Varun Beverages Limited
Know the Company
Varun Beverages Ltd (VBL) is one of the world’s largest franchise bottlers for PepsiCo, and the second-largest PepsiCo franchise outside the United States. VBL has franchise rights across 10 countries and distribution rights in an additional four countries across the globe. The Company manufactures and distributes PepsiCo’s popular beverages and snacks including Pepsi, Pepsi Black, Mountain Dew, Sting, Seven-Up, Mirinda, Tropicana Juices, Gatorade, and Aquafina, along with snacks such as Lays, Cheetos, Doritos, and Kurkure. VBL also markets its own brands, ‘Refreshhh’ and Cream Bell, extending its product offerings beyond PepsiCo.
OPEN AN ACCOUNT
Invest in stocks curated and picked by our research team.
In India, VBL holds an extensive presence across 27 states and 7 Union Territories, accounting for approximately 90% of PepsiCo India’s beverage sales volume. Internationally, the company operates in countries like Nepal, Sri Lanka, Morocco, Zambia, and Zimbabwe, collectively reaching over 1.4 billion consumers. India remains VBL’s core market, contributing around 79% of its revenue, with the remaining income comes from its international operations. Expanding its African footprint, VBL agreed to acquire ‘BevCo’ in South Africa and launched a subsidiary, VBL Mozambique, SA, to manage distribution in Mozambique.
VBL’s operational infrastructure comprises 39 advanced manufacturing facilities, including 33 in India and 6 internationally, along with over 120 depots, a fleet of over 2,500 vehicles, and more than 2,400 primary distributors.
Business Model
VBL manufactures and distributes a wide range of PepsiCo’s carbonated and non-carbonated beverages, including packaged drinking water. Operating under an integrated business model, VBL oversees all stages from manufacturing and distribution to customer management and cash flow. PepsiCo supplies brands, concentrates, and marketing support, while VBL manages manufacturing, supply chain, and capital strategies to drive market share and cost efficiencies. With a robust distribution network spanning urban, semi-urban, and rural markets in India, VBL maximizes market penetration, effectively meeting competition, market demands, and evolving consumer preferences across its licensed territories.
Strengths
VBL enjoys a successful partnership with PepsiCo for over three decades, continuously expanding its territories to produce and distribute a broader range of PepsiCo beverages. Focused on enhancing geographical reach, VBL has invested significantly in local infrastructure, including manufacturing units and supply chains, to support seamless operations. Over the past years, the company has launched numerous greenfield and brownfield facilities and expanded its distribution and chilling networks to strengthen its market reach.
Aggressive expansions:
VBL is expanding both domestically and internationally, with a focus on untapped markets in India and Africa. In a strategic move to expand its African footprint, VBL agreed to acquire 100% stake in The Beverage Company (BevCo) in South Africa for approximately Rs 1320 Crore. This acquisition provides VBL with PepsiCo franchise rights in South Africa, Lesotho, and Eswatini, and distribution rights in Namibia and Botswana. BevCo’s own brands, including popular energy drink “Reboost” and CSDs like “Refreshhh,” “Coo-ee,” and “Jive,” comprise about 85% of its international sales volumes.
VBL also has incorporated a new subsidiary in Mozambique, named, ‘VBL Mozambique, SA,’ to expand its distribution network in Mozambique. In October 2023, VBL increased its stake in Lunarmech Technologies Private Limited to 60.07%, with an additional purchase of 5.03% for Rs 100 million. Lunarmech manufactures plastic closures for VBL. This integration will help VBL to tap into Africa’s high-demand markets, bringing substantial future synergies and growth opportunities.
VBL’s operational progress further extends to international markets, with the launch of a greenfield facility in the Democratic Republic of Congo (DRC). Operating at full capacity on a three-shift schedule, the DRC plant’s success has prompted plans for further expansions and backward integration. Domestically, new facilities across India are also on track for completion before peak season next year, supporting VBL’s strategy to capture high-growth opportunities and expand its footprint in the global beverage market.
Africa is a fast-growing market for VBL and continue to grow over the next two decades, where the company envisages strong growth potential. The Company envisions a diversified approach by operating in multiple countries, each contributing 2–5% of its turnover, which helps mitigate risk by reducing dependency on any single market.
Domestic Expansions
In 2023, VBL commissioned two new greenfield facilities in Bundi, Rajasthan, and Jabalpur, Madhya Pradesh, alongside capacity expansions at six existing sites. This expansion enhances VBL’s capacity to meet rising consumer demand and strengthens its operational infrastructure. New plants in VBL’s expanding portfolio are larger, more efficient, and fully backward integrated, reducing production costs through savings on packaging materials and enhancing output. With 17 plants now backward integrated, VBL’s production rates have increased substantially, reaching 800-900 bottles per minute on lines that previously produced 100-200 bottles, all with the same workforce. Additionally, the company introduced 100% recycled plastic (rPET) bottles for Pepsi Black in select territories, underscoring its commitment to sustainability.
VBL is also intensifying its go-to-market efforts, adding 300,000 to 400,000 retail outlets annually to maximize reach. With an eventual target of 12 million outlets, this expansion will significantly boost sales in India’s competitive soft drink market.
Fund Raising
VBL recently approved raising up to Rs 7,500 crore through a Qualified Institutional Placement (QIP) in one or more tranches. This capital infusion is aimed at strengthening VBL’s balance sheet and supporting growth initiatives. The company currently has borrowings of nearly Rs 6,400 crore on its books, primarily raised to fund its expansion, particularly in the African continent. The QIP proceeds will be used to pare debt and for acquisitions, particularly in Africa, and create a reserve for strategic growth opportunities. Expansions includes VBL’s snack business in high-demand African markets and increasing capacity in India. Additionally, the funds will support entry into new markets, facilitate strategic acquisitions, and cover general corporate expenses, positioning VBL for sustained growth and financial stability.
Strong Financials
VBL follows January to December financial year. In Q3 CY24, ended September 2024, the Company reported a 24% year-on-year revenue increase, reaching to Rs 4,805 crore, up from Rs 3,871 crore in Q3 CY23. Profit After Tax (PAT) for the same period grew by 22.3% to Rs 629 crore, driven by volume growth and improved margins. The Company’s Consolidated sales volume increased by 21.9%, totaling 26.75 crore cases and net realisation per case rose by 1.9% to Rs 179. Despite heavy rains affecting volumes, India saw a growth of 5.7%, while international volumes rose by 7.9%. EBITDA surged by 30.5% to Rs 1,151 crore, with gross margins improving to 55.5%.
Overview & Outlook
India’s soft drinks sector is growing rapidly, driven by a rising middle class with increasing disposable incomes and expanding demographics. As the working middle-class population grows, disposable income is also on the rise, especially in urban areas. This increase in purchasing power enables consumers to spend more on lifestyle products like soft drinks. Additionally, urbanization has introduced more convenience stores and supermarkets, making soft drinks accessible to a wider consumer base and fueling demand by exposing more people to diverse beverage options. With a youthful population and a significant working-age demographic, India’s economy benefits from a strong workforce whose increasing purchasing power boosts soft drink consumption in both urban and rural markets. Companies are also focusing on rural areas, where there is untapped potential. The expanding retail networks in these regions, along with affordable packaging options, have made soft drinks more accessible to rural consumers, further driving market growth.
Consumer preferences also changing over the last couple years as Indian households have now directed more of their discretionary income towards non-essential categories, including ready to eat and beverages. With a growing consumer base and shifting preferences, India presents abundant opportunities for the soft drink industry. Globally, VBL is well-positioned, particularly in India and in Africa, to leverage emerging demand trends and build operational capacity, with a focus on sustainable growth and stakeholder value for the future.
Despite challenges such as unseasonal rains impacting sales during the crucial summer season, the soft drink sector has adapted to shifting consumer preferences and maintained steady growth in recent years. This resilience was particularly evident in the energy drinks segment, which has built strong momentum since 2021. The broader soft drinks market, including carbonates, juices, and bottled water, has also reported sustained growth over the past several years and is expected to continue this upward trajectory going forward.
This ongoing expansion and infrastructure development reflect VBL’s commitment to strengthening its market presence, optimizing efficiencies, and sustainably meeting the growing consumer demand across its regions of operation.
Concerns
The soft drink market in India is highly competitive, with major global players and numerous local brands competing for market share. This can lead to price wars and increased marketing costs, affecting profit margins. Sales in the Indian soft drink market are highly seasonal, peaking during the summer. Unfavourable weather, particularly a mild summer or extended monsoon season, may reduce demand significantly.
Sector: Fast Moving Consumer Goods
Market Price: Rs. 585.25 as on today
FV: Rs 2/-
Stock Name: Varun Beverages Ltd
BSE Code: 540180, NSE Code: VBL
Market Cap.: Rs 192950 Cr
Book Value: Rs. 26.4
Segment: Beverages- Non-Alcoholic
Incorporation: 1995
Headquarters: Haryana
