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About Varun Beverages Limited (VBL)

Established in 1995, VBL is the largest bottler of PepsiCo drinks outside the US. Till 2019, PepsiCo had partnered with VBL in its bottling and distribution till it completely handed over the bottling business to VBL. As of now, VBL looks after the manufacturing of the sweeteners as well as the bottling of its products. Apart from India, VBL also operates in Sri Lanka, Zambia, Zimbabwe, and Morocco.

VBL has a robust supply chain with 90+ depots, 2,500+ owned vehicles, 1,500+ primary distributors all across India, Nepal, and Sri Lanka.

India’s consumption of soft drinks is 44 bottles per capita, whereas, for countries like the United States, the per-capita consumption is 1,496 bottles. India, a country with 1.3 billion people, has a larger market to penetrate that can surpass that of the United States. Varun Beverages is looking to expand into the Indian rural and semi-urban areas where the market penetration is less.

VBL’s product segments include – Carbonated Soft Drinks (CSD), Juice, and Water. Following is the sales volume breakup for the quarter ended June 30:

Segment	% of Revenue
Carbonated Soft Drinks (CSD)	78%
Non-carbonated Beverages	7%
Packaged Drinking Water	15%

Q2 CY21 Results: The Finances

.	Jun-2021	Mar-2021	QoQ%	Jun-2020	YoY%
Revenue	2,507.5	2,246.6	11.61%	1,642.8	52.63%
Net Profit	308.2	129.3	138.42%	140.8	118.9%

All Amount In Indian Rupee Crore

VBL registered total revenue of Rs 2,507 crore in Q2 CY21. This was an 11.61% growth from last quarter (QoQ) and a 52.63% growth since one year (YoY).

The company saw a three-digit growth in profit numbers. Profit was up by 138.42% QoQ and 118.9% (YoY) to Rs 308.2 crore.

Total expenses up by 40.4% (YoY) at Rs 2,087.79 crore in Q2 CY21 versus Rs 1,486.49 crore in the same quarter of 2020.

The company has announced an interim dividend of Rs 2.50 per equity share for the financial year 2021 on equity shares of the nominal value of Rs 10 each.

What Lies Ahead

The repayment of debt as well as the lower average cost of borrowing translated into a reduction in finance costs during the quarter. The company was able to reduce its debt by more than Rs 600 crore from March 31, 2020, to March 31, 2021.

Apart from handling North and East regions, VBL took over the operations of the South and West regions in Feb 2019. One year later, the COVID-19 pandemic hit the world and the company couldn’t utilize the potential of the new acquisition.

Right when sales volume had picked up in Q4 2020, the second wave hit the country as well as the sales volume of the company. Unlike the first wave, the supply chain wasn’t much of a problem. The situation isn’t as bad as last time since lockdowns were localized this time. Later on, the sales picked up the lockdown eased in June 2021.

From the earnings call of the company, the following factors could possibly drive growth in the next quarter:

As lockdowns gradually subside and COVID-19 cases decline, sales are likely to go up.

Growing refrigeration facilities in rural/semi-rural areas.

Increased volumes in Southern and Western regions

Volumes recovering in international business.

After the results, the share price of VBL closed ~4% above the previous day’s close. The company has given a return of ~60% over the past one year. Have you invested in VBL? If not, do you plan to invest?. You can let us know in the comment section in the marketfeed app.

We are pretty sure that you may have tried out Pepsi, Tropicana, Mountain Dew, 7Up, Lipton Ice Tea, Aquafina, or Gatorade many times in your life. All of them are licensed drinks of PepsiCo, the multinational food and beverage company, with a presence in almost 200 countries. In India however, a single company creates and bottles these drinks on PepsiCo’s behalf, and that is Varun Beverages Pvt. Ltd. (VBL).

With a market capitalization of Rs 26,214 crores, Varun Beverages Pvt. Ltd. has bottling plants in every corner of the country. It initially started out as a small franchisee of PepsiCo in India until 2019, when it bought out PepsiCo India’s South and West business and also bagged the rights to distribute PepsiCo drinks across India.

A Little About VBL

Established in 1995, Varun Beverages (VBL) is the largest bottler of PepsiCo drinks outside the US. Till 2019, PepsiCo had partnered with VBL in its bottling and distribution till it completely handed over the bottling business to VBL. As of now, VBL looks after the manufacturing of the sweeteners as well as the bottling of its products. Apart from India, VBL also operates in Sri Lanka, Zambia, Zimbabwe, and Morocco.
VBL’s product segments include – Carbonated Soft Drinks (CSD), Juice, and Water. Of the company’s total revenue, CSD contributes 75.6%. Non-carbonated beverages contribute 6.4% and Packaged drinking water 18.0%.
VBL has a robust supply chain with 90+ depots, 2500+ owned vehicles, 1500+ primary distributors all across India, Nepal, and Sri Lanka.
Varun beverages got listed on BSE and NSE on November 08, 2016.

VBL’s Operations Across India, Nepal and Sri Lanka(Source: Company Website)

Key Financials

Since VBL was listed on NSE and BSE in 2016, its share price has appreciated by ~231%(as of February 2021).
VBL’s sales volume has grown with a CAGR of 19.7% over the past 5 years. COVID-19 lockdown impacted sales volume and was down by 50% in India. However, this fall wasn’t peculiar to the company as the lockdown has impacted the global economy overall.
Its revenue has grown at a CAGR of ~20.8% over the past 5 years and the Profit After Tax has grown at 52.6% CAGR over the past ~52.6%.
The company’s Debt/Equity ratio has decreased over the past 3 years, which means that the company is cutting down on its debt and optimally utilizing the borrowed money.
VBL’s cash flow from operations increased by ~24% over the past 5 years and it can grow further, given the high potential for carbonated soft drinks in India.
The FII or Foreign Institutional Investors’ stake has increased by 8% over the past 3 years. This shows confidence in VBL from the international market.

Why VBL?

Great Potential

India’s consumption of soft drinks is 44 bottles per capita, whereas, for countries like the United States, the per-capita consumption is 1,496 bottles. India being a country with 1.3 Billion people has a larger market to penetrate which can surpass that of the United States. VBL is looking to expand into rural and semi-urban areas where the market penetration is less.

Recovering Demand

During the COVID-19 lockdown, due to curtailment of movement, people preferred buying larger bottlers of 1.25L of soft drinks which lasted longer. This added to the profit margin of VBL. Furthermore, as countries return to normalcy from the COVID-19 pandemic with the COVID-19 vaccine already in sight, demand is shooting up. There lies a great potential for the soft drinks market.

VBL has narrowed its loss to Rs 7 crore, the share prices did not react well, yet analysts suggest that there is huge upside potential. VBL is making a shift in production to the Non-Carbonated Drinks (NCD) segment. As electrification in rural areas increases and so does refrigeration capacity per household, the demand for cold drinks will also increase. VBL’s share price has grown ~30%, while NIFTY FMCG had grown ~10% in the last 1 year. The stock has outperformed the index and is in a relatively better position than its other competitors.VBL is a company that is expected to grow strong in the future. Its polished supply chain, strong financial health, and increasing market coverage make it a well-polished company overall.

Conclusion

So if you have always looked at brands like PepsiCo and wished to invest in them, this is the best thing you can get in India. Go checkout the annual reports of Varun Beverages Ltd, you will either invest in the stock or at least will walk away with a lot of new knowledge of the beverage industry. Definitely a win-win in my opinion!