From the classic cup of coffee that jumpstarts our morning to the refreshing glass of juice that quenches our thirst on a hot day, beverages are an essential part of our daily lives. They provide hydration, essential nutrients, and even a moment of pleasure. 

Beverage companies are the silent heroes behind everyday moments, crafting a wide array of liquid magic that goes beyond quenching thirst. Companies like Varun beverages play a critical role in ensuring people have access to hydrating drinks across the vast expanse of the country. 

VBL being a major franchise bottler for PepsiCo in India, doesn’t just produce popular beverages, they contribute to quenching the thirst of millions of people. Come let’s learn more about the Varun beverages. 

Industry Overview Of Varun Beverages

The Indian soft drinks industry encountered a challenging yet progressive year in 2023. Despite unseasonal rains disrupting sales during the critical summer season, the industry adeptly adjusted to evolving consumer preferences and maintained steady growth. The energy drinks segment, emerging as a growth category in 2022, continued its expansion through 2023.

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The broader soft drinks market, including carbonates, juices, and bottled water, also sustained growth during the year. Carbonates remained the largest category by volume and value, reflecting their enduring popularity among Indian consumers. Industry growth was fueled by expanding demographic profiles, a burgeoning middle-class population, and increasing disposable incomes.

Urbanization played a significant role, with more people relocating themselves to urban areas, leading to greater exposure and demand for varied soft drink options. Moreover, the advancement of electrification and improved electricity supply, especially in rural areas, contributed significantly to the industry’s growth.

Enhanced infrastructure facilitated better cold storage and distribution capabilities, enabling broader market reach and product availability in under-penetrated markets. The Indian soft drinks market is poised for substantial growth, driven by factors such as the country’s youthful demographics, accelerated urbanization, rising incomes, increased household spending, rural advancements, and enhanced electrification.

Additionally, the industry’s focus on introducing innovative products, such as new and creative flavors and packaging solutions, caters to the preferences of the large young population, further driving the market’s growth.

Company Overview Of Varun Beverages

Varun Beverages Limited (VBL) is an Indian multinational firm that produces, bottles, and distributes beverages. It is the world’s largest bottling company for PepsiCo beverages outside of the United States, as well as the largest in the AMESA (Africa, Middle East and South Asia) sector. 

The company was established in 1995 as a subsidiary of RJ Corporation and was named after founder Ravi Jaipuria’s kid. As a company it manufactures, distributes and sells a wide range of CSD (Carbonated soft drinks) and non carbonated beverages which includes packaged drinking water. 

The brands produced and sold under Pepsico CSD by Varun beverages include Pepsi, Pepsi Black, Seven Up, Seven Up Nimbooz masala soda, Mirinda Orange, Mountain Dew, Sting and Evervess. NCB brands of PepsiCo produced and sold includes Tropicana Slice, Seven Up Nimbooz, Gatorade and packaged drinking water under the brand named Aquafina.

Varun beverages has exclusive licenses to bottle and distribute PepsiCo beverages in 27 Indian states and 7 union territories. This covers nearly 90% of the sales volume for PepsiCo drinks in India. VBL has also been granted franchise rights in Nepal, Sri Lanka, Morocco, Zambia, and Zimbabwe. In Fiscal 2022, India was the largest market, accounting for almost 80% of total operating revenues. 

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Financials Of Varun Beverages 

FY 2023FY 2022FY 2021FY 2020
Revenue (in crores)16,32113,3908,958.296,555.79
Net profit (in crores)2,101.811,550.11746.05357.27
ROE34.92%33.76%19.62%12.15%
ROCE27.83%26.42%16.57%10.42%

In the Financial year 2023, Varun beverages saw a substantial increase in revenue by 21.88% to reach 16,321 crores as compared to 13,390 crores in FY 2023. Analysing three years, encompassing FY 2021 to FY 2023, the company displayed a good compound annual Growth Rate (CAGR) of 35.53% in revenue. 

Varun Beverages limited in FY 23 also increased its net profit margin by 35.59% to 2,101.81 crores as opposed to 1550.11 crores in FY 22. This increase in revenue and net profit happened because of expansion taken by the company during FY 2023 to have new production facilities in Bundi, Rajasthan and Madhya Pradesh and reduced manufacturing cost also significantly contributed to its gain. 

In FY 23, VBL maintained favourable financial metrics with a Return on Equity (ROE) of 34.92% and a Return on Capital Employed (ROCE) of 27.83%

Future Plans Of Varun Beverages

Varun Beverages plans to sustain its healthy growth momentum by further strengthening its market position in both India and international markets. The company is focused on product categories aligned with evolving consumer preferences, such as juices, energy drinks (Sting), and value-added dairy beverages.

A key growth driver will be the capacity expansion through new greenfield and brownfield facilities. The company has commissioned multiple new plants across key geographies in 2023 and plans further expansions in 2024, including facilities in Gorakhpur, Khurda (Orissa), and the Democratic Republic of Congo (DRC). These expansions are expected to increase Varun Beverages’ peak month capacity in India by around 45% compared to 2022.

The company has also announced the acquisition of the Beverage Company (BevCo), subject to regulatory approvals. BevCo holds franchise rights for PepsiCo beverage products in South Africa, Lesotho, Eswatini, Namibia, and Botswana. This acquisition aligns with Varun Beverages’ strategic goals and will significantly enhance its presence in the African market, known for high demand for soft drinks and favorable demographics.

Additionally, Varun Beverages remains committed to sustainability and environmental stewardship. It is making investments in using green energy and reusing PET ( Polyethylene terephthalate), aiming to mitigate environmental impact and nurture a greener future.

Conclusion

Varun Beverages concluded the year 2023 on a strong note, despite facing challenges from abnormally high unseasonal rains during the peak season. The company witnessed healthy double-digit volume growth in both the Indian and international markets, driven by its focus on strengthening market presence, expanding distribution network, and enhancing chilling infrastructure.

With a robust operational and financial performance, significant capacity expansions, and strategic acquisitions, Varun Beverages is well-positioned to sustain its growth momentum in the forthcoming years.

The company’s strategic investments, coupled with proven execution capabilities and operational excellence, should enable it to deliver sustainable value to its stakeholders while capitalizing on the growing demand for soft drinks in its markets.

Written by Pavunkumar V M

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