Varun Beverages is a proxy to the Indian soft drink market because there is no listed player as such except for Manpasand. This company has huge operations not only in India but in many international countries as well. It is one of the biggest franchisee of Pepsico outside US.
They have set up a new manufacturing unit in Hardoi, UP in the very recent past and that is going to add to the numbers going forward and moreover they are looking towards acquisition for further growth in manufacturing and distributions.
The IPO proceeds would help Varun Beverages in reducing the debt which would again reduce the interest cost that will again help and increase the bottom line and numbers. With rising consumer preference towards cold drinks and rising temperatures, there is a huge scope for this kind of company going forward and we expect that 35% CAGR growth on the bottom line in the next three years. Although valuation at this point of time looks to be on a higher side, but considering the fact that the company is looking for expansion, it is one of the largest franchisee of Pepsico outside US and given the huge opportunity as Pepsi is looking for venturing outside the carbonated drinks, there is a scope for appreciation and we recommend this stock with a buy for a price target of may be Rs 560 in the next six to nine months.
EID Parry has got 9 sugar factories with a capacity of around 39,000 tons crushing capacity. They have 1600 megawatt of power plant and three distilleries with around 230 Kl/day of capacity. They have gone for huge debt reduction which has reduced the interest cost, the sugar industry as such is doing well and the best part is this company holds 62% holding in Coromandel International.
So indirectly there is a fertiliser play also and that is also doing well considering the fact that the government is giving a huge focus on rural economy. The market cap of EID Parry is Rs 5500 crore and the holding itself of Coromandel is Rs 7000 crore odd. That leaves a huge scope for appreciation. If we give 35-40% discount to the holding company discount to the market cap of Coromandel, we feel that the SOTP valuation of EID Parry should be somewhere around Rs 400 plus levels. Hence we recommend a buy