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Varun Beverages - The Race To a Billion 🍹

Updated: Mar 12, 2023

A rather unassuming-sounding company, Varun Beverages (VBL) is the largest franchisee for PepsiCo.

VBL manufactures, bottles and distributes the entire arsenal of liquids PepsiCo offers - Pepsi, Seven-Up, Mirinda, Mountain Dew, Nimbooz, Slice, Tropicana, Gatorade, and Aquafina, in India and in another 5 countries.

It’s so large that it sold 65 crore cases in India in 2022. One case is made of 24 bottles of ~237ml each - so that’s a total of 1,560 crore bottles and 370 crore litres in just one year.

It has come a long way, from managing just about half of Pepsi’s business in India to more than 90% of it, in just 5 years. Over the 5 years, VBL has been a multi-bagger, giving a whopping 7x return.

But there’s no stopping here. From 65 crore cases in 2022, VBL has set a target of selling 100 crore cases in India in 2025. If it achieves this, the stock should continue going up.

But will it reach 100 crore cases?

100 crore cases by 2025 imply a 15% CAGR over 2022-25. However, looking at the current numbers, and product plan, we feel a 20% CAGR is likely, majorly driven by the following:

  • Juices and Water

  • Energy Drinks (Sting)

  • Dairy Beverages (Cream Bell)

Although Carbonated Soft Drinks (CSDs) form 60% of revenue as of 2022, their incremental contribution to growth is expected to be 30%, as growth moderates.

The rest of VBL’s line-up should more than make up for that and help maintain historical growth rates.

Carbonated Soft Drinks - Modest Growth

India’s per capita soft drink consumption is still very low compared to global averages. However, the number is fast-growing with an increase in affordability and reach. Over the last 5 years, the consumption of Carbonated Soft Drinks (CSDs) has grown at a 15% CAGR.

Most of the market is controlled by two players, Coca-Cola and PepsiCo together making up 85% market share. While Coca-Cola accounts for roughly 50% market share, PepsiCo has around 33% share.

In 2022, Pepsi struck double-digit organic revenue growth in India, and also gained market share, it reported in its 2022 earnings.

However, the country is slowly transitioning towards low or no-sugar beverages, fruit juices, and dairy beverages as healthier alternatives, with CSDs revenue share going from 57% in 2017 to 52% in 2022. Increasingly, market share is being captured by more nutritious options like fruit juices and dairy beverages.

But, the story has been different for VBL. It has seen an 18% volume CAGR in CSD over the last 5 years, thanks to:

  • Doubling its business with Pepsi - from managing 45% of its sales to 90% over the same period

  • Acquisition of rights for new territories starting with North and East over 2013-18, and South and West in 2019

  • Market share gains in acquired territories by bringing production facilities closer, improving on sales and distribution, and focusing on in-outlet management (like installing coolers).

💡 Now that it has reached 90% of Pepsi’s India business, there seem to be limited opportunities for growth above market levels. VBL’s CSD portfolio can hence grow at a modest 10% CAGR from 2022 to 2025.

1. Juices and Water

The trend of demand moving from carbonated drinks to non-carbonated drinks is expected to continue over the next 5 years.

The health-focused F&B market is expected to grow at a 20% CAGR, which is 1.5x the growth rate of the total packaged F&B market.

Pepsi hasn’t missed this trend. It has a presence across categories within beverages. Its portfolio in non-carbonated drinks like fruit pulp and juice-based drinks includes Tropicana, Slice, Nimbooz, and Lipton Ice Tea. These products together have seen a volume CAGR of 33% over the last five years.

Pepsi has also seen success in the packaged water market, with its brand Aquafina, which too has seen a 33% volume CAGR over the last 5 years.

💡 Higher growth is likely to continue in both juices and water (25% CAGR) over 2022-2025, making up for moderating growth in CSDs.

2. Sting

Sting has done particularly well since launch, driving a lot of the success for VBL. Launched in 2020, it is said to have almost 50% less sugar than the average energy drink and is priced at a neat Rs. 20 for a 250ml bottle, while a Redbull would be priced 6x that amount and with double the sugar!

In just 3 years, it has been a driving force for VBL, accounting for almost 10% of Indian sales volumes, tapping a previously untapped market. Sales volumes continue to remain strong, growing by 2.5x YoY in 2022.

With expectations of continued growth, Sting is likely to make up for >15% of total cases sold by 2025.

💡 Sting will contribute to a third of the growth in cases sold for VBL over the next three years.

3. Dairy Beverages

To further improve its non-carbonated offerings at affordable price points, VBL has utilised the license of its parent company RJ Corp’s ice-cream brand Cream Bell and is all set to launch milkshakes under the VBL banner.

The dairy-based beverages range currently includes milkshakes - Mango, Cold Coffee, Belgian Choco, Kesar Badam and Elaichi. The range is being manufactured in VBL’s Punjab facility. However, it is setting up manufacturing at two additional facilities, which will triple capacity by the end of 2023, and give way for a national rollout in 2024.

💡 Cream Bell beverages will see a nationwide launch by 2024, and given minimal competition, is likely to see the kind of growth Sting saw in its early days.

More than Just the Billion Cases

100 crore cases is a goal set by VBL just for its beverage business in India. Other than this, it has a couple of more levers for propelling overall company growth.

International markets

  • In the course of time, VBL has captured PepsiCo franchisees for 5 countries in its international segment which makes up around 20% of its sales volumes - Nepal, Sri Lanka, Zimbabwe, Morocco and Zambia

  • With the ongoing efforts of brownfield and greenfield expansion projects in these newly acquired states and in Morocco, Zimbabwe, Nepal and Zambia, production capacities are set to increase by 40% on average in the next 2 years!


  • VBL started commercial production of Kurkure Puffcorn for PepsiCo, marking an entry into food, and opening up further headroom for growth in the PepsiCo ecosystem

  • It also started the distribution and selling of Lays, Doritos and Cheetos in Morocco


VBL is likely to see a revenue CAGR of 21%, and an earnings CAGR of 40% from 2022 to 2025. This would maintain the kind of growth rates it has exhibited in the past 5 years.

Valuing it at a PE of 40x 2024E earnings (PEG of 1x), there is a potential for the stock to go up to Rs. 1,800 per share, which is a 33% upside from current levels of Rs. 1,350 (March 10, 2023)!

There seems to be enough comfort in valuations given VBL’s ability to maintain historical growth rates by introducing new high-growth products, within and outside PepsiCo’s portfolio.

Despite higher growth compared to peers (higher by 1.5-2.0x), VBL usually commands a discount to peers since it does not own the brands it sells. Up to 20% of its sales go to PepsiCo to pay for royalty, the product's concentrate and marketing.

Additionally, not owning a brand is always risky. Although VBL has a contract with PepsiCo till 2039, it can be revoked with a 1 year notice period. Nonetheless, looking at how Pepsi has and continues to increase its dependence on VBL, risks around losing brand rights look negligible.

In Sum ➕

Not to brag, but we’ve been on the VBL train for a while as it is a part of our Socially Responsible Investing portfolio, making 70% returns in 9 months, since its entry from June 15, 2022, to March 10, 2023!

We added it to the SRI team for its conscious switch to healthier products, consistent effort in ensuring plastic used in its packaging is recycled, reducing water usage, and reduction of carbon emissions. In fact, they achieved 80% recycling of their plastic waste in 2022, and aim for a 100% by 2025 - a noble cause!

Unlike most carbonated drinks, the fizz of VBL’s growth prospects isn’t one that subsides easily! Having already given brilliant returns to its investors, we think VBL might still have more to offer, and it definitely pays off to have skin in the beverage game with one of the largest bottling companies that PepsiCo possesses! The only debate that still remains unanswered is this - Pepsi or Thums Up?

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