Varun Beverages Ltd. share price target

VBL’s strategy towards expanding the distribution network (3 Mn outlets, out of which, 0.4 Mn are exclusive for “Sting”), into new territories where it has very small market share indicates huge scope to grow. VBL is also benefitting from demand recovery after two consecutive years of pandemic related disruptions.

Varun Beverages Ltd. (VBL) a near monopoly of PepsiCo, is a solid play on the emerging beverage market in India. VBL’s focus towards PAN India expansion [reached 85% of Indian PepsiCo volume (26% in CY11) after acquiring South and West region], CAPEX for its backward integrated facilities (Pathankot and Jammu & Kashmir), improving product mix, huge scope to capture Indian soft drinks market (44 bottles per capita consumption in India v/s 1,496 bottles in USA) and debt reduction will promote further growth.

Maintain BUY with an upward revision in TP to Rs 1,200 (earlier Rs 1,080) as we value the stock at 36x Mar-24E EPS.

VBL has a diversified growth strategy, with multiple levers in place to drive its long-term growth. We expect volume growth momentum to continue, with: a) a gradual gain in market share on increasing penetration in underpenetrated markets, b) higher acceptance of recently launched products, and c) ramp-up of...

Varun will start contract manufacturing for Pepsi’s snack brand Kurkure Puffcorn and we believe it is a step in right direction. Depending on the Varun’s progress in Kurkure Puffcorn business, we expect Pepsi to offer more products and regions to Varun. As of now Varun will set up a plant in Uttar Pradesh for Rs200-250mn and will produce Kurkure Puffcorn.