Physical Address
Bengaluru, Karnataka
Table of Contents
About Varun Beverages
Varun Beverages Limited (VBL) is a franchisee of PepsiCo in India and a few other countries. The company produces and distributes PepsiCo products. The association between VBL and PepsiCo began in 1991 and since then the product portfolio of the company has grown big. The product portfolio includes brands such as Pepsi, 7 Up, Gatorade, Lays, Tropicana etc. The company operates in India, Nepal, Sri Lanka and a few African countries.
Currently the company operates across 27 states and 7 union territories in India. In the last few years, the company has acquired new territories and sub-territories (districts) in India.
Shareholding pattern and the promoters of the company
The promoters hold 62.66% of outstanding shares and the remaining 37.34% of shares are held by public shareholders. The Jaipuria family members Mr. Ravi Kant Jaipuria, Mr. Varun Jaipuria and Ms. Devyani Jaipuria, together, hold 35.84% shares of the company. The promoter group includes a few other individual such as Vivek Gupta, RJ Corp, SFT Technologies, Lotus Holdings and Marison Finvest. Mutual Funds and Insurance companies together hold a little over 4%. FPIs hold about 25% of the outstanding shares. Couple of individuals from the Promoter group have together pledged 300,124 shares of VBL.
RJ Corp Limited is the holding company which is owned by the Jaipuria family. RJ Corp owns 26.75% of the outstanding shares of VBL,
The promoter of the company is the Jaipuria family headed by Mr. Ravi Kant Jaipuria who is also the Chairperson of the company. Mr. Varun Jaipuria is the Executive vice-Chairman and Whole-time Director of VBL. He is also the Chairperson of RJ Corp. Mr. Ravi Kant Jaipuria is the father of Mr. Varun Jaipuria and Ms. Devyani Jaipuria. VBL has a sister concern, Devyani International, which is a franchisee of Yum! Brands in India.
The Business and Operations
The Brands
The company is mainly into production and distribution of PepsiCo products under franchisee agreement. The Products in the company’s portfolio are:
- Pepsi
- Mountain Dew
- 7 up
- Mirinda
- Slice
- Tropicana
- Sting
- Aquafina
- Gatorade
- Lipton
- Cream Bell
The food portfolio consists of:
- Lays
- Doritos
- Cheetos
- Kurkure
Relationship with PepsiCo
In this structure, PepsiCo owns the trademarks, works on the development of new products, designing of package and labeling and looks after the promotion of its products. VBL takes care the Production, and Sales & Distribution sides of the business. If you find a Visi-Cooler in a retail store, then that was given to the retailer by VBL. PepsiCo spends on the brand promotions of its products. While PepsiCo works on consumer-pull model, VBL works on consumer-push model by expanding the market, tying up with more retailers, giving discounts on bulk purchases at retail stores etc.
The Reach
As discussed before, the company distributes its products across almost of all the states and union territories. Except for Andhra Pradesh, Jammu Kashmir and Ladakh, the company has distribution rights for all the other territories. The company also is the franchisee of PepsiCo in Nepal, Sri Lanka, Morocco, Zambia and Zimbabwe. VBL recently acquired BevCo, a South African beverage company, which has franchise rights from PepsiCo in South Africa, Lesotho and Eswatini. BevCo also has distribution rights in Namibia and Botswana. BevCo has become a full subsidiary of Varun Beverages Limited.
In FY23 the company had catered to 3.8 million retail outlets through which it had sold 913 million cases. The company sold more that 90% of PepsiCo products in terms of volume in India. The company has more than 120 depots and sells its products through 2,400 distributors. The company distributes its products through 2,500 owned vehicles and has also installed more than a million visi-coolers at the retailer’s establishment. VBL operates 40 state-of-the-art production facilities, 34 of them are in India and the remaining are in other countries.
The company wants to be as close as possible to the demand center. When demand picks up in a territory, the company sets up a new plant or adds capacity to the existing plant which is near the demand center. About 72% of the sales volume is from carbonated drinks. In FY23, the company had sold 656 million cases of carbonated drinks. Almost 22% of the sales volume came from packaged drinking water in FY23.
Financials of Varun Beverages
Snapshot of the Financials
The company has been constantly increasing its revenue in India and every other country where it has acquired the franchise rights PepsiCo. The market cap of the company is ₹205.82K crore. The company is trading at a trailing 12 months PE multiple of 84.27. The Price to Book Value ratio is 29.67. The ROE of the company at the end of Jun-24 quarter stood at 35.57%. The total debt of the company stood at ₹5.19K crore at the end of the last quarter.
The stock of Varun Beverages has given a return of 95% in the last one year and a whopping 518% in the last three years.
Financial Analysis and Key Ratios
A quick glance at the Revenue and PAT numbers indicates that the business is seasonal. The company does good business during April-June period. The business is usually subdued between October and December. The Gross Margin for the last five financial years has remained between 52% and 57%. In the last five years (except the COVID year of 2020) the company has seen good Revenue and PAT growth year-on-year.
| Financial Year | Revenue Change |
| 2019 | NA |
| 2020 | -10% |
| 2021 | 37% |
| 2022 | 49% |
| 2023 | 22% |
| Financial Year | PAT Change |
| 2019 | NA |
| 2020 | -9% |
| 2021 | 76% |
| 2022 | 108% |
| 2023 | 36% |
The Debt to EBIT ratio for FY23 was 173% which was bit higher than that of FY22, but it was better than the Debt to EBIT ratios of FY21, FY20 and FY19. The Number of Inventory Days has been coming down since last yew years. In FY21, the Number of Inventory Days was 131 which came down to 106 in FY23. The increase in PAT is inline with the increase in Inventory. Cash Flow from Operations to PAT ratio was 1.14 in FY23.
Key Ratios
| Financial Year | ROE | ROCE | Increase/Decrease in Operating Cash Flow | CFO to PAT ratio | Inventory No. of Days |
| FY19 | 14% | 18% | NA | 1.14 | 100 |
| FY20 | 12% | 11% | -22.46% | 1.15 | 123 |
| FY21 | 18% | 17% | 21.68% | 1.65 | 131 |
| FY22 | 30% | 27% | 45.36% | 2.39 | 116 |
| FY23 | 30% | 29% | 33.56% | 2.79 | 106 |
There has been a significant increase in the long-term borrowings of the company.
ESG Initiatives by the Company
The company has undertaken a number of initiatives to reduce the impact on the environment. A few initiatives are listed below:
- Reduction in water usage for production of beverages. The company reported that the 9% less amount of water was used in FY23 in comparison with FY22 to produce a liter of beverage.
- The company had recycled 86% of the PET bottles in FY23. This was an improvement of 6% over FY22.
- Carbon emission to produce a liter of beverage was 6% lesser in FY23 than the FY22 number.
- 58 million units of renewable energy was generated by the company.
- The company has planned to reduce carbon emission by 50% in FY30 from the levels of FY20.
- The company has planned to get 25% of energy from renewable energy sources.
- The company was able to maintain water recharge ratio of 2.02 around its plants.
The Central Ground Water Authority has termed the ground water levels around 7 of the company’s plants as ‘Critical’ or ‘Over Exploited’. In fact, water recharge ratio has come down over the years.
In FY23, VBL saw 19% attrition among permanent male employees and 15% among permanent female employees. The attrition rate among permanent male workers was 4% and no permanent female worker let the company in FY23. The company is given more emphasis on talent management. VBL also hires people from the Transgender Community (TG). The company employs more than 20 people from the TG. The company had more than 13,500 employees in its workforce at the end of December 2023.
The board of the company has to women as independent directors. The company has to align itself with the principles of business conduct of PepsiCo. Mr. Varun Jaipuria had drawn remuneration of ₹5.4 crore and Mr. Rajinder Jeet Singh Bagga, Whole-time Director, had drawn a remuneration of ₹5.8 crore in FY23. Mr. Raj Gandhi, Whole-time Director, had drawn remuneration of ₹6.25 crore.
The company has imparted free education to over 32,000 students through Shiksha Kendra. The company operates 10 clinics in India and 1 clinic in Nepal. The company has also provided skill related training to more than 17,000 unemployed youth.
Opportunity and Risk
The biggest strength of the company is the brand name of Pepsi. The company has near monopoly in production and distribution of PepsiCo products in India. As the disposable income is increasing among the Indians, the company will find newer opportunities with its products. The company is pushing its non-PepsiCo brand CreamBell. CreamBell is into dairy products such as Ice Cream and Milk Shakes. The company has been growing at a very fast rate.
The biggest moat for the company is its distribution network. It will not be easy for a new entrant in the market to build such a big network and also to maintain quality simultaneously. Another moat for the company is the portfolio of brands it has.
In terms of risks, there are a number of them that are staring at the company. A new entrant with a huge money-bag is in the market. There is a chance that this new entrant may try to make some dent and take away a sizable chunk of VBL’s distribution network. There is a chance that the new entrant may create margin pressure for VBL by offering a bigger margin to the retailers and the distributors.
VBL is dependent on PepsiCo for almost every decision it makes. It may not be able to venture into developing its own products. There is also a risk that due to utilization of scarce resource like water, they company may run into trouble with the authorities and civil rights groups.
VBL isn’t in a business where the product cannot be replicated by a new entrant. The wafers and chips business is already facing stiff competition from the likes of ITC and Parle.
References
- Varun Beverages annual report for FY23 on BSE website
- Analysis of Varun Beverages on Screener.in
- Varun Beverages website
