Varun Beverages – BUY

1QCY25 result
update
2 May 2025

Strong growth in India business

VBL reported a strong performance with consol. volume growth of CMP Rs522 Price performance (%)
30% (~13% organic) and sales/Ebitda growth of 29%/28%. 12-mth TP (Rs) 560 (7%) 1M 3M 1Y
India business had a strong quarter with volume/value growth of Absolute (Rs) (3.2) (3.4) (8.1)
15.5%/17.6% and Ebitda growth of 23%. We cut our EPS Market cap (US$m) 20,908
Absolute (US$) (2.1) (0.9) (9.3)
estimates for CY25-27ii by 6-10%, mainly to factor in the less Enterprise value(US$m) 20,233
likelihood of consummation of the deal for acquisition of territories Relative Perf. (6.4) (7.7) (14.6)
Bloomberg VBL IN
of Tanzania and Ghana. Despite the heavy cuts, we believe VBL is Cagr (%) 3 yrs 5 yrs
well-placed to deliver EPS Cagr of ~16% over CY24-27ii on the Sector FMCG EPS (Rs) 54.9 39.6
back of steady growth in domestic business and scale-up of
international geographies. Increased risk of price competition Shareholding pattern (%) Stock performance
remains a key watch-out. We maintain BUY with a TP of Rs560 Promoter 60.2 Vol('000, LHS) Price (Rs., RHS)
(7% upside). Pledged (as % of promoter share) 0.0 60,000 800
FII 23.0
600
1QCY25 - India business shines, international disappoints: VBL DII 9.2 40,000
reported consol. volume/value growth of 30%/29% and organic volume 400
52Wk High/Low (Rs) 673/436 20,000
growth of 13%. Domestic business had a strong quarter with sales growth 200
Shares o/s (m) 3382
of 17.6% and UVG of 15.5%. Gross margin contracted 200bps yoy (vs our 0 0
estimate of it being flat) and stood at 54.6%. Miss on GM, coupled with Del Value 3mth avg (US$ m) 30.2

Oct-23
Dec-23

Oct-24
Jun-23

Feb-24

Jun-24

Dec-24
Apr-24

Feb-25
Apr-23

Aug-23

Aug-24

Apr-25
lower expenses (staff cost/other expenses: 2%/5% below IIFLe) resulted Dividend yield CY26ii (%) 0.4
in in-line Ebitda growth of 28%. Ebitda margin contracted 20bps yoy and Free float (%) 39.8
stood at 22.7%. Consol. PAT grew 35% vs our estimate of 43%, with miss Financial summary (Rs m)
being driven by higher depreciation, net interest cost, as well as ETR. Y/e 31 Dec, Consolidated CY23A CY24A CY25ii CY26ii CY27ii
Revenues (Rs m) 160,426 200,077 232,186 261,826 297,451
Well-placed for growth: VBL is aggressively expanding its capacities Ebitda margins (%) 22.5 23.5 23.2 23.1 23.1
across India, as well as international geographies, which shall aid in steady 20,559 25,946 31,730 36,281 42,079
Pre-exceptional PAT (Rs m)
domestic sales growth (~12-13%) and scale-up of international
Reported PAT (Rs m) 20,559 25,946 31,730 36,281 42,079
geographies, especially the recently entered territories of South Africa and
Pre-exceptional EPS (Rs) 6.3 7.9 9.4 10.7 12.4
DRC. VBL has started distribution and sale of snacks in Zimbabwe and
Zambia, which will further help the company scale its international Growth (%) 37.3 25.5 18.1 14.3 16
business and improve margins. IIFL vs consensus (%) (5.3) (10.7) (6.5)
PER (x) 82.5 65.7 55.7 48.7 42.0
Maintain BUY with a TP of Rs570: We downgrade our EPS estimates ROE (%) 34.2 22.0 17.7 17.6 17.7
for CY25-27ii by ~6-10% mainly to factor in the less likelihood of Net debt/equity (x) 0.8 0.0 0.0 (0.1) (0.2)
consummation of deal for acquisition of territories of Tanzania and Ghana. EV/Ebitda (x) 48.4 36.3 32.6 28.8 25.1
Nonetheless, we remain positive on the stock and expect the company to Price/book (x) 24.5 10.3 9.2 8.0 6.9
report EPS Cagr of 16% over CY24-27ii. Maintain BUY with a TP of Rs560. OCF/Ebitda (x) 0.6 0.7 0.7 0.7 0.7
Source: Company, IIFL Research. Priced as on 30 April 2025

Percy Panthaki Sameer Gupta Siddhesh Deshmukh

[email protected] [email protected] [email protected]
91 22 4646 4662 91 22 4646 4672 91 22 4646 4657
 Varun Beverages – BUY

Figure 1: 1QCY25 - Sales and Ebitda in-line, miss on PAT

Consolidated (Rs m) 1QCY24 1QCY25 %YoY
Net Sales 43,173 55,669 28.9% Sales increased 29% (in-line with IIFLe). Consol. volumes grew 30%
Total Expenses (33,286) (43,030) 29.3% (~13% on organic basis). India business reported 17.5% sales growth
Ebitda 9,888 12,640 27.8% and 15.5% volume growth.
Ebitda Margin% 22.9 22.7 -20 bps
Ebitda grew 28% (in-line with IIFLe). Margin contracted marginally i.e.,
Interest (937) (411) -56.1% by 20bps yoy, due to lower profitability in South Africa market (14.4%
Depreciation (1,875) (2,725) 45.3% margin).
Other Income 84 281 235.9%
PBT 7,159 9,784 36.7%
Tax (1,678) (2,465) 46.9%
Tax Rate% 23.4 25.2 176 bps
PAT 5,480 7,314 33.5% Consol. PAT grew 35% vs our estimate of 43%. PAT was below our
estimate despite in-line Ebitda, due to depreciation expenses (4% above
Minority interest 107 49 -54.5%
IIFLe) and net interest cost of Rs111mn vs our estimate of net interest
Reported PAT 5,373 7,265 35.2% income of Rs15mn.
Cost Details 1QCY24 1QCY25 %YoY
RM 18,875 25,291 34.0%
As % of Sales 43.7 45.4 171 bps
Staff Costs 3,937 5,115 29.9%
As % of Sales 9.1 9.2 7 bps
Other Expenditure 10,473 12,624 20.5%
As % of Sales 24.3 22.7 -158 bps
Consol. Gross margin (GM) contracted 200bps (IIFLe: flat) and GM for
1QCY25 came at 54.6%. Contraction in gross margin was due to lower
Gross profit 24,298 30,379 25.0% margin profile of owned brands in South Africa and higher mix of CSD in
Gross margin 56.3% 54.6% -200 bps India.
Source: Company, IIFL Research

pe r c y.p an th aki @ii fl c ap. c om 2

 Varun Beverages – BUY

Figure 2: Standalone performance Key takeaways from the conference call

Standalone (Rs m) 1QCY24 1QCY25 %YoY
Net Sales 34,462 40,525 17.6% Capacity expansion on track
Total Expenses (26,253) (30,422) 15.9% • The company has commissioned new production facilities at Kangra
Ebitda 8,208 10,103 23.1% (Himachal Pradesh) and Prayagraj (Uttar Pradesh).
Ebitda Margin% 23.8 24.9 111 bps • It has also set-up backward integration facilities at its Prayagraj plant
in India, as well as at its DRC plant in the international region.
Interest (840) (78) -91%
• The implementational of two greenfield production facilities for FY25
Depreciation (1,395) (1,650) 18.3%
in Bihar and Meghalaya is on track, and management mentioned that
Other Income 326 598 83.4% the commercial production shall start very soon (1st May for Bihar
PBT 6,301 8,973 42.4% plant and by May-end for Meghalaya plant).
Tax (1,608) (2,193) 36.3%
Business performance
Tax Rate% 25.5 24.4 -109 bps
• Realisation per case has improved 1.8% in India and remained flat in
Reported PAT 4,692 6,781 44.5%
the international markets (ex-South Africa). On a consol. basis, net
Cost Details 1QCY24 1QCY25 %YoY realisation has fallen 0.9% due to lower realisation in own brands in
RM 15,850 19,100 20.5% South Africa market (~20% of the salience of own brands).
As % of Sales 46.0 47.1 114 bps • Margin in South Africa market stood at 14.4% (vs 10% when it was
Staff Costs 2,747 3,074 11.9% acquired).
As % of Sales 8.0 7.6 -38 bps • Interest cost in the international business is primarily in South Africa,
which also includes the lease rentals under IndAS 116 of Rs86mn as
Other Expenditure 7,657 8,248 7.7%
the manufacturing facilities in South Africa are on lease.
As % of Sales 22.2 20.4 -187 bps • International volumes (ex- BevCo and DRC) grew 2.7%. The drag in
Source: Company, IIFL Research the performance was in Morocco, where performance was weak due
to early Ramzan in CY25 vs the base quarter. After implementation of
Figure 3: Volume growth stood at 30% (IIFLe 28%). Organic volume growth was ~13% sugar tax in Zimbabwe (in Feb’24), the company had to take price
Sales volumes (mn cases) 1QCY24 1QCY25 %YoY hikes and as a result, volumes remain under pressure. The
CSD 169 234 38.5% management mentioned it expects normalisation of volume growth
trends in Zimbabwe by 2QCY25.
NCB 18 22 22.2%
• The agreements for acquisition of territories in Tanzania and Ghana
Water 53 56 5.7%
have not yet been executed. The likelihood of execution is low.
Total 240 312 30.0% • Focus in South Africa is to eliminate non-profitable SKUs, and as a
Source: Company, IIFL Research result, the pace of growth is just ~13%.

Others
• VBL started distribution and sale of PepsiCo’s snacks products in
Zimbabwe and Zambia w.e.f. 1st Feb’25.

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 Varun Beverages – BUY

• In 1QCY25, the salience of no/low sugar products stood at ~59% of Figure 6: GM contracted 171bps yoy to stand at 54.6%
the consolidated volumes. Gross margin (LHS) Gross profit growth (RHS)
• The management mentioned they do not expect any inflationary 57% 45%
pressure in the commodity basket in the near term. 40%
56%
35%
Figure 4: Change in our estimates 55%
30%
CY25 Old New % change 54% 25%
Sales 253,728 232,186 -8.5% 53% 20%
EBIDTA 56,071 53,934 -3.8% 15%
52%
10%
EPS 10.0 9.4 -6.2% 51% 5%
CY26 Old New % change 50% 0%

3QCY22

4QCY22

1QCY23

2QCY23

3QCY23

4QCY23

1QCY24

2QCY24

3QCY24

4QCY24

1QCY25
Sales 293,921 261,826 -10.9%
EBIDTA 65,056 60,440 -7.1%
EPS 11.9 10.7 -9.7% Source: Company, IIFL Research
CY27 Old New % change
Sales 332,661 297,451 -10.6% Figure 7: Consol. Ebitda margin contracted 20bps yoy to stand at 22.7%
EBIDTA 73,421 68,593 -6.6% Ebitda margin (LHS) Ebitda growth (RHS)
EPS 13.8 12.4 -10.0% 30% 60%
Source: Company, IIFL Research
25% 50%
Figure 5: Consol. volumes grew 30% (12.7% on an organic basis) 20% 40%
(mn cases) 15% 30%
350 CSD NCB Water
10% 20%
300
5% 10%
250
0% 0%
200

3QCY22

4QCY22

1QCY23

2QCY23

3QCY23

4QCY23

1QCY24

2QCY24

3QCY24

4QCY24

1QCY25
150
100
Source: Company, IIFL Research
50
0
2QCY24
3QCY22

4QCY22

1QCY23

2QCY23

3QCY23

4QCY23

1QCY24

3QCY24

4QCY24

1QCY25

Source: Company, IIFL Research

pe r c y.p an th aki @ii fl c ap. c om 4

 Company snapshot
Varun Beverages – BUY

Background: Incorporated in 1995, Varun Beverages (VBL) is one of the largest franchisees of PepsiCo outside the US, accounting for more than 90% of
PepsiCo’s beverage volumes sold in India. India is the largest market and contributed ~72% of revenues from operations (net) in FY24. It is also exclusive
franchisee for PepsiCo in Nepal, Sri Lanka, Morocco, Zambia, Zimbabwe, South Africa, Tanzania and Ghana. Products manufactured by VBL include
carbonated soft drinks (Pepsi, Mirinda, Mountain Dew, Seven Up, among others), non-carbonated beverages (Tropicana fruit juices, Tropicana Slice,
Tropicana Frutz), packaged drinking water (Aquafina, Aquavess), energy drinks (Gatorade, Sting) and value-added dairy-based beverages (Cream bell).

Management
Volumes mix Sales (Rs mn) yoy growth
NCB Water CSD 250,000 60%
Name Designation 100% 7% 6% 6% 7% 6% 6%
50%
Ravi Kant Jaipuria Promoter and Chairman 80% 23% 21% 24% 23% 22% 20% 200,000
40%
Varun Jaipuria Promoter, Executive VC and WTD 60% 30%
150,000
Rajesh Chawla CFO 20%
40% 72% 100,000
73% 70% 70% 74% 10%
71%
20% 0%
50,000
-10%
0%
CY19 CY20 CY21 CY22 CY23 CY24 - -20%
CY19 CY20 CY21 CY22 CY23 CY24

Assumptions PE Chart EV/Ebitda

Y/e 31 Dec, Consolidated CY23A CY24A CY25ii CY26ii CY27ii 12m fwd EV/EBITDA Avg +/- 1SD
12m fwd PE Avg +/- 1SD
Domestic volume growth:
CSD 13.5 12.0 12.0 10.0 10.0 80.0
(x) (x)
NCB 8.5 12.0 10.0 10.0 10.0 72.0 41.0
Bottled water 11.5 9.5 10.0 10.0 10.0
64.0
Domestic Ebitda margin 23.6 25.7 25.4 25.0 25.0 33.0
International sales growth 27.6 67.5 22.7 14.1 16.8 56.0
Source: Company data, IIFL Research 48.0 25.0
40.0
17.0
32.0
24.0 9.0
Apr-17 Nov-18 Jun-20 Feb-22 Sep-23 Apr-25 Apr-17 Nov-18 Jun-20 Feb-22 Sep-23 Apr-25

pe r c y.p an th aki @ii fl c ap. c om 5

 Varun Beverages – BUY

Financial summary
Income statement summary (Rs m) Balance sheet summary (Rs m)
Y/e 31 Dec, Consolidated CY23A CY24A CY25ii CY26ii CY27ii Y/e 31 Dec, Consolidated CY23A CY24A CY25ii CY26ii CY27ii
Revenues 160,426 200,077 232,186 261,826 297,451 Cash & cash equivalents 4,609 24,510 30,295 42,602 64,947
Ebitda 36,095 47,111 53,934 60,440 68,593 Inventories 21,505 27,912 32,392 36,527 41,497
Depreciation and amortisation (6,809) (9,474) (11,761) (13,233) (14,398) Receivables 3,594 8,458 9,816 11,069 12,575
Ebit 29,286 37,637 42,173 47,207 54,194 Other current assets 13,442 19,402 22,516 25,390 28,845
Non-operating income 794 1,213 1,395 1,673 2,008 Creditors 7,582 15,604 18,109 20,420 23,199
Financial expense (2,681) (4,504) (1,679) (1,354) (1,182) Other current liabilities 11,154 11,658 13,529 15,256 17,331
PBT 27,398 34,346 41,889 47,526 55,020 Net current assets 24,414 53,021 63,381 79,912 107,333
Exceptionals 0 0 0 0 0 Fixed assets 108,508 150,561 161,180 168,674 174,916
Reported PBT 27,398 34,346 41,889 47,526 55,020 Intangibles 0 0 0 0 0
Tax expense (6,375) (7,988) (9,928) (11,074) (12,820) Investments 211 595 0 0 0
PAT 21,023 26,358 31,961 36,453 42,201 Other long-term assets 0 0 0 0 0
Minorities, Associates etc. (464) (411) (231) (171) (121) Total net assets 133,133 204,177 224,561 248,586 282,250
Attributable PAT 20,559 25,946 31,730 36,281 42,079 Borrowings 58,856 31,902 26,902 21,902 21,902
Other long-term liabilities 4,912 6,177 6,177 6,177 6,177
Ratio analysis Shareholders equity 69,365 166,098 191,482 220,507 254,171
Y/e 31 Dec, Consolidated CY23A CY24A CY25ii CY26ii CY27ii Total liabilities 133,133 204,177 224,561 248,586 282,250
Per share data (Rs)
Pre-exceptional EPS 6.3 7.9 9.4 10.7 12.4 Cash flow summary (Rs m)
DPS 1.0 1.8 1.9 2.1 2.5 Y/e 31 Dec, Consolidated CY23A CY24A CY25ii CY26ii CY27ii
BVPS 21.4 50.9 56.6 65.2 75.2 Ebit 29,286 37,637 42,173 47,207 54,194
Growth ratios (%) Tax paid (6,375) (7,988) (9,928) (11,074) (12,820)
Revenues 21.8 24.7 16.0 12.8 13.6 Depreciation and amortization 6,809 9,474 11,761 13,233 14,398
Ebitda 29.5 30.5 14.5 12.1 13.5 Net working capital change (7,296) (7,257) (4,576) (4,224) (5,077)
EPS 37.3 25.5 18.1 14.3 16.0 Other operating items (464) (411) (231) (171) (121)
Profitability ratios (%) Operating cash flow before interest 21,960 31,454 39,200 44,972 50,575
Ebitda margin 22.5 23.5 23.2 23.1 23.1 Financial expense (2,681) (4,504) (1,679) (1,354) (1,182)
Ebit margin 18.3 18.8 18.2 18.0 18.2 Non-operating income 794 1,213 1,395 1,673 2,008
Tax rate 23.3 23.3 23.7 23.3 23.3 Operating cash flow after interest 20,072 28,163 38,915 45,291 51,401
Net profit margin 13.1 13.2 13.8 13.9 14.2 Capital expenditure (33,817) (51,527) (22,380) (20,727) (20,640)
Return ratios (%) Long-term investments 140 (568) 595 0 0
ROE 34.2 22.0 17.7 17.6 17.7 Others 0 0 0 0 0
ROIC ex goodwill 20.2 18.7 17.2 18.1 19.6 Free cash flow (13,605) (23,931) 17,130 24,564 30,761
Solvency ratios (x) Equity raising 1,030 76,501 0 0 0
Net debt-equity 0.8 0.0 0.0 (0.1) (0.2) Borrowings 17,570 (26,955) (5,000) (5,000) 0
Net debt to Ebitda 1.5 0.2 (0.1) (0.3) (0.6) Dividend (3,248) (5,714) (6,346) (7,256) (8,416)
Interest coverage 10.9 8.4 25.1 34.9 45.8 Net chg in cash and equivalents 1,747 19,901 5,784 12,307 22,345
Source: Company data, IIFL Research Source: Company data, IIFL Research

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 Varun Beverages – BUY

Published in 2025, © IIFL Capital Services Limited (Formerly known as IIFL Securities Limited)

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 Varun Beverages – BUY

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 Varun Beverages – BUY

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Key to our recommendation structure

BUY - Stock expected to give a return 10%+ more than average return on a debt instrument over a 1-year horizon.
SELL - Stock expected to give a return 10%+ below the average return on a debt instrument over a 1-year horizon.
Add - Stock expected to give a return 0-10% over the average return on a debt instrument over a 1-year horizon.
Reduce - Stock expected to give a return 0-10% below the average return on a debt instrument over a 1-year horizon.

Distribution of Ratings: Out of 305 stocks rated in the IIFL coverage universe, 158 have BUY ratings, 5 have SELL ratings, 102 have ADD ratings, 1 have NR ratings and 38 have REDUCE ratings

Price Target: Unless otherwise stated in the text of this report, target prices in this report are based on either a discounted cash flow valuation or comparison of valuation ratios with companies seen by the analyst as
comparable or a combination of the two methods. The result of this fundamental valuation is adjusted to reflect the analyst’s views on the likely course of investor sentiment. Whichever valuation method is used there
is a significant risk that the target price will not be achieved within the expected timeframe. Risk factors include unforeseen changes in competitive pressures or in the level of demand for the company’s products. Such
demand variations may result from changes in technology, in the overall level of economic activity or, in some cases, in fashion. Valuations may also be affected by changes in taxation, in exchange rates and, in certain
industries, in regulations. Investment in overseas markets and instruments such as ADRs can result in increased risk from factors such as exchange rates, exchange controls, taxation, and political and social conditions.
This discussion of valuation methods and risk factors is not comprehensive – further information is available upon request.

i. Investments in securities market are subject to market risks. Read all the related documents carefully before investing.
ii. Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.
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or provide any assurance of returns to investors

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 Varun Beverages – BUY

Date Rating Close price Target price Upside Date Rating Close price Target Upside
Varun Beverages: 3 year price and rating history (Rs) price (Rs)
(Rs) (Rs) (%) (%)
(Rs) Price TP/Reco changed date 27 Mar 2025 BUY 528 600 13.6 26 Jun 2023 BUY 766 860 12.3
10 Mar 2025 BUY 488 575 17.8 03 May 2023 BUY 1415 1630 15.2
2,000 11 Feb 2025 BUY 548 640 16.8 08 Mar 2023 BUY 1351 1520 12.5
1,500 01 Oct 2024 BUY 606 700 15.5 07 Feb 2023 BUY 1222 1450 18.6
31 Jul 2024 BUY 1577 1750 11.0 13 Dec 2022 ADD 1376 1430 3.9
1,000
05 Jul 2024 BUY 1619 1775 9.6 02 Nov 2022 BUY 1107 1250 12.9
500 14 May 2024 BUY 1477 1600 8.3 18 Aug 2022 BUY 1037 1100 6.1
0 01 Apr 2024 BUY 1399 1500 7.2 02 Aug 2022 BUY 926 1040 12.3
06 Feb 2024 BUY 1303 1425 9.4 07 Jun 2022 BUY 733 800 9.1
Jul-22

Jul-23

Jul-24

Apr-25
Jan-25
Apr-22

Apr-23

Apr-24
Jan-23

Jan-24
Oct-22

Oct-23

Oct-24
08 Jan 2024 BUY 1279 1225 -4.2 29 Apr 2022 BUY 1060 1200 13.2
07 Nov 2023 BUY 946 1100 16.3 07 Apr 2022 BUY 973 1100 13.1
18 Aug 2023 BUY 887 910 2.6

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