The beverage industry is a dynamic sector that includes the production, distribution, and sale of both alcoholic and non-alcoholic drinks. It covers a wide range of products, from carbonated soft drinks and bottled water to juices, energy drinks, and alcoholic beverages.
The industry is driven by changing consumer preferences, health trends, and innovation in product offerings. It plays a crucial role in the global economy, contributing to employment and economic growth.
Company Overview
Varun Beverages Limited (VBL) is a prominent player in the beverage industry and the second-largest franchisee of PepsiCo globally, outside the United States. The company operates extensively across India, covering 27 states and 7 union territories, and has an international footprint in countries like Nepal, Sri Lanka, Morocco, Zambia, and Zimbabwe.
The company offers a wide range of beverages, including carbonated drinks like Pepsi, 7up, Mirinda, and Mountain Dew, non-carbonated options like Tropicana juice and Aquafina water, and dairy products such as Cream Bell Milkshakes, catering to diverse consumer tastes.
New Products and Innovations
The company entered the snack foods business with PepsiCo in Morocco, Zimbabwe, and Zambia. It also launched low and no-sugar products, which now make up 53 percent of consolidated sales volume. Additionally, the upcoming launch of Sting Gold aims to expand flavor options in the energy drink segment.
Key Developments
The key developments include the Acquisition of South Africa and Neighboring Territories, Exclusive Snacks Franchising Appointment with PepsiCo, Acquisition of Tanzania and Ghana Territories, Commencement of Commercial Production at 4 Greenfield facilities, Qualified Institutions Placement (QIP) Issue, Dividend Declaration, and the Sub-division of Equity Shares.
Capex
The company successfully raised Rs. 75 billion through a Qualified Institutional Placement (QIP). For CY2024, net CAPEX was Rs. 45 billion, with major investments in Greenfield facilities in India and DRC and the projected CAPEX for CY2025 is Rs. 31 billion, focused on new facilities and expansions.
Financial Performace
The company’s revenue rose by 39.47 percent from Rs. 2,676.81 crore to Rs. 3,733.43 crore in Q3FY24-25. Meanwhile, Net profit rose from Rs. 131.97 crore to Rs. 185.15185.15 crore during the same period. In terms of returns ratio, the company ROE and ROCE should be 15.62 percent and 19.98 percent, respectively.
The Brokerage’s projection as the summer season advances
Citi Research: It predicts that Varun Beverages’ share price could surge in the next 90 days, driven by increased earnings from the approaching summer season and recent business acquisitions in Africa. Citi believes the recent correction was excessive, making the stock’s risk-reward outlook favorable in the medium to long term.
JM Financial: JM Financial maintains a ‘Buy’ rating on Varun Beverages with a target price of Rs 675 per share, offering a 27 percent upside. The brokerage believes the recent correction was excessive and views the market pessimism as a buying opportunity.
DAM Capital: It maintains a ‘Buy’ rating on Varun Beverages with a target price of Rs 670, suggesting a 26 percent upside. The firm expects strong near-term demand driven by a hotter summer and a 20 percent capacity expansion.
KR Choksey: They maintain a ‘Buy’ rating on Varun Beverages with a target price of Rs 657, indicating a 23 percent upside. The firm highlights strong performance in CY24, driven by volume growth, improved product mix, and recent acquisitions.
Asit C Mehta: It initiated coverage on Varun Beverages with a ‘Buy’ rating, citing strong execution in India, the potential for distribution growth, and expanding presence in Africa. The brokerage noted VBL’s significant role in PepsiCo’s India operations, contributing 90% of the beverage volume.
CLSA: They upgraded Varun Beverages to a ‘high conviction’ Outperform from ‘Outperform’ and slightly reduced its target price to Rs 770 per share from Rs 802. The new target price still suggests a 45 percent upside, with CLSA highlighting an attractive risk reward despite increasing competition.
Written by Sridhar J
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