash flows to the present
value of the free cash flows during the explicit forecast period.

Not all multiples apply to every company. Therefore, it's important to

select the relevant multiples carefully and adjust for differences between
the comparable companies. For valuing VBL, we have chosen the
EV/EBITDA multiple.
DCF Valuation
Explicit Forecast Period Maturity Period
In INR Crores unless stated otherwise FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033

Free Cash Flow to Firm

EBIT 1,123 2,171 2,928 3,304 4,027 4,914 5,885 6,920 7,935 8,972 10,004 11,000 11,927
Tax Rate 25.9% 23.4% 23.3% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
NOPAT [EBIT*(1-Tax Rate)] 833 1,663 2,246 2,478 3,020 3,686 4,414 5,190 5,951 6,729 7,503 8,250 8,945
Add: Depreciation & Amortization 531 617 681 649 774 831 888 943 998 1,051 1,102 1,150 1,194
Cash NOPAT 1,364 2,280 2,927 3,128 3,795 4,517 5,301 6,134 6,949 7,780 8,604 9,399 10,139
Less: Reinvestments
Change in Working Capital (269) (585) (673) 33 (517) (569) (613) (643) (661) (674) (669) (645) (601)
Net Capex (815) (1,750) (3,195) (715) (310) (793) (599) (778) (760) (735) (703) (662) (612)
Free Cash Flow to Firm 280 (55) (941) 2,445 2,968 3,154 4,090 4,713 5,528 6,371 7,232 8,092 8,926

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) 9.00%
Present Value Factor 0.958 0.879 0.806 0.740 0.679 0.623 0.571 0.524 0.481 0.441

Present Value of Free Cash flow to Firm 2,342 2,608 2,543 3,025 3,198 3,441 3,638 3,790 3,890 3,937

DCF Calculation - Perpetuity Growth DCF Calculation - Exit Multiple WACC

Market Price
₹ 1,30,798 9% 10% 11% 12% 13% 14%
INR 1,94,131
3% 95,040 78,998 67,066 57,866 50,574 44,666

Terminal Growth %
Perpetual Growth Rate 5% Exit Multiple 18.0x
Terminal Year EBITDA 13,121 4% 1,09,343 88,452 73,631 62,598 54,084 47,330
Terminal Year FCFF x (1+ PGR) 9,373
Terminal Value 2,36,182 5% 1,30,798 1,01,686 82,384 68,681 58,471 50,587
Terminal Value 2,34,315
Present Value of Terminal Intrinsic Value 6% 1,66,555 1,21,538 94,639 76,792 64,112 54,657
Present Value of Terminal Value 1,03,335
Value 1,04,159 INR 1,30,798 7% 2,38,070 1,54,625 1,13,021 88,147 71,632 59,891
Present Value of FCFF 32,412 Present Value of FCFF 32,412 Crs 8% 4,52,614 2,20,798 1,43,658 1,05,180 82,161 66,869
Enterprise Value 1,35,747 Enterprise Value 1,36,571
Implied Exit Multiple 10.3x Implied Exit Multiple 10.4x
Implied EV/EBITDA 37.6x Implied EV/EBITDA 37.8x WACC
Less: Debt (5,194) WACC
Less: Debt (5,194) ₹ 1,31,621 9% 10% 11% 12% 13% 14%
9%
Add: Cash 460 Add: Cash 460 16x 1,20,048 1,10,780 1,02,321 94,593 87,526 81,058
Less: Minority Interest (148)
Exit Multiple
Less: Minority Interest (148) 17x 1,25,834 1,16,085 1,07,189 99,064 91,635 84,837
Add: Non- Operating Asset 65 Add: Non- Operating Asset 65 18x 1,31,621 1,21,391 1,12,058 1,03,535 95,744 88,616
Equity Value 1,30,931 Equity Value 1,31,754 19x 1,37,408 1,26,697 1,16,926 1,08,006 99,853 92,395
Terminal
Less: Equity Options (133) Less: Equity Options (133) 20x 1,43,194 1,32,002 1,21,795 1,12,477 1,03,962 96,174
Growth 5%
Equity Value for Shareholders 1,30,798 Equity Value for Shareholders 1,31,621 21x 1,48,981 1,37,308 1,26,664 1,16,948 1,08,071 99,953
Weighted Average Cost of Capital (WACC)
Particulars Low Mid High WACC Inputs
Country India
Risk Free Rate 4.73% 4.73% 4.73%
6.54% 6.54% 6.54% Local Currency 10Y Govt Bond Yield 7.13%
Equity Risk Premium
Asset Beta 0.25 0.30 0.35 India's Moodys Soverign Rating Baa3
D/E Ratio 73.33% 73.33% 73.33% Credit Default Spread as per Dr Damodaran 2.39%
Equity Beta 0.39 0.47 0.55 Implied US Equity Risk Premium 4.15%
CAPM Cost of Equity 7.31% 7.81% 8.32% Asset Beta 0.30
Asset Beta Variation (+/-) 0.05
Small Size Premium 2.70% 2.70% 2.70%
0.00% 0.00% 0.00% Debt to Equity Ratio 73.33%
Asset Specific Premium
Modified Cost of Equity 10.01% 10.51% 11.02% Debt to Capital (Gearing) 42.31%
Marginal Tax Rate 25.00%
Pre Tax Cost of Debt 7.72% 7.72% 7.72% Company Credit Rating Available ? No
Marginal Tax Rate 25.00% 25.00% 25.00%
Company is Large Firm or Small Firm Large
Post Tax Cost of Debt 5.79% 5.79% 5.79%
Provide Credit Rating Aaa/AAA

Capital gearing (D/D+E) 42.31% 42.31% 42.31% Interest Coverage Ratio (ICR) 10.93
Weighted Average Cost of Capital 8.22% 8.51% 8.81% ICR Based Corporate Default Spread 0.59%
Weighted Average Cost of Capital (Rounded) 9.00% 9.00% 9.00% Small Size Premium 2.70%

1. Tax Rate considered as Marginal Tax Rate of India

2. Asset Beta is considered as median of 2 years Beta of Comps
3. Equity Beta = Asset Beta* (1+(1-Tax Rate)*Debt/Equity)

Risk Free Rate Cost of Debt

we have considered 4.73% as the Risk Free Rate in estimation of Cost of Equity of 9.27%. For the purpose of assessing the cost of debt, we have used country's Risk Free Rate,
The Risk Free Rate of India Is calculated by considering local currency 10 years Country's Default Spread and Corporate Default Spread based on company's Debt rating
Government bond yield adjusted for defaults spread of India. and interest coverage ratio

Asset Beta Small Size Premium

We have derived an estimated Asset Beta range of 0.35 to 0.45, with a mid point of 0.40 Empirically small sized assets have exceeded the returns as compared to large sized
based on observed median of 2 years weekly Asset Beta of benchmarked listed assets. We have used the study in Size Premium conducted by Incwert which is based on
companies. difference between actual returns and CAPM expected returns arranged in decile basis
market capitalization of Indian companies
Equity Risk Premium (ERP)
An ERP of 6.54% has been adopted based on US implied ERP, relative equity volatility of
ICE BoFA Public Sector Issues Emerging Mkts index, S&P Emerging BMI Index and
Country Risk Premium of India
Beta Analysis
Beta Analysis - 2 Years Weekly
No. of Weekly 2 Years Avg 2 Years Avg
Comparable Company Observations Market Cap Asset beta D/E Equity Beta D/D+E Considered?

PepsiCo, Inc. 104 247170 0.19 240% 0.52 66% Y

The Coca-Cola Company 104 272520 0.26 156% 0.57 58% Y
Fomento Economico Mexicano, S.A.B de C.V 104 38947 0.10 84% 0.17 38% N
Coca-Cola Europacific Partners PLC 104 34210 0.24 162% 0.54 52% Y
Coca-Cola FEMSA, S.A.B de C.V 104 17132 0.34 64% 0.51 35% Y
Coca-Cola HBC AG 104 9642 0.36 101% 0.63 52% Y
Suntory Beverage & Food Limited 104 9443 0.10 12% 0.11 8% N
Monster Beverage Corporation 104 57806 0.58 1% 0.58 0% Y
Coca-Cola Bottlers Japan Holdings Inc. 104 2394 - 38% - 27% N
Coca-Cola Icecek Anonim Sirketi 104 3751 0.11 91% 0.19 44% N

Median - Broad Set 0.21 88% 0.52 41%

Average - Broad Set 0.23 95% 0.38 38%

Median - Considered Set 0.30 129% 0.56 52%

Average - Considered Set 0.33 121% 0.56 44%

We are taking median of considered set as asset beta of the bottling sector
Relative Valuation
In INR Crores
Market Data Financials - LTM Multiples - LTM
Comparable Company
Ticker Market Cap (₹) Debt Enterprise Value Revenue EBITDA Net income EV/EBITDA EV/Sales Price/Sales Price/Earnings

PepsiCo, Inc. PEP ₹ 21,28,995 ₹ 3,89,895 ₹ 24,47,915 ₹ 7,80,938 ₹ 1,35,159 ₹ 78,030 18.1x 3.1x 2.7x 27.3x
The Coca-Cola Company KO ₹ 23,08,005 ₹ 3,72,045 ₹ 25,36,230 ₹ 3,91,595 ₹ 1,31,002 ₹ 91,664 19.4x 6.5x 5.9x 25.2x
Coca-Cola Europacific Partners PLC CCEP ₹ 2,90,785 ₹ 98,005 ₹ 3,77,740 ₹ 1,55,567 ₹ 26,835 ₹ 14,195 14.1x 2.4x 1.9x 20.5x
Coca-Cola HBC AG C0Q.F ₹ 1,00,725 ₹ 29,070 ₹ 1,13,475 ₹ 86,530 ₹ 11,756 ₹ 5,410 9.7x 1.3x 1.2x 18.6x
Monster Beverage Corporation MNST ₹ 4,82,120 ₹ 5,26,235 ₹ 4,51,860 ₹ 62,390 ₹ 17,706 ₹ 14,280 25.5x 7.2x 7.7x 33.8x

High 25.5x 7.2x 7.7x 33.8x

75th Percentile 19.4x 6.5x 5.9x 27.3x
Average 17.3x 4.1x 3.9x 25.1x
Median 18.1x 3.1x 2.7x 25.2x
25th Percentile 14.1x 2.4x 1.9x 20.5x
Low 9.7x 1.3x 1.2x 18.6x

EV/EBITDA EV/Sales Price/Sales Price/Earnings

Revenue ₹ 16,043 Revenue ₹ 16,043 Revenue ₹ 16,043 Revenue ₹ 16,043
EBITDA ₹ 3,609 EBITDA ₹ 3,609 EBITDA ₹ 3,609 EBITDA ₹ 3,609
Net Income ₹ 2,101 Net Income ₹ 2,101 Net Income ₹ 2,101 Net Income ₹ 2,101
Valuation Multiple EV/EBITDA Valuation Multiple EV/Sales Valuation Multiple Price/Sales Valuation Multiple Price/Earning
EV/EBITDA 18.1x EV/Sales 3.1x Price/Sales 2.7x Price/Earnings 25.2x
Enterprise Value ₹ 65,366 Enterprise Value ₹ 50,288 Equity Value ₹ 43,736 Equity Value ₹ 52,913
Less: Debt (₹ 5,194) Less: Debt (₹ 5,194) Less: Debt - Less: Debt -
Add: Cash ₹ 460 Add: Cash ₹ 460 Add: Cash - Add: Cash -
Less: Minority Interest (₹ 148) Less: Minority Interest (₹ 148) Less: Minority Interest - Less: Minority Interest -
Add: Non- Operating Asset ₹ 65 Add: Non- Operating Asset ₹ 65 Add: Non- Operating Asset - Add: Non- Operating Asset -
Equity Value ₹ 60,550 Equity Value ₹ 45,472 Equity Value ₹ 43,736 Equity Value ₹ 52,913
Less: Equity Options (₹ 133) Less: Equity Options (₹ 133) Less: Equity Options - Less: Equity Options -
Equity Value for Shareholders ₹ 60,417 Equity Value for Shareholders ₹ 45,339 Equity Value for Shareholders ₹ 43,736 Equity Value for Shareholders ₹ 52,913
Ratio Analysis
Actual Explicit Forcast Period Maturity Period
In INR Crores unless stated otherwise FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033

Liquidity Ratio

Current Assets 1,672 1,800 2,546 3,404 4,236 5,548 7,564 9,502 11,093 12,485 15,330 18,195 20,993 24,054 27,356
Current Liabilities 2,221 2,435 3,019 3,969 4,153 4,349 4,391 4,530 4,440 4,367 4,835 5,312 5,786 6,243 6,668
Current Ratio 0.8x 0.7x 0.8x 0.9x 1.0x 1.3x 1.7x 2.1x 2.5x 2.9x 3.2x 3.4x 3.6x 3.9x 4.1x

Current Assets 1,672 1,800 2,546 3,404 4,236 5,548 7,564 9,502 11,093 12,485 15,330 18,195 20,993 24,054 27,356
Inventory 882 929 1,448 1,994 2,151 2,628 3,160 3,744 4,371 5,027 5,711 6,407 7,099 7,767 8,388
Prepaid Expenses 227 187 247 398 739 587 706 837 977 1,123 1,276 1,432 1,586 1,736 1,874
Current Liabilities 2,221 2,435 3,019 3,969 4,153 4,349 4,391 4,530 4,440 4,367 4,835 5,312 5,786 6,243 6,668
Quick Ratio (Acid Test) 0.3x 0.3x 0.3x 0.3x 0.3x 0.5x 0.8x 1.1x 1.3x 1.5x 1.7x 1.9x 2.1x 2.3x 2.6x

Inventory Days 37 days 51 days 49 days 48 days 47 days 49 days 49 days 49 days 49 days 49 days 49 days 49 days 49 days 49 days 49 days
Trade Receivables Days 9 days 14 days 9 days 8 days 8 days 9 days 9 days 9 days 9 days 9 days 9 days 9 days 9 days 9 days 9 days
Creditor Days 54 days 68 days 64 days 48 days 37 days 50 days 50 days 50 days 50 days 50 days 50 days 50 days 50 days 50 days 50 days
Cash Conversion Days -8 days -3 days -6 days 8 days 18 days 8 days 8 days 8 days 8 days 8 days 8 days 8 days 8 days 8 days 8 days

Leverage Ratio / Solvency Ratios

Total Debt 2,823 2,693 3,342 3,695 5,194 4,155 3,324 2,659 1,330 - - - - - -
Total Equity 3,359 3,589 4,197 5,215 7,085 8,904 10,925 13,093 15,302 17,418 19,557 21,630 23,555 25,672 27,966
Debt to Equity Ratio 0.8x 0.8x 0.8x 0.7x 0.7x 0.5x 0.3x 0.2x 0.1x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x

Total Debt 2,823 2,693 3,342 3,695 5,194 4,155 3,324 2,659 1,330 - - - - - -
Total Assets 8,376 8,448 9,579 11,619 15,187 16,565 18,117 20,016 21,319 22,546 25,152 27,702 30,101 32,675 35,395
Debt to Asset Ratio 0.3x 0.3x 0.3x 0.3x 0.3x 0.3x 0.2x 0.1x 0.1x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x

Total Equity 3,359 3,589 4,197 5,215 7,085 8,904 10,925 13,093 15,302 17,418 19,557 21,630 23,555 25,672 27,966
Total Assets 8,376 8,448 9,579 11,619 15,187 16,565 18,117 20,016 21,319 22,546 25,152 27,702 30,101 32,675 35,395
Equity Ratio 0.4x 0.4x 0.4x 0.4x 0.5x 0.5x 0.6x 0.7x 0.7x 0.8x 0.8x 0.8x 0.8x 0.8x 0.8x

Efficiency Ratio

Revenue 7,130 6,450 8,823 13,173 16,043 19,572 23,536 27,890 32,562 37,446 42,538 47,728 52,883 57,854 62,482
Total Assets 8,376 8,448 9,579 11,619 15,187 16,565 18,117 20,016 21,319 22,546 25,152 27,702 30,101 32,675 35,395
Asset Turnover Ratio 0.9x 0.8x 0.9x 1.1x 1.1x 1.2x 1.3x 1.4x 1.5x 1.7x 1.7x 1.7x 1.8x 1.8x 1.8x

Change in Revenue (679) 2,373 4,350 2,870 3,529 3,963 4,354 4,672 4,884 5,093 5,190 5,155 4,971 4,628
Change in Total Assets - 71 1,131 2,040 3,568 1,378 1,552 1,899 1,302 1,227 2,607 2,549 2,399 2,574 2,720
Reinvestment Ratio - - - 2.1x 0.8x 2.6x 2.6x 2.3x 3.6x 4.0x 2.0x 2.0x 2.1x 1.9x 1.7x

COGS 3,219 2,764 4,035 6,261 7,405 9,003 10,779 12,718 14,783 16,926 19,227 21,573 23,903 26,150 28,242
Inventory 882 929 1,448 1,994 2,151 2,628 3,160 3,744 4,371 5,027 5,711 6,407 7,099 7,767 8,388
Inventory Turnover Ratio 3.7x 3.0x 2.8x 3.1x 3.4x 3.4x 3.4x 3.4x 3.4x 3.4x 3.4x 3.4x 3.4x 3.4x 3.4x
Ratio Analysis
Actual Explicit Forcast Period Maturity Period
In INR Crores unless stated otherwise FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033

Profitability / Margins Ratio

Gross Profit 3,910 3,686 4,789 6,912 8,638 10,569 12,756 15,172 17,779 20,520 23,311 26,155 28,980 31,704 34,240
Total Sales 7,130 6,450 8,823 13,173 16,043 19,572 23,536 27,890 32,562 37,446 42,538 47,728 52,883 57,854 62,482
Gross Margin 55% 57% 54% 52% 54% 54% 54% 54% 55% 55% 55% 55% 55% 55% 55%

EBITDA 1,448 1,202 1,655 2,788 3,609 3,954 4,801 5,745 6,773 7,864 8,933 10,023 11,105 12,149 13,121
Total Sales 7,130 6,450 8,823 13,173 16,043 19,572 23,536 27,890 32,562 37,446 42,538 47,728 52,883 57,854 62,482
EBITDA Margin 20% 19% 19% 21% 22% 20% 20% 21% 21% 21% 21% 21% 21% 21% 21%

EBIT 959 673 1,123 2,171 2,928 3,304 4,027 4,914 5,885 6,920 7,935 8,972 10,004 11,000 11,927
Total Sales 7,130 6,450 8,823 13,173 16,043 19,572 23,536 27,890 32,562 37,446 42,538 47,728 52,883 57,854 62,482
EBIT Margin 13% 10% 13% 16% 18% 17% 17% 18% 18% 18% 19% 19% 19% 19% 19%

Net Profit 472 357 746 1,550 2,101 2,275 2,887 3,613 4,418 5,291 6,111 6,908 7,701 8,467 9,180
Total Sales 7,130 6,450 8,823 13,173 16,043 19,572 23,536 27,890 32,562 37,446 42,538 47,728 52,883 57,854 62,482
Net Profit 7% 6% 8% 12% 13% 12% 12% 13% 14% 14% 14% 14% 15% 15% 15%

Net Profit 472 357 746 1,550 2,101 2,275 2,887 3,613 4,418 5,291 6,111 6,908 7,701 8,467 9,180
Total Assets 8,376 8,448 9,579 11,619 15,187 16,565 18,117 20,016 21,319 22,546 25,152 27,702 30,101 32,675 35,395
Return on Assets 6% 4% 8% 13% 14% 14% 16% 18% 21% 23% 24% 25% 26% 26% 26%

Net Profit 472 357 746 1,550 2,101 2,275 2,887 3,613 4,418 5,291 6,111 6,908 7,701 8,467 9,180
Average Shareholders Equity 2,663 3,426 3,802 4,591 6,019 7,846 9,767 11,861 14,049 16,212 18,340 20,445 22,444 24,465 26,671
Return on Equity 18% 10% 20% 34% 35% 29% 30% 30% 31% 33% 33% 34% 34% 35% 34%

Coverage Ratio

Total Debt 2,823 2,693 3,342 3,695 5,194 4,155 3,324 2,659 1,330 - - - - - -
EBITDA 1,448 1,202 1,655 2,788 3,609 3,954 4,801 5,745 6,773 7,864 8,933 10,023 11,105 12,149 13,121
Debt to EBITDA Ratio 1.9x 2.2x 2.0x 1.3x 1.4x 1.1x 0.7x 0.5x 0.2x 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x

EBIT 959 673 1,123 2,171 2,928 3,304 4,027 4,914 5,885 6,920 7,935 8,972 10,004 11,000 11,927
Interest Expense 310 281 185 186 268 369 295 236 158 53 - - - - -
Debt Repayment 129 (648) (353) (1,499) 1,039 831 665 1,330 1,330 - - - - -
Debt Service Coverage Ratio 1.6x -2.4x -13.0x -2.4x 2.3x 3.6x 5.5x 4.0x 5.0x - - - - -

EBIT 959 673 1,123 2,171 2,928 3,304 4,027 4,914 5,885 6,920 7,935 8,972 10,004 11,000 11,927
Interest Expense 310 281 185 186 268 369 295 236 158 53 - - - - -
Interest Coverage Ratio 3.1x 2.4x 6.1x 11.7x 10.9x 8.9x 13.6x 20.8x 37.4x 131.8x - - - - -
DuPont Analysis
RETURN ON EQUITY (ROE)
FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033
NET PROFIT 472 357 746 1,550 2,101 2,275 2,887 3,613 4,418 5,291 6,111 6,908 7,701 8,467 9,180
AVERAGE SHAREHOLDERS EQUITY 2,663 3,426 3,802 4,591 6,019 7,846 9,767 11,861 14,049 16,212 18,340 20,445 22,444 24,465 26,671
RETURN ON EQUITY 17.73% 10.43% 19.62% 33.76% 34.91% 28.99% 29.56% 30.46% 31.45% 32.64% 33.32% 33.79% 34.31% 34.61% 34.42%

ROE - DUPONT EQUATION

FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033
NET PROFIT 472 357 746 1,550 2,101 2,275 2,887 3,613 4,418 5,291 6,111 6,908 7,701 8,467 9,180
REVENUE 7,130 6,450 8,823 13,173 16,043 19,572 23,536 27,890 32,562 37,446 42,538 47,728 52,883 57,854 62,482
NET PROFIT MARGIN (A) 6.62% 5.54% 8.46% 11.77% 13.10% 11.62% 12.27% 12.95% 13.57% 14.13% 14.37% 14.47% 14.56% 14.63% 14.69%

REVENUE 7,130 6,450 8,823 13,173 16,043 19,572 23,536 27,890 32,562 37,446 42,538 47,728 52,883 57,854 62,482
AVERAGE TOTAL ASSETS 7,187 8,412 9,013 10,599 13,403 15,876 17,341 19,067 20,668 21,932 23,849 26,427 28,901 31,388 34,035
ASSET TURNOVER RATIO (B) 0.99 0.77 0.98 1.24 1.20 1.23 1.36 1.46 1.58 1.71 1.78 1.81 1.83 1.84 1.84

AVERAGE TOTAL ASSETS 7,187 8,412 9,013 10,599 13,403 15,876 17,341 19,067 20,668 21,932 23,849 26,427 28,901 31,388 34,035
AVERAGE SHAREHOLDERS EQUITY 2,663 3,426 3,802 4,591 6,019 7,846 9,767 11,861 14,049 16,212 18,340 20,445 22,444 24,465 26,671
EQUITY MULTIPLIER (C) 2.70 2.46 2.37 2.31 2.23 2.02 1.78 1.61 1.47 1.35 1.30 1.29 1.29 1.28 1.28

RETURN ON EQUITY (A*B*C) 17.73% 10.43% 19.62% 33.76% 34.91% 28.99% 29.56% 30.46% 31.45% 32.64% 33.32% 33.79% 34.31% 34.61% 34.42%

RETURN ON ASSETS (ROA)

FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033
NET PROFIT 472 357 746 1,550 2,101 2,275 2,887 3,613 4,418 5,291 6,111 6,908 7,701 8,467 9,180
AVERAGE TOTAL ASSETS 7,187 8,412 9,013 10,599 13,403 15,876 17,341 19,067 20,668 21,932 23,849 26,427 28,901 31,388 34,035
RETURN ON ASSETS (ROA) 6.57% 4.25% 8.28% 14.63% 15.68% 14.33% 16.65% 18.95% 21.38% 24.13% 25.62% 26.14% 26.65% 26.97% 26.97%

ROA - DUPONT EQUATION

FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033
NET PROFIT 472 357 746 1,550 2,101 2,275 2,887 3,613 4,418 5,291 6,111 6,908 7,701 8,467 9,180
REVENUE 7,130 6,450 8,823 13,173 16,043 19,572 23,536 27,890 32,562 37,446 42,538 47,728 52,883 57,854 62,482
NET PROFIT MARGIN (A) 6.62% 5.54% 8.46% 11.77% 13.10% 11.62% 12.27% 12.95% 13.57% 14.13% 14.37% 14.47% 14.56% 14.63% 14.69%

REVENUE 7,130 6,450 8,823 13,173 16,043 19,572 23,536 27,890 32,562 37,446 42,538 47,728 52,883 57,854 62,482
AVERAGE TOTAL ASSETS 7,187 8,412 9,013 10,599 13,403 15,876 17,341 19,067 20,668 21,932 23,849 26,427 28,901 31,388 34,035
ASSET TURNOVER RATIO (B) 0.99 0.77 0.98 1.24 1.20 1.23 1.36 1.46 1.58 1.71 1.78 1.81 1.83 1.84 1.84

RETURN ON ASSETS (A*B) 6.57% 4.25% 8.28% 14.63% 15.68% 14.33% 16.65% 18.95% 21.38% 24.13% 25.62% 26.14% 26.65% 26.97% 26.97%

Key Takeaways of the Dupont Analysis:

Profitability Improvement: The significant growth in net profit margin indicates better cost management and increased revenue generation.
Efficiency in Asset Utilization: The consistent rise in asset turnover ratio shows the company’s improved operational efficiency.
Reduced Financial Leverage: The declining equity multiplier points to a strategic shift towards a more equity-financed structure, reducing financial risk.
Disclaimer: This report is created for an educational assignment and is intended solely for
educational purposes. The author does not accept liability for any losses resulting from actions
taken based on this report. It is recommended to seek advice from a SEBI registered research
analyst before making any investment decisions.