Paperboat: Leverage v/s Equity Financing

Hector Beverages branded popularly as Paperboat by Elephant Design was kick started by Mr. Neeraj Kumar Kakkar, Mr. Suhas Nath Misra and Mr. James Paul Nuttall. Recently between 2014-2015, both Mr. Suhas Nath Misra and Mr. James Paul Nuttall exited their investments in Hector Beverages and transferred their shares to SCI Growth Investments II (Sequoia), Catamaran Management Services, Mr. Neeraj Biyani, Mr. Neeraj Kumar Kakkar and others. In the same period Hector Beverages raised capital investments of INR 2700 Million through bank loans and private placements for accelerating its growth by expanding its market to southern India and setting up a second manufacturing factory in Mysuru. Furthuremore Paperboat diversified its portfolio of beverages to include milk based beverages and coconut water and additionally a new R&D Lab at Whitefield, Bengaluru was also setup to work on ambitious new product development.

Nexensus explores the Capitalization by Hector Beverages. Also See Report on Packaged Beverage Industry

Paper boat Investments Time Line

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Probably like many other startups there may have been a disagreement between the founding members of whether to focus on organic development at the cost of losing the first movers advantage or achieving high growth in a short span by diluting significant stake in the company. Post exit of two founding members, Mr.Neeraj Kakkar seems to have taken a balanced approach to capitalize the company in raising 21% of the total funds through bank loans and remaining through strategic investments. Mr. Neeraj Biyani stepped in Paperboat around 2011 and continues to be a front runner promoter.

Capital SourceAmount (INR Million)% Contribution in Capital Major Contributors
Bank Loans70025.6%Punjab National Bank, Federal Bank Limited
Private Placements (CCPS)203074.3%SCI Growth Investments II (Sequoia),Catamaran Management Services, Advent Management Belgium, Hill House Cd Holding Ltd

Paperboat Shareholding Structure

Hector beverages OwnershipBetween 2015 & 2016, Hector Beverages took Bank loans of INR 700 Million. A steady and strong top line of INR 300 Million, doubling each year may have put the company in strong foothold to leverage its asset for infusing capital in the company.

Since promoters have managed to keep a balance between Loans and Equity dilution, promoter shareholding was 23% in 2015, with Neeraj Kumar Kakkar and Neeraj Biyani adjusting the masts and taking charge of steering paperboat as envisaged.

Additionally various other startups including Snapdeal, Flipkart & Housing.com where promoters have insignificant stake (much below 10%) left in the company, promoters in Hector beverages continue to hold a significant stake in the company.

Investment at High Valuations

Since its inception in 2009 till 2014 for almost 6 years the promoters and investors infused INR 600 Million in the company. But since 2015 in merely 2 years, Paperboat has raised a stellar INR 2730 Million in debt and private placements.

PaperBoat’s founder Neeraj Kakkar adopted to grow the company steadily with periodic but smaller investment in the initial stages when the company had lower valuations of Rs 40 to Rs 230 per share.

It is especially relevant that majority of the funds infused in the company through private placements were made at a higher valuation of Rs 598 – Rs 617 per share in 2015. This has kept the founder Mr.Neeraj Kakkar from early dilution of his stake in the company.

As a result Hector beverages is one in many companies whose valuation has only increased year on year with every round of investment raised. From Rs. 40/- per share in 2010, the company was valued at Rs 617.99 per share in 2015.valuation-papeer-boat

Conclusion

Especially within the capital intensive functional beverages sector, where very few newbies have dared to foray, let alone traditional beverages, Hector Beverages Private Limited has already infused INR 3330 Millon from 2009 to 2016, as the growth in revenue follows with a strong foothold .

Even-though two of the founding members exit the company, currently the promoters have managed to keep their original dream alive through a balance between Leverage and Equity dilution.

boxHector Beverages, paper BoatFinally there have been a series of funding rounds since 2010 to keep pace with the growing demands with institutional investors like Sequoia Capital,Catamaran Management Services, Footprint Ventures, Advent Management and Hill House Cd Holding. 

Hence Hector Beverages is a rare case in the start up world of being sufficiently capitalized without being excessive equity financing.To find out more about Investments in Hector Beverages or any other brand of functional beverages contact us for a exhaustive report.

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