Varun Beverages Limited - Q4FY2022 REVIEW

Varun Beverages Limited reported net revenue of ₹2,266.45 crores for the quarter ended December 31, 2022, compared to ₹1,765.79 crores for December 30, 2021. Profit After Tax was ₹81.52 crores for the quarter ended December 31, 2022, compared to ₹32.59 crores during the corresponding quarter of the previous year, respectively.

STOCK DATA

Varun Beverages Limited - OVERVIEW

• Varun Beverages Ltd has invested 9.80% of the equity share capital (5.68% on a fully diluted basis) of Lone Cypress Ventures Private Limited, a special purpose company engaged in, among other things, supplying solar electricity to consumers in Uttar Pradesh.

• Varun Beverages operates in six countries: three in the Indian Subcontinent (India, Sri Lanka, and Nepal) generate 85% of sales, while three in Africa (Morocco, Zambia, and Zimbabwe) contribute 15% for the fiscal year 2022.

SHAREHOLDING PATTERN (%)

BENCHMARK COMPARISON

BUSINESS

• Varun Beverages Limited is a major player in the beverage industry and one of the world's largest PepsiCo franchisees (outside USA). The Company manufactures and sells a diverse range of carbonated soft drinks (CSDs) as well as a diverse range of non-carbonated beverages (NCBs), including packaged drinking water supplied under PepsiCo trademarks.

• VBL purchased the franchise rights for Punjab, Chandigarh, Himachal Pradesh, and the remaining parts of Uttar Pradesh, Uttarakhand, and Haryana from PepsiCo in February 2015, along with four manufacturing units—one each in Panipat, Sathariya, Jainpur, and Bazpur.

• In 2017 and 2018, VBL acquired Bihar and parts of the Madhya Pradesh, Chhattisgarh, Jharkhand, and Odisha territories from third-party bottlers. VBL has expanded its presence to 27 states and seven union territories after acquiring franchise rights for southern and western sub-territories from PepsiCo India and third-party bottlers in 2019. In September 2019, VBL increased its effective shareholding in Lunarmech Technologies Pvt Ltd, a manufacturer of plastic closures for PET bottles, to 55% from 35%.

• VBL's PepsiCo CSD products include Pepsi, Pepsi Black, Mountain Dew, Sting, Seven-Up, Mirinda Orange, Seven-Up Nimbooz Masala Soda, and Evervess. Tropicana Slice, Tropicana Juices (100% and Delight), Seven-Up Nimbooz, Gatorade, and bottled drinking water under the trademark Aquafina are among the PepsiCo NCB products produced and distributed by the Corporation.

• VBL has been associated with PepsiCo since the 1990s and has consolidated its business relationship with PepsiCo over the last two and a half decades by increasing the number of licensed territories and sub-territories covered by the Company, producing, and distributing a broader range of PepsiCo beverages, introducing various SKUs in the portfolio, and expanding the distribution network.

• VBL has received franchises for several PepsiCo products in 27 Indian states and 7 union territories. India is the largest market, accounting for 80% of net revenue from operations in Fiscal 2022. VBL has also been granted the franchise for several PepsiCo products in Nepal, Sri Lanka, Morocco, Zambia, and Zimbabwe.

• VBL entered into the agreement to distribute and sell Lays, Doritos, and Cheetos for PepsiCo in the territory of Morocco, and it also commenced commercial production of Kurkure Puffcorn at the manufacturing plant in Uttar Pradesh for PepsiCo in FY2022.

Varun Beverages Limited - SWOT ANALYSIS

STRENGTH

• Key Player in Beverage Industry.

• Symbiotic relationships with PepsiCo.

• Strong business model.

• FIIs have increased their shareholding.

WEAKNESS

• capital-intensive business

• Susceptibility to regulatory changes and client preferences

OPPORTUNITIES

• Growing beverages and snacks consumption in an emerging market.

• Further expansion through acquisition.

• Increasing demand for healthy food and beverages.

THREAT

• Changes in consumer tastes.

• Increasing costs of raw materials could impact the profit of the company.

• Regulatory risk.

BEVERAGE INDUSTRY ANALYSIS

• After two years of disruption from the Covid-19 epidemic in the important summer season, the domestic soft drinks sector saw a year of significant expansion in CY 2022. The industry successfully reacted to changes in consumer behavior and demand caused by the epidemic, and it proceeded to offer new goods in line with changing customer tastes and preferences.

• The resurrection of out-of-home channels, as well as pent-up demand from consumers returning to socializing, led to a large spike in demand. Furthermore, the market for energy drinks took up and emerged as a growth category, owing to a favorable demand environment and good performance.

• Future development potential in the Indian drinks sector will be driven by further penetration into rural markets, an expanding demographic profile, and a growing middle-class population.

• Also, when per capita income rises, people are prepared to spend more on luxury and specialized items. When more people relocate to cities and have more discretionary income, urbanization plays a vital influence in the industry's growth. Carbonates, juices, and bottled water are the three primary categories of the Indian soft drinks industry. Carbonates are the most valuable category.

• The Indian soft drink industry is likely to develop significantly as consumption is expected to rise consistently due to a range of factors such as:

  • Positive demographic characteristics

  • Rapid urban growth and increasing earnings.

  • Rise in average expenditure per household.

  • Rural development and electrification.

  • Location.

  • Innovative product.

Varun Beverages Limited - FINANCIAL OVERVIEW

Varun Beverages Limited - QUARTERLY SUMMARY

PROFIT AND LOSS STATEMENT (₹ in millions)