 "Varun beverages")
Having slumped by 32 per cent in the first two months of calendar year (CY) 2025, the stock of Varun Beverages (VBL) has made a smart recovery since March, gaining 24 per cent. The drop in stock prices was due to concerns related to competition and slower volume growth in the India business. The stock is currently trading at ₹539.6 a share.
However, the Street believes that the correction is overdone and that the company has multiple growth opportunities in both the India and Africa markets. Also, there could be a near-term volume surge given the onset of the summer season, which is the peak period for the Pepsi bottling and distribution major.
The key concern weighing on the stock is increased competitive intensity with the relaunch of Campa Cola by Reliance Consumer Products (RCPL) in March 2023. Given that RCPL expects sales to cross ₹1,000 crore in 2024-25, this would translate into 70 million cases and a low single-digit market share, according to JM Financial Research. The overall Indian market is 2.4 billion cases, dominated by Coca-Cola and PepsiCo, which have a combined share of 80-85 per cent.
While Campa is scaling up in terms of visibility, Elara Capital believes that this is particularly restricted to its disruptive ₹10 (200ml) offering. Analyst Amit Purohit of the brokerage points out that the impact is more on local/regional brands than incumbents such as Pepsi and Coca-Cola in the near term. While Campa’s aggression, especially in orange and cola flavours, is notable in key regions, its long-term success hinges on execution, which remains a challenge, he adds. A significant part of VBL’s revenues comes from brands such as Mountain Dew and Sting, which do not seem to be impacted by Campa.
Campa, according to JM Financial Research, has focused on certain states like Tamil Nadu, Andhra Pradesh, Telangana, Uttar Pradesh, and West Bengal. The strategy is to target the mass-end consumer who is price-sensitive and less brand loyal through aggressive pricing.
Analysts at the brokerage, led by Mehul Desai, highlight that the offtake is largely in smaller stock keeping units (SKUs) and out-of-home consumption, which is price-sensitive, not brand-loyal, and where PepsiCo/Coca-Cola didn’t have an offering. In the large SKUs (750ml/2.25L), which are predominantly for home consumption, PepsiCo/Coca-Cola remain strong, they add.
What should drive near-term growth are launches and a strong summer season. The company is targeting double-digit growth for its India and international operations.
Sharekhan Research expects the company to post sales and net profit growth of 18-27 per cent annually over CY 2024-2026. What will drive this growth is stable expansion in the domestic market, better distribution reach (10-12 per cent annual outlet addition), expansion of the snack portfolio outside India, increased penetration in newly acquired African territories, and the commissioning of multiple greenfield and brownfield facilities across geographies. The brokerage is positive on the stock and expects an upside of 41 per cent over the next 12 months.
Although Elara Securities has cut its earnings estimates for CY 2025 and CY 2026 due to lower margins, it says that within its fast-moving consumer goods universe, VBL offers a better growth trajectory through CY 2024-2027 at an earnings growth of 17 per cent. It has reiterated an ‘accumulate’ rating with a target price of ₹555.
JM Financial Research has a ‘buy’ rating as VBL has many levers for growth in the domestic business (capacity/distribution/portfolio expansion), and the Africa opportunity is large and intact. The brokerage believes the recent correction is overdone and the prevailing market pessimism should be used as an opportunity to add the stock (target price ₹675) to portfolios.
