Varun Beverages- A Hidden Gem of FMCG Sector!

Varun Beverages Ltd. (VBL), a bottling and beverage distribution company, briefly surpassed Britannia Industries’ market capitalisation during last week’s session to become the fourth largest listed FMCG entity as its share price rose around 7.5% during the mid-session. The world’s second-largest bottling firm for PepsiCo products accomplished the achievement barely two weeks after exceeding Rs 1 lakh crore in market valuation. It follows Hindustan Unilever, ITC, and Nestle India to be the most valuable FMCG entities in India.

Its stock reached a lifetime high of Rs 1747.15 a share on the BSE last week, while its 52-week low was Rs 697.25 per share on May 31, 2022. Since the business released its strong FY23 March quarter profits on May 2, 2023, the stock has risen about 24%.

What are the strengths of Varun Beverages in conquering the soft drinks market?

Varun Beverages to retain its profits momentum, which will be supported by the following factors.

Increased penetration in newly acquired South and West Indian areas. In the domestic market, VBL is combining current distributors and expanding distribution in underpenetrated areas.

Product adoption of freshly released products has increased. It broadens its portfolio by “launching innovative products in select markets in a regular way in response to changing consumer preferences.”

Constantly extending distribution reach and adding extra capacity. Its distribution strategy and on-the-ground end-to-end infrastructural abilities stay prominent growth drivers. VBL is committed to expand it to other locations and under-penetrated regions to increase its market presence.

Refrigeration is expanding in rural and semi-rural locations.

New product releases such as ‘Sting’ energy drink fared nicely across multiple geographical parts, while recent launches in the value-added dairy market have garnered favourable consumer reactions. With Sting decently established and penetrated, further volume growth would have to be driven by new categories.

A glance at the history of the share price of Varun Beverages.

Varun Beverages shares have provided multi-bagger gains in the last year, with the stock increasing by more than 138% compared to a 14% rise in the Nifty50.

Year to date, the counter has risen about 28% v/s a 1% increase in the Nifty index.

Forecast and growth of Varun Beverages.

Varun Beverages has a presence in 27 states and 7 UTs in India and is continually expanding its reach and capability. Last year, the company collaborated with Pepsico to create “Kurkure Puffcorn” in India.

MSCI and FTSE Global Indexes also welcomed the company. On May 23, the firm established a subsidiary in South Africa for the manufacturing and distribution of drinks.

A scene of competition.

Varun Beverages has a market valuation of Rs 1.11 lakh crore, which is Rs 25 crore larger than Britania as of last week. 

Varun Beverages’ stock has more than doubled in the last year, compared to Britannia Industries’ 30 per cent growth during the same period.

The firm’s net profit more than doubled to Rs 1,497 crore in 2022 (it follows a January-December calendar year), whereas Britannia’s net profit increased at a lesser rate of 52 % in the fiscal year 2023.

Historical shreds of evidence where Varun Beverages has taken care of their shareholders and kept them happy!

Varun Beverages Ltd. authorised a stock split in the ratio of 1:2 during its board meet earlier In May. This indicates that one share with a face value of INR 10 has been divided into two shares with a face value of INR 5 each. The BODs of Varun Beverages stated that the split is being done to increase the liquidity of the company’s shares and to attract small investors to participate. The stock split is expected to be finalised in pair of months of the company’s shareholders’ approval. Once shareholder approval is received, the record date will be set.

Varun Beverages, the second biggest PepsiCo franchisee outside the United States, has continuously rewarded shareholders through dividend announcements and incentive releases. Over the earlier triplet of years, it has announced three bonus issues.

Varun Beverages shares have routinely provided annual returns in excess of 20% since coming public.

Results for the March quarter.

Varun Beverages’ profit after tax for the March quarter improved by 61.8 % YoY to Rs 438.6 crore, while revenue jumped by 37.7 % YoY to Rs 38,92.98 crore in the quarter ended March 31 due to significant volume growth and a rise in net realisation.

The increase in sales.

Varun Beverages’ quarterly sales volume increased by 24.7 % to 224.1 million cases, driven by robust demand across India, while the EBITDA margin increased by 170 BPS YoY to 20.5 %.

Realisations grew by 10.4 % YoY to Rs 173.7/case, owing to price increases and advancement in the energy drink mix of smaller SKUs.

The period’s net profit increased by 69 % YoY to Rs 429 crore, while operational profit or EBITDA increased by 50 % to Rs 798.1 crore.

In addition, the business has completed its greenfield manufacturing plant in Kota, Rajasthan, and brownfield expansion at six extra locations. The other greenfield factory in Jabalpur is set to open shortly. Its plant in the Democratic Republic of the Congo, which is now under construction, is anticipated to be operational by the termination of 2023.

Conclusion.

The Indian soft drink industry is forecast to have “significant growth” as consumption rises, resulting in steady and robust volume growth across all product categories. This would be driven by altering population demographics, rising young consumer buying power, rapid urbanisation, and increased rural consumption.

Overall, VBL is confident in its capacity to provide robust and sustainable growth in the future, thanks to the excellent success this year, the normalisation of the environment, and the additional capabilities to meet the high demand expectations.

Proofread & Published By Naveenika Chauhan