manpasand beverages in deep trouble

Manpasand is running out of juice
The auditor's resignation might have made headlines — but it’s only a symptom of a much bigger problem eating into the company.
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Soumya Gupta
30 May 2018
 ETORRES/SHUTTERSTOCK
This is my last season selling Mango Sip.Manpasand distributor in Varanasi
What happened? Manpasand Beverages Pvt Ltd, the marketer of Mango Sip juice, one of the hot consumer companies to have emerged in the last three years, has seen more than 1/3 (~40%) of its market value evaporate over the last five days. So sharp has been the drop in its stock price that trading in Manpasand has been halted.

 The stock is now trading below INR320, the price at which it listed in July 2015*.
 Its auditors Deloitte Haskins & Sells, Baroda — one of the big 4 accounting firms — resigned a few days before the company’s quarterly results, scheduled to be announced today.
 The board meeting and results announcement have been cancelled.
 Deloitte in a letter to the promoters said it was resigning because the company refused to give crucial information to complete the auditing result, as per a report in Bloomberg Quint.
Why is Manpasand significant? Brokerages and investors had positioned Manpasand as a great consumption story based on rural demand. Its public issue was oversubscribed 1.4 times, and it had raised private equity from SAIF Partners.

Since going public, Manpasand Beverages has done brisk business with over 41% CAGR in revenues between FY15 and FY17 (full-year data for FY18 is not yet available). As of FY17, it was a INR700 crore brand. Its closest and bigger rival, Parle Agro, marketer of Frooti mango drink which defines this category, grew at just 17.31% CAGR between FY14 and FY16. Till date, it has given its investors nearly 69% returns since the day it listed.  In November 2017, equities-brokerage firm Motilal Oswal published a report with top stock ideas for investors looking to bet their money on India's rural opportunity. Among them was Hindustan Unilever, India’s largest FMCG firm, Mahindra & Mahindra, among the country’s top three auto makers, and Manpasand Beverages (MANB).

"MANB is primarily focused on the rural market. This is evident in its competitively priced small SKUs and continuously-expanding rural distribution network," the report said.

"In the last one year its rural outlets have doubled to ~500k. Moreover, with access to 4.5m Parle outlets pan-India, MANB is in a sweet spot to penetrate the rural market across geographies."

In November 2017, the brokerage had a buy rating on the stock with a target price of INR492, which was 19% higher than its prevailing market price at the time. As per stock-exchange data, the scrip has fallen 32% since that time.

Where is the trouble? In December 2016, Amit Mantri, fund manager at portfolio-management services firm 2Point2Capital, wrote a blog post titled 'The Curious Case of Manpasand Beverages', which said the company’s growth in revenues and claims to market share do not square with the rest of the industry.

With competition from PepsiCo, Coca-Cola, Dabur, and Parle Agro, Manpasand has its work cut out in gathering market share. Mango juice is over 85% of the fruit-juice market in India, making the category already well established and heavily competitive. According to recent Euromonitor rankings, in the mango-juice category Manpasand does not figure in India’s top five juice makers. Besides, the juice market has grown just 6.6% in volume and 10.2% in value year on year between 2016 and 2017, according to latest Euromonitor data. So Manpasand’s growth is a massive outlier. No other mango-juice seller is showing growth rates even close to Manpasand’s.

Manpasand’s distrubution channel does not reflect brokerages’ enthusiasm. ET Prime spoke to the company’s distributors and they weren’t a happy lot. Manpasand has a policy of selling its inventory outright without any returns. If distributors can’t sell it further down to the retailers, they have to bear the cost.

According to a mango-juice distributor in Varanasi, Manpasand product management policies leave much to be desired. "This is my last season selling Mango Sip," he says, requesting anonymity.

"The company undercuts the area they demarcate for their distributors. Ever since their plant has come up in the city, they are distributing their product to anyone who is willing to pick it up. That’s why my margins are suffering; they are already low at 35%. Besides, the company does not take back damaged or expired stock, which eats even more into my margins."

Mantri, who wrote the December 2016 blog post, says he found similar stories in his interactions with distributors and retailers in Manpasand’s biggest markets — UP, Rajasthan, and Gujarat.

"A lot of distributors and retailers have told us they end up buying the products because the company tells them, ‘we are listed, we have Sunny Deol and Tapsee Pannu as brand ambassadors,’ he says. “But distributors get stuck with inventory that is not selling. Some shops with Mango Sip hoardings say they are simply earning a fee from the company to keep the hoarding. They don’t end up selling the product at all."

Another distributor in Navi Mumbai says he quit the business because margins were low and the company could not supply enough to keep up with demand in his area. He requested anonymity.

Last year, Manpasand tied up with Parle Products to get access to their distribution system. Before this deal, the company had access to just about 100 distributors**. Now, it has 500-600 more, according to an executive at Parle privy to the details. With increase in distribution coverage, channel management becomes much more demanding. Manpasand is probably realising this now.

Where does this leave Manpasand’s investors? The stock has hit the lower circuit twice in the last two days, meaning trade in the stock is halted as a caution against uncontrolled selling. But large institutional investors are in trouble if they wish to exit their positions now. "Who is the new buyer who will come in?" Mantri asks. "The shareholding is largely institutional and there is not much free float outside of institutional holdings. So any buyer will now have to understand why the auditors have raised a red flag on financials, and also address concerns that we have raised on multiple occasions, including in our blog post."

(Corrections and clarifications:
*Although it is above its adjusted issue price of INR160, calculated after a 1:1 bonus issue in September 2017.
**In an email to us after this story was published, Manpasand denied this, saying it has 2,500 distributors. ET Prime could not independently verify this. In its email, the company also said the following: "Deloitte has been auditor of Manpasand Beverages Limited for 8 long years, and we have been providing all required information as and when required by them. While there could have been some delays but we have never denied sharing any information with them," Abhishek SIngh, Director, Manpasand Beverages, said in an email reply.)




CONTRIBUTORS WHO HAVE COMMENTED ON THIS STORY
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 Soumya Gupta ET Prime, Senior Staff Writer
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 Madhumita Chakraborty VentureNext, CEO
1 CONTRIBUTOR COMMENT
• FEATURED
31 May 2018 
Madhumita Chakraborty
CEO , VentureNext
Hi Soumya, Very nice post. I am curious about the conflict of interest issue here - if MOST owns 5.5% of a stock, how can they recommend it to investors?

If possible can you pl share the exact conflict of interest rule.

Thanks!
Liked 5 likes
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Soumya Gupta
Senior Staff Writer , ET Prime

Hi Madhumita, thank you for the feedback! I checked with our financial markets editor Pravin Palande, and as far as we know, there is no rule preventing PMS and mutual funds from recommending stocks they are invested in. A counter argument could be that since Motilal Oswal was also invested heavily in Manpasand, they have skin in the game. Their investments took the big hit as much as anyone who put money in Manpasand based on their recommendations.