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PepsiCo likely to go for a float in two years

Surajeet Das Gupta

Soft drink giant PepsiCo India might go public in the next two years.According to top sources, PepsiCo is well prepared to take the company public as it is expected to make profits from its operations in the next few years.

PepsiCo executives said: "It is logical for us to go public depending on government regulations and after we make profits in the company". Arch rival Coca-Cola is also expected to float an initial public offer to offload 49 per cent stake to resident shareholders including the public in 2002. Sources also pointed out that the move to go public could happen even earlier if the government relaxed the existing regulations under which a new company has to divest a minimum of 25 per cent shareholding if it goes for an initial public offer.

As the entire investment in India is in the form of equity, we are not sure whether the Indian public can absorb a 25 per cent offloading of our equity capital immediately. PepsiCo will invest between Rs 750 million to Rs 1 billion every year in the next three-to-five years in order to expand its operations.

Sources said Pepsi is already making cash profits but has chosen to make fresh investments to build up its business every year which includes expanding the cold-chain, replacing of old bottles, among others. PepsiCo has decided to concentrate on other areas of the beverages market apart from carbonated drinks. These include fresh forays into the flavours market and also foray into juices. To begin with it has recently launched Mirinda Apple flavour in the market and is testing other flavours.On whether Quaker Oates, which has been recently bought over by PepsiCo would come to India, the sources pointed out that the introduction of these products will follow the international pattern.

At the moment he said discussions are veering around bringing the soft drink brands of Quaker Oates into PepsiCo's beverage business while the snack foods business could be merged with Frito Lay, PepsiCo's snack food company. The soft drinks manufacturers have not made profits till date because of high investments and comparatively low penetration in the market. Both PepsiCo and Coca-Cola have been asking the government for tax incentives so that they can break the price barrier and thereby be able to cater to a larger market. However, such tax sops are hard to come by. In fact, in December 2000, Coca-Cola had sought government's permission to defer its proposed sale of 49 per cent equity stake to Indian shareholders by 2002.

Coca-Cola India, which at present is a wholly-owned subsidiary, said it was difficult for it to float an IPO because it had faced losses in its Indian operations and the stock market was down. It said that the Indian bottling operations had recorded impairment charges of around Rs 15.83 billion in the second quarter of 2000.

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