Varun Beverages - A huge MOAT!

 About the company 🏢

• Varun beverage has been working in collaboration with PepsiCo since a long time (1990s) and since then they have become the largest franchisee of the company thanks to the amazing relationship these two have with each other. 

• VBL produces a lot of products in 3 segments :- 

1. Carbonated soft drinks (CSDs)
2. Non-carbonated beverages (NCBs) 
3. Packaged water

Company logo

Indian soft drinks market 🍷

• This is a very under-penetrated market which is expected to grow at a CAGR of 9.4% over CY 19-24. 

• The main driver of volumes in the coming future would be the increase in consumption by the people of India. 

• Varun Beverages Limited or VBL will benefit a lot from this story as they have access to all of PespiCo's brands & products.

India's soft drink market

Non-Carbonated Beverages (NCBs) ❌

• These are basically the healthier soft drinks. This market has been growing at a high pace lately due to increase awareness among people and them started to become more and more health conscious. 

• Hence, NCBs are expected to be major revenue drivers in the long term. PepsiCo is paying close attention to this segment. 

• They already have a lot of NCBs out and are in line to launch more. Some of its brands are Tropicana Slice, Tropicana Frutz (Lychee, Apple and Mango), 7UP Nimbooz. 

• Currently, this segment contributes to around 30% of VBL's volumes which as per management, is expected to increase as the penetration and awareness increases. 

Carbonated Soft Drinks (CSDs) 🍾

• The best selling beverage in the CSD segment is Mountain Dew (around 30%) which in still in line for more growth as the penetration increases. 

• Another beverage in the same segment, Sting, is also growing at a really high pace. It sells in the energy drink market which is growing at a CAGR of 45-50%. 

• In north India, Mountain dew brings the majority volumes. In south India, 7up brings the most volumes. Mirinda does well in both west & south India. 

• CSD volumes are expected to grow at a CAGR of 17.5% in CY22-24. 

CSD Volumes

Packaged Water 💧

• The packaged drinking water segment is expected to deliver a CAGR of 9% during CY19-24. 

• The main driver for this growing is the deteriorating water quality in rural and even semi-urban areas. The growing conscious and increasing awareness about the diseases caused by drinking unfit water would drives sales for the company. 

• In the last 5 years, water segment has grown at a CAGR of 33% in volumes with decent EBITDA margins of 20-21%. 

Packaged water volumes

Juices 🧃

• Juice market of India operates in three divisions :- 

1. Still drinks :- About 84% of total volumes. Has less than 30% juice content. Growing at a CAGR of 9.6%. 
2. Nectars :- Between 30% and 100% juice content. Growing at a CAGR of 11.4%.
3. 100% Juice:- The segment which is growing rapidly at a CAGR of 12.6%. 

• Volumes in Juice segment are growing at a CAGR of 13.6%.

Juice volumes

Diversify product portfolio 🔀

• To reduce product concentration, VBL has also ventured into dairy based drinks. 

• They have a dairy brand "Creambell" licensed from Devyani Foods. They have so far launched three beverage via this - Belgian Choco Shake, Cold Coffee and Mango Shake. 

International presence 🌍

• Given the strong relationship VBL has with PepsiCo, they now have been selected for PepsiCo's product rights in countries like Morocco, Nepal, Sri Lanka, Zambia and Zimbabwe. 

• This is a boon for VBL due to 2 reasons :- 

1. These markets are very untapped and underpenetrated. Hence, a lot of room to grow at a rapid pace. 
2. The summer season in Morocco, Zambia and Zimbabwe are exactly opposite to India. Hence, the cyclical nature of revenues would cool off a bit for VBL.

• When it comes to volumes in international markets, VBL has seen a CAGR of 22%. International sales currently contribute around 20% to the total company's revenue. 

Country-wise volumes

Venturing into Snacks 🍟 

• VBL has also diversified itself into other product categories. They manufacture Kurkure Puffcorn and distribute Cheetos, Doritos and Lays in Morocco.

Snacks distributed

Future prospects and outlook 🎯

• VBL is currently focusing to increase distribution by opening more outlets in the western and southern part of India. 

• They look at expand aggressively in segment like dairy and juices which have a potential for exponential growth in the coming years. 

Financials 📊

• During the period FY16-22, VBL witnesses an amazing sales CAGR of 19.6% with both international as well as domestic business performing equally well. 

• In future, expect international sales to grow at a CAGR of 20.9% while domestic sales to grow at a CAGR of 15.5%. 

Company financials

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