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Alpha | Varun Drinks Ltd.

Varun Drinks Restricted. – The PepsiCo Bottler

Varun Drinks Ltd (VBL) has been related to PepsiCo for the reason that Nineteen Nineties and is a key participant in beverage business and one of many largest franchisees of PepsiCo on this planet. As on date, VBL has been granted franchises for varied PepsiCo merchandise throughout 27 States and seven Union Territories in India. VBL has 31 manufacturing vegetation in India and 6 manufacturing vegetation in worldwide geographies (two in Nepal and one every in Sri Lanka, Morocco, Zambia, and Zimbabwe).

VBL’s share of PepsiCo drinks quantity gross sales elevated from ~ 26% in Fiscal 2011 to ~90% now. Though, India is VBL’s largest market, it has additionally been granted the franchise for varied PepsiCo merchandise for the territories of Nepal, Sri Lanka, Morocco, Zambia, and Zimbabwe. The corporate has 110+ depots, 2,400+ major distributors, 2,500+ owned autos and 925,000+ put in visi-coolers. The corporate is serving 1.4 bn+ shoppers by means of 3 mn+ stores in 6 nations.

Merchandise & Companies:

The Firm produces and distributes a variety of carbonated mushy drinks (CSDs), in addition to a big collection of non-carbonated drinks (NCBs), together with packaged consuming water bought underneath logos owned by PepsiCo.

CSD – Pepsi, Food plan Pepsi, Seven-Up, Mirinda Orange, Mirinda Lemon, Mountain Dew, 7up, Sting, and so forth.

NCB – Tropicana Slice, Tropicana Juices (100%, Delight, Necessities), Nimbooz, Slice, in addition to packaged consuming water underneath the model Aquafina. It additionally has dairy primarily based drinks underneath the model Cream bell.

Subsidiaries: As on CY22, the corporate has a complete of 8 subsidiaries, one step down subsidiary, 1 Affiliate firm and 1 three way partnership.

Key Rationale:

  • Largest PepsiCo Franchisee – The corporate has develop into a close to monopoly by means of its PAN India Presence by controlling ~90% of PepsiCo’s beverage gross sales quantity in India. The remaining gross sales had been generated by both different franchisee or direct operators by PepsiCo. The group continues to derive efficiencies from backward integration of operations – with amenities to fabricate crown corks, polyethylene terephthalate (PET) pre-forms, corrugated bins, shrink-wrap sheets, plastic cap closures and plastic shells. Throughout Q1CY22, the brand new backward integration plant in Jammu & Kashmir commenced industrial manufacturing with a complete of three Backward built-in vegetation.
  • New Entrants – The corporate begins distribution of Lays, Doritos, and Cheetos on 1st January 2023 in Morocco. VBL at present is importing the merchandise, nevertheless, because the enterprise stabilises VBL plans to fabricate these merchandise domestically in Morocco. Throughout CY22, the corporate commenced industrial manufacturing of Kurkure Puffcorn on the manufacturing plant in Kosi, Uttar Pradesh for PepsiCo. That is the primary non-beverage class from VBL to scale back the seasonality of the beverage enterprise. Aside from the manufacturing of snacks portfolio, Pepsico doesn’t intend to offer distribution rights of snacks in India to VBL.
  • CY22 – Throughout CY22, the corporate’s gross sales quantity grew 41% YoY to 802 million circumstances supported by sturdy demand in India in addition to overseas. This resulted in a robust income development of 49% YoY to Rs.13173 crs for a similar interval. Realisation (Income per unit case) at Rs.164 in CY22, elevated by 6% from Rs.155 in CY21 because of value hike in chosen SKUs (Inventory Preserving Unit) and enchancment in few SKUs. The Gross margin of the corporate in CY22 is at 52.47%, down 180 bps from CY21 because of inflated surroundings. Quite the opposite, EBITDA margin improved by ~250 bps to 21.7% in CY22 on account of sturdy working leverage. The online revenue elevated by a whopping 108% YoY to Rs.1550 crs in CY22.
  • Monetary Efficiency – The corporate has generated a large Income and PAT CAGR of 27% and 49% over the interval of CY17-22. The corporate is a large money producing machine with an Working Cashflow CAGR of 24% for CY17-22.  The corporate has generated Rs.1000+ crs of Working cashflow for the consecutive fourth 12 months. The corporate’s debt stood at Rs.3695 crs as on CY22 with a debt-to-equity ratio of 0.7x.


The meals and beverage business in India is turning into increasingly worthwhile. It makes up round 3% of India’s GDP and practically 2/3 of the nation’s entire retail market. Furthermore, India has the potential to develop into a world hub for Non-Alcoholic drinks class like Carbonated mushy drinks, fruit-based drinks, dairy primarily based drinks, and so forth. In line with the report by financial coverage assume tank ICRIER, “the scale of the market was estimated at Rs.671 billion (Rs.67,100 crore) in 2019, which is projected to succeed in round Rs.1,472.33 billion (Rs.1,47,233 crore) in 2030, within the sensible situation.” Bottled water and carbonated mushy drinks nonetheless account for the majority of the non-alcoholic drinks sector, the report stated, including that the marketplace for juices, power drinks, tea, milk and coffee-based drinks and natural drinks is increasing. In CY 2022, the home mushy drinks business skilled a 12 months of sturdy development, following two years of impression from the Covid-19 pandemic in the important thing summer season season.

Progress Drivers:

  • Urbanization is enjoying a major function within the development of the business, as extra individuals transfer to city areas and have better disposable revenue.
  • Over 50% of India’s inhabitants falls inside the working age group, leading to a rise in disposable revenue and a shift in spending habits.
  • The rise in electrification in Indian villages together with improved electrical energy provide will additional support within the penetration of cooling programs in these areas, thereby selling the growth of the business.

Opponents: Dabur, Orient Drinks, and so forth.

Peer Evaluation:

VBL has no direct listed competitor and the one direct peer is Coca-Cola (Unlisted) which is the First largest firm within the mushy drinks business. Coca-Cola and PepsiCo collectively account for ~90% of whole CSD demand in India. For our comparability, we took Dabur (Actual fruit Juice) and Orient drinks (Franchisee of Bisleri). Orient is comparatively a tiny firm which competes with the Aquafina section of VBL and a small a part of the dabur’s income from Actual model competes with VBL’s Tropicana.


VBL has grown each organically and inorganically through the years, largely pushed by sturdy demand, new merchandise and growing geographical protection. Throughout CY18-CY22, VBL acquired new territories akin to Jharkhand, Chhattisgarh, and Bihar; further areas in Maharashtra, Madhya Pradesh, Karnataka, Gujarat, Kerala, Tamil Nadu and Andhra Pradesh; and 5 union territories of Daman & Diu, Dadra and Nagar Haveli, Puducherry (besides Yanam), Andaman & Nicobar Islands and Lakshadweep. The gross sales quantity of the corporate has grown at a CAGR of 24% from 279 million circumstances in CY17 to 802 million circumstances in CY22. For FY22, Sting contributed ~10% of the general gross sales the place its distribution attain stands at ~2 mn shops vs. the corporate’s general 3 mn shops. The Administration guided that the corporate plans to extend the general attain to three.5 mn shops in CY23 and plans so as to add 40,000-50,000 visi coolers yearly going ahead. With extra hotter summer season predictions in 2023 from a number of climate businesses, the demand for CSD is trying brighter this 12 months. This coupled with the corporate’s current acquisitions akin to south and west territories, the income development and market share acquire of the corporate is very inevitable. Within the dairy beverage section, the corporate restricted itself to the northern area and slowly roll out to PAN India by CY24.


VBL is a robust participant within the CSD class with strong fundamentals and constant efficiency. The lengthy summer season, in depth attain, rising market share and product diversification are the important thing constructive drivers of the corporate’s development going ahead. We advocate a BUY ranking within the inventory with the goal value (TP) of Rs.1600, 45x CY24E EPS.


  • Dependency Threat – Complete enterprise is solely depending on its relationship with PepsiCo and therefore any adjustments in contractual settlement with Pepsi can considerably hamper development.
  • Life-style shift – Rising consciousness with respect to sugary merchandise on account of accelerating inhabitants with diabetes will have an effect on the consumption of sugared drinks like CSD and thus have an effect on the volumes of the corporate.
  • Seasonality Threat – Although VBL has began diversifying its product portfolio from CSD, the seasonality issue from its main income contributor stays a key danger for the corporate.

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