Varun Beverages Limited (VBL) is a powerhouse in the global beverage industry, serving as one of PepsiCo’s largest franchisees outside the United States. With a robust business model and ambitious expansion plans, VBL has delivered impressive returns to investors and is poised for continued growth. In this blog post, we’ll dive into VBL’s business model, explore its financial strengths, and analyze future projections for returns.

VBL’s business model is built on a strategic partnership with PepsiCo, enabling it to manufacture, bottle, and distribute a wide range of beverages across multiple geographies. Here’s a breakdown of how VBL operates:

VBL operates as a key bottling partner for PepsiCo, handling end-to-end execution of beverage production and distribution. PepsiCo provides the brand, concentrate, and above-the-line (ATL) marketing support, while VBL manages manufacturing, bottling, packaging, and below-the-line (BTL) marketing. This includes brands like Pepsi, Mountain Dew, 7Up, Tropicana, Gatorade, Sting, and Aquafina. The partnership, which extends until 2039, ensures a steady supply of globally recognized products, giving VBL a competitive edge.

VBL oversees the entire supply chain, from sourcing raw materials (like PepsiCo’s concentrate and sugar) to delivering finished products to retail outlets. The company has implemented backward integration, producing components like preforms, crowns, and crates in-house to enhance cost efficiency and quality control. Its distribution network spans urban, semi-urban, and rural markets, reaching approximately 3.5 million outlets in India alone, with plans to grow by 10-12% annually.

VBL operates in six countries: India, Sri Lanka, Nepal, Morocco, Zambia, and Zimbabwe, with recent expansions into South Africa, Mozambique, and the Democratic Republic of Congo (DRC). In India, it covers 27 states and seven territories, accounting for over 80% of PepsiCo’s beverage sales volume. The company produces carbonated soft drinks (CSDs), non-carbonated beverages (NCBs) like juices and packaged water, and value-added dairy products under brands like Cream Bell. This diversification reduces reliance on any single market or product category.

VBL emphasizes cost optimization through centralized raw material sourcing and energy-efficient production practices. It has also invested in sustainability, adopting eco-friendly packaging and refrigeration infrastructure to align with consumer and regulatory trends. These efforts help maintain healthy profit margins despite raw material price fluctuations.

A key strength of VBL’s model is its extensive distribution network, supported by 2,400 distributors and over 3.3 million retail outlets. The company is enhancing its reach in underpenetrated regions, particularly rural and semi-urban areas, by installing more chilling equipment and introducing smaller SKUs (e.g., 200 ml Gatorade bottles) to cater to price-sensitive consumers.

VBL has demonstrated robust financial performance, driven by volume growth, operational efficiency, and strategic expansions. Here are some highlights:

• Revenue Growth: VBL’s revenue grew at a CAGR of 22.7% from INR 7,130 crore in 2019 to INR 13,173 crore in 2022. In Q1 CY2025, consolidated sales volume grew by 30.1% YoY, with revenue up 28.9% to INR 5,566.94 crore.
• Profitability: The company reported a 35.59% increase in net profit to INR 2,101.81 crore in FY23, with EBITDA margins consistently above 21%. Return on Equity (ROE) stood at 34.92%, and Return on Capital Employed (ROCE) was 27.83%.
• Stock Performance: VBL’s share price has delivered a 6.6x return from INR 214 in April 2018 to INR 1,417 in April 2023, and a 7.3x return from INR 150 in October 2017 to INR 1,107 in October 2022. Despite a 19% YTD decline in 2025, the stock was trading at INR 534.30 as of May 5, 2025.

VBL’s growth trajectory is supported by strategic initiatives and favorable market trends. Analysts are optimistic about its future returns, with projections based on the following drivers:

VBL is investing INR 28,000 million in 2024 to enhance production facilities, particularly for juices, energy drinks, and dairy products. New plants in Maharashtra, Uttar Pradesh, Odisha, and the DRC are expected to increase peak month capacity by 45% compared to 2022. These expansions will meet rising demand, especially in health-conscious beverage segments.

VBL’s acquisition of BevCo, which holds PepsiCo franchise rights in South Africa, Lesotho, Eswatini, Namibia, and Botswana, strengthens its African presence. New markets like Kenya, Tanzania, and Mozambique offer high growth potential due to favorable demographics and increasing beverage consumption. International sales volume grew 31.3% in 9MCY22, driven by markets like Morocco.

VBL is capitalizing on the growing demand for healthier beverages, launching new variants in energy drinks (e.g., Sting), sports drinks (e.g., Gatorade), and value-added dairy products. The Indian sports and energy drink market is projected to reach $5.8 billion by 2028, with a CAGR of 14%. Smaller SKUs and reduced-sugar options align with evolving consumer preferences.

• Revenue and Earnings: Analysts forecast a revenue CAGR of 13.1% and an earnings CAGR of 18.7% over the next few years, driven by volume growth and margin stability. EPS is expected to grow by 17.5% annually.
• Share Price Targets: Analyst price targets for 2025 range from INR 625 (Emkay Global Financial) to INR 639 (KR Choksey), implying a 26.5% upside from the current price of INR 534.30. Some projections suggest a target of INR 1,850-1,900 by the end of 2024, though these may be outdated given recent stock performance.
• Valuation Concerns: A DCF valuation by Alpha Spread estimates VBL’s intrinsic value at INR 182.41, suggesting the stock is overvalued by 65% at INR 521.75. However, strong fundamentals and growth prospects may justify premium valuations.

VBL’s ROE is projected to remain at 18.7% in three years, with asset turnover expected to improve from 30% to 35% over the next three to five years. ROCE is anticipated to grow by 100-125 basis points annually, reflecting efficient capital allocation.

While VBL’s outlook is positive, potential risks include:

• Seasonality: Beverage sales in India peak during summer, with unseasonal rains or economic downturns impacting volumes.
• Regulatory Changes: Stricter regulations on plastic disposal or sugar content could affect operations.
• Consumer Shifts: Increasing health consciousness may reduce CSD consumption, necessitating a faster pivot to NCBs.
• Currency and Debt: International operations face currency fluctuation risks, and VBL’s net debt of INR 4,000 crore (debt-to-EBITDA of 1.3x) requires careful management.

VBL’s appeal lies in its strong partnership with PepsiCo, diversified portfolio, and aggressive expansion strategy. The company’s ability to deliver consistent volume growth (e.g., 25% in Q1CY23, 30.1% in Q1CY25) and maintain high margins makes it a favorite among investors. Its focus on emerging markets and healthier beverages positions it to capitalize on long-term trends. Posts on X highlight investor enthusiasm, with some calling VBL a “proxy for QSR growth” and praising its 900% returns over four years.

Varun Beverages has built a resilient business model that leverages PepsiCo’s global brands, a robust supply chain, and strategic expansions to drive growth. With a projected revenue CAGR of 13.1% and earnings CAGR of 18.7%, VBL is well-positioned to deliver strong returns, potentially reaching share price targets of INR 625-639 by 2025. However, investors should remain mindful of seasonality, regulatory risks, and valuation concerns. For those seeking exposure to the beverage sector, VBL offers a compelling mix of stability and growth potential.

Disclaimer: This blog post is for informational purposes only and does not constitute financial advice. Always consult a financial advisor before making investment decisions.

The Indian beverage market, currently ~INR 6.3 lakh crore (USD 75 billion), is projected to grow to INR 10–12.6 lakh crore (USD 120–150 billion) by 2030 and potentially INR 25 lakh crore (USD 300 billion) by 2040, with a CAGR of 6.5–7.5%. Varun Beverages, with its INR 1.7 lakh crore market cap, is a leading player in non-alcoholic beverages, poised to capitalize on this growth through volume increases (30.1% in Q1 CY2025), health-focused products, and international expansion. Its valuation reflects future potential, not the entire market size, and it could double its market cap by 2030 if trends persist