Introduction: Varun Beverages Limited (VBL), known as a prominent player in the beverage industry, holds the distinction of being one of the largest franchisees of PepsiCo worldwide (excluding the USA). VBL engages in the manufacturing, distribution, and sale of a diverse range of beverages, encompassing carbonated soft drinks (CSDs) and a wide selection of non-carbonated beverages (NCBs), including packaged drinking water bearing PepsiCo trademarks.
VBL produces and markets renowned PepsiCo CSD brands such as Pepsi, Pepsi Black, Mountain Dew, Sting, Seven-Up, Mirinda Orange, Seven-Up Nimbooz Masala Soda, and Evervess. Additionally, the company manufactures and sells PepsiCo NCB brands, including Tropicana Slice, Tropicana Juices (100% and Delight), Seven-Up Nimbooz, Gatorade, and packaged drinking water under the Aquafina brand.
Strengths:
The overall performance of the company is satisfactory. It has been performing well in the last two years, with improving return ratios (RoCE, RoA, and RoE moving upwards), growing QoQ and YoY profit margins, impressive cash flows from operations, and increasing profitability. These can be seen as instances of its strengths.
Its Sales CAGR (compound annual growth rate) has been growing at 24%, and its net revenue has increased significantly at a CAGR of 26.7% over the last five years. For the same period, the EBITDA and net profit margin have recorded a CAGR of 35.1% and 50.8%, respectively.
For the quarter ended on March 31, 2023, its net revenue from operations grew by 37.7% year-on-year in Q1 CY23, reaching Rs. 38,929.8 million.
Its energy drink product “Sting” has achieved a significant share in its overall product mix and has firmly established its leadership position in the category.
The company is investing in PET recycling and implementing measures to improve energy and water efficiency.
The company is led by experienced Ravi Jaipuria, Promoter and Chairman. His son Varun Jaipuria is the Promoter, Executive Vice-Chairman, and Whole-time Director. Their Board of Directors is a fine blend of professionals and highly educated individuals.
Weaknesses:
There exists a promoter’s pledge of 0.04%. Institutional investors, FIIs and FPIs, and mutual funds have decreased their shareholding in the March 2023 quarter. The company had a net debt of around Rs. 4,000 Cr as of March 31, 2023.
Opportunities:
The company has several growth and expansion plans. It has been focusing on acquiring brands and diversifying. They have decided to enter into value-added dairy products and are allowed to use the “CreamBell” trademark, an established brand, for ambient temperature value-added dairy-based beverages.
The company has commissioned its Greenfield production facility in District Bundi, Rajasthan, and has undertaken the brownfield expansion of six facilities. The additional Greenfield plant in Jabalpur, MP is expected to be operational very soon. They have also started the construction of a new production facility in the Democratic Republic of Congo, which is a part of their international growth plan. They expect it to be operational by the end of the year.
They are expecting tremendous performance in sports, fruit juices, and dairy products. They are emphasizing on Gatorade, which is now available in a pack of 250 ml at Rs. 20, and they believe that it will boost sales.
The company expects an upward movement in revenue growth and sees rural consumption growing ahead of urban consumption.
This industry is heavily impacted by weather patterns. The long duration of summer in the current year may boost sales numbers and corresponding revenue for the second quarter ending on June 30, 2023.
Threats:
There have been no apparent threats to the company. However, the emergence of the Campa-Reliance collaboration has definitely created an interesting scenario for both Coke and PepsiCo. The management is confident in their products, growth and expansion plans, and diversification strategies. There are also some local players, but the prime competition would definitely be among these three MNC giants.
Target price set by various brokerage houses and analysts:
On May 2 this year, the board of Varun Beverages decided to split its shares in the proportion of 1:2. For every existing share an investor holds, two additional shares will be issued by the company.
The share has been quoted on an ex-split basis since June 15, 2023.
Most of the analysts have given a BUY rating for this stock. Some of the targets have already been met before the split.
Post-split, the stock has seen both upward and downward swings.
LTP on Wednesday i.e., 28th June 2023: 793.00 (NSE)
Some Fundamentals of VBL Share:
Market Capital: Rs. 103,093 Cr PE TTM: 30.8 Price to Book: 19.8
Basic EPS TTM: Rs.25.7
Note: The company prepares its financial statements in Calendar Year Reporting Method.
KEY MILESTONES
2016 & Beyond
