Varun Beverages stock: Not just another bottler, says JM as it shares VBL target price 

Calling Varun Beverages Ltd (VBL) as an execution powerhouse, JM Financial has initiated coverage on the stock with a 'Buy' rating and a target price that suggests a decent upside ahead. The domestic brokerage said VBL's India business is a play on portfolio and distribution expansion, adding that the Africa growth story is shaping really well.

"VBL is one of the finest examples of a large opportunity (soft drinks market of India and Africa with ready access to PepsiCo’s strong brands) getting tapped through exemplary execution. We don’t see VBL as just another bottler/3rd party manufacturer," JM Financial said.

It felt VBL's end-to-end execution capabilities and capture of the entire value chain in beverages makes the relationship with PepsiCo symbiotic and evenly matched. The strength of the promoters’ vision and execution is evident, it said.

JM Financial said VBL now accounts for 90 per cent of PepsiCo’s India volume sales and saw 300 basis points improvement in relative market share in India over the last five years.

The recent fund-raise by the largest franchisee of PepsiCo - outside US, through QIP is earnings accretive by 7 per cent, despite dilution of 4 per cent, due to interest cost savings from debt repayment, which the brokerage factored in its 2025 estimates.

"While we await more data points on Tanzania acquisitions, our base case calculations suggest marginal accretion to CY25/26E EPS. With strong execution sustaining, we expect consolidated sales to grow at a CAGR
of 18.7 per cent aided by 16.6 per cent volume CAGR over CY24-26E," JM Financial said.

While the margin expansion from current healthy levels is unlikely, given the focus on driving volume growth, interest cost savings will drive higher earnings CAGR of 29 per cent, much better than global peers & highest among staples/F&B coverage, JM Financial said.

The brokerage of suggested a target price of Rs 725, valuing the stock at 55 times December 2026E earnings.

"The Africa growth story is shaping really well with VBL prudently tapping into the large opportunity (headroom to acquire newer territories and gain market share given PepsiCo’s relatively weaker share vs Coca-Cola). With well demonstrated execution in Zimbabwe, Zambia, & Morocco VBL has become a preferred choice as a franchise partner in Africa too – this is evident from acquisition of rights in large," it said.

In the case of India business, VBL’s share in PepsiCo’s soft drinks total volume sales in India increased to 90 per cent in 2024, up from less than 30 per cent in 2011 – a function of geographic expansion and superior execution on go-to-market (GTM) and supply chain.

"While territory acquisition-led growth opportunity is not much, we see multiple growth drivers in India – leveraging Pepsico’s innovation capabilities to scale up presence in non-carbonated beverages (NCB), energy drinks – success visible from performance of Sting & Tropicana.

It also cited headroom to expand distribution – targeting to add 3,00,000-4,00,000 retail outlets and 1 lakh visi-coolers per annum, and expand manufacturing capabilities to ensure better servicing of the market.

"We expect current level of healthy margins to sustain given initiatives in backward integration, low sugar usage and enhanced market reach," Varun Beverages said.

A well demonstrated track record, large opportunity on offer, faster growth against peers and a debt-free balance sheet provides confidence on the earnings growth/RoCE profile and justifies premium valuations, JM said.