Varun Beverages

Investment case

Rural distribution + Africa

Why this business

World's second-largest PepsiCo franchise bottler (outside the US) producing and distributing Pepsi, 7Up, Mountain Dew, Sting, Tropicana, Aquafina etc. across India (~90% of PepsiCo India beverage volumes) and 10+ international markets (Nepal, Sri Lanka, Morocco, Zambia, Zimbabwe, DRC, South Africa via BevCo and the 2026 Twizza acquisition, Ghana, Tanzania). Sold 466.7 mn cases in Q2CY26 alone; CY25 revenue Rs 21,685 cr, EBITDA margin ~23%; India is net-debt-free. Adjacent snacks manufacturing for PepsiCo in Morocco/Zimbabwe and value-added dairy are new legs. Market share vs Coca-Cola/Campa not quantified in sources used.

What we believe

1. 01Volume compounder: consolidated volumes +19.8% in Q2CY26 (India +14.4%) after +16.3% in Q1CY26; management sees no reason India growth cannot stay double-digit; 10-yr sales CAGR 20%.
2. 02Distribution and capacity flywheel: plans to add 0.5 mn outlets in CY26 (vs 0.3-0.4 mn historically); H1CY26 capex Rs 950 cr on brownfield lines, dairy, Zimbabwe snacks and Rs 400 cr of coolers/market infrastructure; WIP Rs 490 cr for South Africa and a Kenya CSD line.
3. 03International optionality: Twizza (South Africa, Rs 1,131 cr EV) and Crickley Dairy/BevCo (Rs 131 cr EV) take VBL into higher-growth African markets; international volume +38.4% in Q2CY26 with all African markets except Zambia growing at a healthy pace.
4. 04Margin resilience: 27.7% Q2 EBITDA margin and 55% gross margin (+44 bps) despite PET/sugar inflation; India EBITDA margin still expanding (+38 bps) and India is net-debt-free (consolidated net debt only Rs 371 cr at Jun-26).
5. 05Valuation at 40.6x trailing / ~34x CY27E (derived) with 16% earnings CAGR is cheaper than Nestle India (73x) and Tata Consumer (61x) for faster growth; brokerage targets Rs 500-657 imply 23-62% upside.

Why now

Stock -14% over one year (screener) but 5-yr price CAGR 27%; at 40.6x trailing it is below the 55-70x it commanded in 2023-24 during the 30%+ volume-growth phase; 10-yr profit CAGR 40% vs 5-yr 50%. EV/EBITDA 26.1x; dividend yield 0.4%.

Market disagreement

• Nestle India: Nestle trades at 72.7x trailing vs VBL 40.6x; VBL delivers ~20% volume growth vs Nestle's high-single-digit volume, and although Nestle's ROE (74%) is far higher, VBL's incremental capex earns 20%+ ROCE and its 10-yr profit CAGR (40%) is multiples of Nestle's.
• Tata Consumer Products: TCPL trades at 60.9x with ROE of only 7.4% and ROCE 9.2% (goodwill-heavy after Capital Foods/Organic India deals) and promoter holding 33.8%; VBL has 3x the ROE (20%) at two-thirds the multiple and 59% promoter skin in the game.

Position sizing

Core Large cap  1.0% of the PMS on $31 Jul 2026 (August rank not in top 30). Core positions are owned through the cycle for leadership and cash-flow quality.

Catalysts

• Q3CY26 results (late Oct-2026): monsoon-quarter India volume and first full quarter of Twizza; any upgrade to CY26 volume guidance from MOFSL's 16% CAGR.
• Commissioning of South Africa expansion and Kenya CSD line (WIP Rs 490 cr) plus Zimbabwe snacks plant in H2CY26 - adds international capacity ahead of the Southern Hemisphere summer.
• PepsiCo India portfolio moves (energy drinks/Sting extensions, value-added dairy line) and potential inclusion in more index/ESG portfolios (ESG rating raised to 63 for FY26).

Risks and response

• Weather/seasonality: April-June is the peak quarter (Q2 ~35% of CY revenue); an early or extended monsoon (as in CY25) or unseasonal rain can wipe out a year's growth - Q2 revenue was below the Rs 8,631 cr estimate (TradingView).
• Campa/Reliance price war at Rs 10 and PepsiCo concentrate-price/franchise terms; margin dilution from lower-margin African acquisitions (Twizza cut consolidated margin 76 bps).
• Promoter holding fell 4.18% over three years to 59.4% (QIP and stake sales); ROE has halved from 29% (CY23) to 20% (CY25) as equity base expanded - Buoyant's FY27e ROE is only 16.6%.

Thesis-break conditions

Not stated separately on this page; the risk list carries the monitoring triggers.

Review history

• 8 Sep 2026 · Yash Palod · one-pager in "Why We Own What We Own" (p35) · portfolio as of $31 Jul 2026
• 31 Aug 2026 · Classification in the August top-30: —

Source: Buoyant_Why_We_Own_What_We_Own_Sep2026.pdf (portfolio as of 31 July 2026), p35. Internal; external publication of these fields is controlled by audience policy.