Academic Research Project – Not a Recommendation

Equity Research Report

Varun Beverages Ltd
Massive Capex on the Table, Ready for Growth
About the Company Recommendation : XXX
CMP : 922.6
Varun Beverages Limited (“VBL” or the “Company”) is a key player in beverage Target Price : XXX
industry and one of the largest franchisee of PepsiCo in the world (outside
USA). Stock Data (as on Oct 16, 2023)
VBL has been associated with PepsiCo since the 1990s and have over two and
NIFTY 50 : 19731.7
half decades consolidated its business association with PepsiCo, increasing the 52 Weeks (H/L) (INR) : 979.0 / 482.5
number of licensed territories and sub-territories covered by the Company, Market Cap (INR Crs) : 1,19,949
producing and distributing a wider range of PepsiCo beverages, introducing
various SKUs in the portfolio, and expanding the distribution network.
O/S Shares (Crs) : 129.91
Dividend Yield (%) : 0.18
The Company manufactures, distributes and sells a wide range of carbonated NSE Code : VBL
soft drinks (CSDs), as well as a large selection of non-carbonated beverages
(NCBs), including packaged drinking water sold under trademarks owned by Relative Stock Performance - 1Y
PepsiCo.

VBL has been granted franchisees for various PepsiCo products across 27 Nifty 50 VBL
States and 7 Union Territories in India (responsible for 90% beverage sales
volume of PepsiCo India). VBL has also been granted the franchise for the
territories of Nepal, Sri Lanka, Morocco, Zambia and Zimbabwe. India is the
largest market and contributed 80% of revenues from operations (net) in Fiscal
2022.

VBL is part of the RJ Corp group, a diversified business conglomerate with

interests in beverages, quick-service restaurants, ice-creams and healthcare.
VBL’s Promoter and Chairman Mr. Ravi Jaipuria has an established reputation
as an entrepreneur and business leader and is the only Indian to receive
PepsiCo’s International Bottler of the Year award, which was awarded in 1997.
Oct-22 Dec-22 Feb-23 Apr-23 Jun-23 Aug-23
He was also awarded the ‘Distinguished Entrepreneurship Award’ at the PHD
Annual Awards for Excellence 2018. Absolute Returns
Brief Overview 1 Year : 79.77%
3 Years : 508.12%
The company posted growth in top-line during FY22 and expect the growth to
remain stable in the coming years. 5 Years : 709.92%
The company is currently in the process of establishing greenfield facilities in
the states of Uttar Pradesh, Maharashtra, and Odisha which will be fully Shareholding Pattern (as on Sept 30, 2023)
operational before the next season, resulting in expansion of the production Promoters : 63.10
capacity and increasing the revenue in future. FIIs : 27.55
The company has given a guidance of achieving 21% EBITDA margins going DIIs : 3.36
forward. Public : 5.99
The company expects ROCE around 34-35% in next 3-4 years, as two-three
territories out of six are already doing higher than 35% ROCE. Financial Summary
The stock currently trades at P/E of 63.8x. With an increase in EPS to 11.53% in in INR Crs FY22A FY23E FY24E
FY22 from 5.34% in FY22 (Consensus Basis) the price is stock is expected to
reach XXX.
Net Revenue 13173.1 16176.3 18823.5
YoY Growth % 49.0% 22.8% 16.4%
Key Highlights EBITDA 2863.0 3543.0 4096.4
• Topline growth of 49.30% on YoY basis was achieved for FY22 and growth EBITDA Margins
of 13.25% on QoQ basis in Q2FY23. (%) 21.7% 21.9% 21.8%
• In the CY2022, net realization per case improved by 6% to Rs.164, primarily PAT 1550.1 1957.0 2324.4
driven by price hike in select SKUs, rationalized discount & incentives and
improvements in mix of smaller SKUs.
YoY Growth % 108.0% 26.2% 18.8%
• EBITDA margins of 21.73% on YoY was achieved for FY2022 and growth of ROE 33.8% 31.1% 28.5%
20.80% on QoQ basis in Q2FY23. EPS (in INR) 11.9 15.1 18.0
• The company has given guidance on consolidated capex of INR 1500 Crore.
This resulted in a debt level of around Rs 4000 Crore.
EV / EBITDA 31.3x 28.8x 24.6x
• The company expect domestic growth to remain stable.
• The company expects around 10%-12% increase in the distribution outlet Prepared by Shantanu Biswas
every year. Guided by: CA Parth Verma (The Valuation School)
Academic Research Project – Not a Recommendation

Varun Beverages Ltd

Global Economy
Global GDP Projections (%)
The global economy witnessed a slowdown in CY 2022 due to 0.0% 2.0% 4.0% 6.0%
multiple factors, including ongoing effects of COVID-19, Russia and
Ukraine war, tightening financial conditions, high inflation and World
increased cost of living. This has resulted in a decrease in global
growth from 6.0% in CY 2021 to 3.2% in CY 2022. Advanced Economies
Central banks across the globe are fighting with inflation by rate
hikes. The recent conflict between Israel and Gaza could pose Emerging Economies
challenges in energy cost and supply chain smoothening.
The global growth is projected to fall from an estimated 3.5% in CY
USA
2022 to 3.0% in both CY 2023 and CY 2024.
Nepal
Due to the above issues, the global economy grew at a slower pace of
3.5% in CY 2022 as against 6.0% in CY 2021.
The developed economies grew at 2.7% in CY 2022 against 5.2% in CY Morocco
2021. The emerging and developing economies grew at 4.0% in CY
2022 against 6.6% in CY 2021. Zambia

The rise in central bank policy rates to fight inflation continues to Zimbabwe
weigh on economic activity. Global headline inflation is expected to
fall from 8.7 percent in 2022 to 6.8 percent in 2023 and 5.2 percent in India
2024. Underlying (core) inflation is projected to decline more
gradually, and forecasts for inflation in 2024 have been revised
upward. 2022A 2023P 2024P

Source: IMF WEO Source: IMF WEO

India vs Global GDP Growth (%) Indian Economy

9.10%
7.20% The Indian economy has shown tremendous resilience in the face of a
6.80% 6.50% 6.30% 6.30% challenging external environment. Despite, the impact of tightening
3.90% global monetary policy cycle, slowing global growth and increased
commodity prices, the economy is relatively well-positioned to
handle global headwinds compared to other emerging economies.

2018 2019 2020 2021 2022 2023 2024P 2025P In CY 2022, India posted a growth of 7.2% which was above the global
growth of 3.5%. India was also able to beat the GDP growth rate of
Emerging and Developing Economies which was 4.1%.
-5.80%
India is expected to remain one of the fastest-growing economies in
India Global the world due to robust domestic demand. The IMF has forecasted
Source: IMF, World Bank, RBI India’s GDP growth to be 6.3% in CY 2023-24 which is greater than the
forecasted global GDP growth of 3.0%.
Indian GDP Quarterly Growth -Actual vs
On the demand front, urban consumption is flat while rural demand
16.0% Projected is showing signs of revival. Investment activity is benefitting from
14.0% public sectors capex. Further, Inflation is expected to be soften and
within the targeted range soon.
12.0%
With strong levers of strong credit growth, resilient financial markets,
10.0% and the government’s continued thrust on capital spending
15.20%

and infrastructure, Indian economy is expected to accelerate ahead

13.50%

8.0%
of other emerging economies.
6.0%
8.40%
8.40%

7.80%
7.70%

Indian economy is robustly progressing over becoming 3rd largest

6.30%
6.20%

6.10%
6.00%
5.40%

4.0% economy with $5tn GDP.

4.10%
4.00%

4.40%
4.60%

4.60%

2.0%
Q2FY22 Q3FY22 Q4FY22 Q1FY23 Q2FY23 Q3FY23 Q4FY23 Q1FY24

Actual Projected

Source: Investing.com Source: IMF, RBI

Academic Research Project – Not a Recommendation

Varun Beverages Ltd

Global FMCG Industry Global FMCG Market Size (in $Bn)

The global FMCG market size was valued at $11,490.9 billion in 2021 20000
and is projected to reach $18,939.4 billion by 2031, registering a
CAGR of 5.1% from 2022 to 2031. Growth is driven by increasing 15000
consumer awareness of FMCG products, growing population in the
middle disposable income category, strong distribution channel 10000
system in the market. Easier availability of goods used by common
people is also contributing to the growth of the market. Changes in 5000
consumer lifestyles in developed and developing countries are also
boosting market growth. 0
21A 22P 23P 24P 25P 26P 27P 28P 29P 30P 31P
According to data published by Un.org in 2018, about 55% of the Source: Allied Market Research
world's population currently lives in urban areas, and this number is
expected to rise to 68% by 2050. It is projected that an additional 2.5 Leading Global Beverage Company Sales
billion people may live in urban areas by 2050, with approximately (In $Mn)
90% of this growth occurring in Asia and Africa.
Suntory Holdings Ltd. 19717
According to the FMCG market forecast, the food and beverage Diageo PLC 24785
segment gained a major share of the global market by product type in
Starbucks Corp. 32250
2021 and is expected to maintain its market share during the forecast
period. Growth in disposable income, multicultural inclusion and PepsiCo Inc. 36283
population growth is driving the food and beverage business. The The Coca-Cola Co. 43000
transition to a healthier diet has significantly affected the growth of Nestle SA 45167
the food and beverage business.
Anheuser-Busch InBev 57786

Source: Allied Market Research Source: Statista

Indian FMCG Market Size (in $Bn) Indian FMCG Industry

700
In 2022-23, FMCG sales growth in the country is expected to be 7-9%
600 of turnover. Favorable government initiatives and policies, growing
500 rural markets and youth, new branded products and growth of e-
commerce platforms are the key growth drivers for the industry.
400 India's fast-moving consumer goods (FMCG) sector grew 7.5% in the
300 April-June 2023 quarter, the highest in eight quarters, on the back of
a revival in rural India and stronger growth in modern business.
200
100 The FMCG market reached USD 56.8 billion in December 2022. The
total FMCG market revenue is expected to grow by 27.9% from 2021
0
to 2027 to reach nearly USD 615.87 billion. In 2022, urban accounted
2020A 2021A 2022A 2023E 2024E 2025E 2026E 2027E
for 65% of total FMCG sales, while rural India accounted for more
Source: IBEF than 35%. Good harvest, public spending will help increase demand
in rural areas in FY24.
Urban – Rural Industry Breakup
In CY 2022, the domestic soft drinks industry experienced a year of
robust growth, following two years of impact from the Covid-19
pandemic in the key summer season. The industry effectively
adapted to changes in consumer behavior and demand brought
about by the pandemic and continued to introduce new products in
line with evolving consumer tastes and preferences.
35%
The Indian beverages industry presents significant growth
opportunities in the future, driven by deeper penetration into rural
65% markets, an expanding demographic profile, and a growing middle-
class population. Furthermore, with the growth in per capita income,
consumers are willing to spend more on premium and niche
products. The main segments constituting the soft drinks market in
India are carbonates, juices, and bottled water. Carbonates is the
largest category in value terms.
Rural Urban

Source: IBEF Source: IBEF, Multiple Reports

Academic Research Project – Not a Recommendation

Varun Beverages Ltd

Global Beverage Industry Global Beverage Market (In $Bn)

The global beverage market is expected to grow at a CAGR of 3.47% 2500
from an initial value of US$1,568.389 billion in 2021 and is estimated
to reach a market size of US$1,991.845 billion in 2028. 2000

The market is expected to grow at a reasonable rate, owing to rising 1500

disposable income and shifting consumer preferences toward ready-
1000
to-drink beverages, particularly in developing and emerging
economies. Rising per capita consumption of alcoholic beverage and
500
consumer preferences for premium products are expected to drive
market growth. 0
21A 22P 23P 24P 25P 26P 27P 28P
However, rising health concerns about the sugar content of packaged
beverages, may stymie market growth. However, the introduction of Source: Research and Markets
new products, such as drinks with lower sugar content, is expected to
create several opportunities for the market. Indian Beverage Industry
The market is witnessing a rise in the demand, particularly from the The Indian Food and Beverage Market is expected to be worth nearly
baby boomer and millennial generations, for non-alcoholic US$ 622.67 billion by CY 2029, with a CAGR of 11.05%.
beverages. With consumers increasing interest in health awareness
and the availability of a wider product portfolio with improved taste, Following two years of the Covid-19 pandemic's effects during the
which helps consumers choose products easily based on their crucial summer season, the domestic soft drink industry saw a year of
preferences, sales of non-alcoholic beverages have been increasing. strong growth in CY 2022. The industry successfully responded to
shifts in consumer demand and behavior brought on by the
Source: Research and Markets, Mordor Intelligence pandemic, and it kept launching new products to meet the changing
needs and tastes of its target market.

Indian Beverage Market by Region Given its increased penetration into rural markets, changing
demographics, and expanding middle class, the Indian beverage
industry has a lot of room to grow in the coming years. Also,
9% customers are prepared to spend more on niche and luxury goods as
a result of the increase in per capita income.

24% 38%
The industry is expanding as a result of urbanization, since more
people are moving to cities and having more disposable income. The
three primary product categories that make up India's soft drink
market are bottled water, juices, and carbonates. In terms of value,
carbonates is the largest category.
29%
Source: Maximize Market Research, Multiple Reports
North West South East
Indian Food and Beverage Market Size
Revenue Share of Major Players (In Crores) –
(In $Bn)
FY2022
700.00
6653
14829
6380 600.00

500.00
8171
400.00

300.00

200.00
51586
100.00

Nestle HUL Tata Consumer Products Hatsun Agro VBL 0.00

22A 23P 24P 25P 26P 27P 28P 29P

Source: TechSci Research, Dart Consulting Source: Maximize Market Research

Academic Research Project – Not a Recommendation

Varun Beverages Ltd

Quarterly Result Analysis – Q1 CY2023 and Q2 CY2023

 Financial Results:  CAPEX

• Sales volume grew by 4.6% to 314 million cases in Q2 CY2023 • The net debt figure includes approximately Rs. 9,000 million
from 300 million cases in Q2 CY2022, primarily due to growth for CWIP and Capital Advances allocated for the CAPEX
in international markets. planned in Maharashtra, Uttar Pradesh, and Odisha for the
• Consolidated revenue grew by 13.3% during the quarter, CY2024 season. These investments are expected to drive our
driven by strong momentum in international territories. growth and expansion in key regions.
• Net realization per case increased by 8.3% to reach Rs. 179 • The net CAPEX amounted to Rs. 19,000 million for setting up
per case. This is due to the increase in the proportion of new greenfield production facilities at Bundi, Kota,
smaller SKUs in the portfolio as compared to the (Rajasthan), and Jabalpur, (MP) for approximately Rs. 8,500
corresponding quarter last year. million brownfield expansion at six existing facilities in India
• Gross margins during the quarter improved by 196 basis for approximately Rs. 6,500 million and brownfield expansion
points to 52.5% from 50.5%, due to the softening of PET chip in international markets of approximately Rs. 3,000 million
prices. and approximately Rs. 100 million towards land purchase for
• EBITDA saw a notable increase of 20.8% to Rs. 15,110 million CAPEX in future years.
with EBITDA margin improving by 169 basis points to the • As of December 2022, the net CAPEX includes capitalization
level of 26.9% in Q2 CY2023. of CWIP and Capital Advances amounting to Rs. 12,000
• Depreciation increased by 12.3% and finance cost increased million which was outstanding.
by 49.5% in Q2 CY2023 on account of capitalization of assets • As of June 30th 2023, the CWIP and Capital Advances of Rs.
and setting up of new production facilities. 9,000 million are towards business expansion in
• PAT increased by 25.4% to Rs.10,054 million in Q2 CY2023 Maharashtra, UP, and Odisha.
from Rs. 8,020 million in Q2 CY2022, driven by growth in
revenue from operations and improvement in margin.  Competition
• Net debt decreased to Rs. 31,716 million as of June 30, 2023 • The company faces competition from Campa and Reliance.
from Rs. 34,096 million reported in December 31, 2022. • The Indian market is huge and there is room for growth for
everybody.
 Capacity Expansion and Market Exploration: • There are many highly under penetrated area which the
• The newly established greenfield pants and brownfield company is exploring.
manufacturing lines have become operational to meet the
increasing demand.  Outlook and Focus
• The company is currently in the process of establishing • The company remains optimistic about their full–year
greenfield facilities in the states of Uttar Pradesh, performance, considering the low seasonality in their
Maharashtra and Odisha for juice and value added dairy business and integration of west and south territories.
products. • The company will focus on strengthening their capabilities in
• These new facilities along with the upcoming facility in DRC line with customer performance.
are expected to be fully operational before the next season.
• The company have incorporated a new subsidiary in South  Other Points
Africa to explore the business of manufacturing and • The company has given guidance on EBITDA margins in the
distribution of beverages. range of 21%-22%.
• The company is constrained by the production capacities of
 Recognition and Dividend Tropicana juices and value-added dairy.
• VBL has received recognition of “PepsiCo's International • Tropicana juices and dairy beverages will be available from
Bottler of the Year 2022”. This outstanding accomplishment next year’s season all over India, because of the increase in
further validates VBL's commitment to operational the production capacity.
excellence, strong governance principles, and sustainability • The dairy based products have longer shelf life (6 months)
endeavors. and higher realization (15%-20%) than soft drinks.
• The Board of Directors has approved an intrinsic dividend @ • The company’s biggest strength is their distribution reach
25% of the face value, Rs. 1.25 per share. with 3.3 million outlets and 925,000+ visi-coolers which
nobody else has in the dairy industry.
 Distribution Network • The company is very positive for Gatorade and expects push
• The company has progressed on the line of distribution in sales volume from next year, as they have reduced the
reach. The company is reaching out to 3.3 million retail price which a common man can afford.
outlets and has added 925,000+ Visi-Coolers. • Sting is doing extremely well with growth in double digits.
• The company plans to add 70,000 – 80,000 visi-coolers, with Momentum continues to be as strong in Sting.
the majority added before the season. • ROCE has been growing in range of 200 to 250 bps every year
• Distribution reach is expected to increase 10% - 12% every and have reached a level around touching 30% ROCE in
year. CY2022. Guidance is 100 to 125bps increase going forward
and improve for another couple of years.

Source: Company Analysis

Academic Research Project – Not a Recommendation

Varun Beverages Ltd

Quarterly Trends
Revenue grew up 49.3% YOY EBITDA grew from 18.9% to 21.2% YOY
60,000 16,000 30.0%
EBITDA EBITDA (%)
14,000
50,000 25.0%
12,000
40,000 20.0%
10,000

30,000 8,000 15.0%

6,000
20,000 10.0%
4,000
10,000 5.0%
2,000

0 0 0.0%
Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23

PAT grew from 7.9% to 11.4% YOY Segment Wise Breakup

12,000 20.0% CSD Juices Water
PAT PAT (%)
18.0%
10,000 100%
16.0%
90%
14.0% 80%
8,000
12.0% 70%
6,000 10.0% 60%
8.0% 50%
4,000 40%
6.0%
30%
4.0%
2,000 20%
2.0%
10%
0 0.0% 0%
Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23

Realization Per Case Tax Rate (%)

185 30.0%

180 25.0%

175 20.0%

170 15.0%

165 10.0%

160 5.0%

155 0.0%
Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23 Q2 FY22 Q3 FY22 Q4 FY22 Q1 FY23 Q2 FY23

Source: Company Analysis

Academic Research Project – Not a Recommendation

Varun Beverages Ltd

Management Analysis
Leadership
Below are the details and experience of Management

Sr. No. Name Designation Qualification Comments

Mr. Ravi Jaipuria is the Promoter & Chairman
of the Company and has over four decades of
experience in conceptualizing, executing,
developing and expanding food, beverages
and dairy business in South Asia and Africa.
He has completed higher secondary Mr. Ravi Jaipuria is well-qualified and
education from Delhi Public School, Mathura capable of serving as the Chairman of
Promoter &
1 Mr. Ravi Jaipuria Road, New Delhi. He has an established the company, with a strong track
Chairman
reputation as an entrepreneur and business record in the industry and a history of
leader and is the only Indian Company’s success.
promoter to receive PepsiCo’s award for
International Bottler of the Year, awarded in
1997. He was also awarded the ‘Distinguished
Entrepreneurship Award’ at the PHD
Chamber Annual Awards for Excellence 2018.
Mr. Varun Jaipuria is the Promoter, Whole-
time Director & Executive Vice Chairman of
the Company. He has been actively working
with the Company since 2009 and has been
instrumental in comprehensive development
of Company’s business including acquisitions
Mr. Varun Jaipuria appears to be a
Promoter, Executive and integration of acquired territories. Under
highly experienced and accomplished
Vice-Chairman his leadership, Varun Beverages was awarded
2 Mr. Varun Jaipuria individual with a strong track record of
and Whole-time PepsiCo’s Best Bottler in AMESA (Africa,
contributing to the development and
Director Middle East and South Asia) sector in 2021 in
success of the company.
recognition of Company’s operational
excellence, governance practices and
sustainability initiatives. He is a Harvard
Alumni and had attended Program for
Leadership Development (PLD), 2018-2019
batch from Harvard Business School, Boston.
Mr. Raj Gandhi is a qualified Chartered
Accountant of 1980 batch. He also did
management program with Harvard Business
Mr. Raj Gandhi possesses the
School. Out of his total 42 years of
knowledge and skills necessary for a
experience, 30 years of experience is with
Whole-time position on the board of directors. He
3 Mr. Raj Gandhi the RJ Corp Group itself. He is instrumental in
Director has the potential to be a valuable
formulating company’s strategy,
asset to the board in terms of financial
diversification, expansion, mergers and
and strategic expertise.
acquisitions, capex planning and capital/fund
raising. He enjoys longstanding relationship
with institutional investors and lenders.
Mr. Rajinder Jeet Singh Bagga holds a
master’s degree in mechanical engineering
from the Indian Institute of Technology,
Kanpur. He has been associated with the
Mr. Rajinder Jeet Singh Bagga appears
Company since 1996 and is currently heading
to have significant experience and a
Mr. Rajinder Jeet Whole-time technical operations since 2003. He has an
4 strong background in mechanical
Singh Bagga Director experience of 26 years with the Company in
engineering and technical operations
managing technical operations and execution
to serve on the board of directors.
of projects. Prior to this, he was associated
with Eveready Industries India Limited for
approximately 10 years and was last working
in the capacity as their production manager.

Source: Company Analysis

Academic Research Project – Not a Recommendation

Varun Beverages Ltd

Independent Directors
Below are the details and experience of Management

Sr. No. Name Designation Qualification Comments

Dr. Naresh Trehan holds a bachelor’s degree in
Medicine and Surgery from the University of
Lucknow and has been certified as a renowned
Cardiothoracic Surgeon by the American Board of
The qualifications and recognitions
Thoracic Surgery. He has trained and practiced at
Dr. Naresh showcases Dr. Naresh Trehan's professional
1 Independent Director New York University Medical Center at Manhattan
Trehan capabilities, ability to serve as an
USA from July 1, 1971 to June 30, 1975 and is an
independent director.
honorary fellow at the Royal Australasian College
of Surgeons. He has received many prestigious
awards, including the Padma Bhushan Award,
presented by the Government of India.
Mr. Pradeep Sardana holds a bachelor’s degree in
mechanical engineering from the Indian Institute
of Technology, Delhi. He has 52 years of
experience (41 years in service and 11 years in Mr. Pradeep Sardana diverse assignments
consultancy). He is presently the CEO of PM and long-standing career suggest that he
Mr. Pradeep Consulting, a consultancy firm in the field of food, likely possesses valuable insights and
2 Independent Director
Sardana beverages, FMCG and other industries. Previously expertise to contribute to the governance
worked at senior management level with and decision-making processes of a company
renowned companies including Polyplex Hydro as an Independent Director.
Group, PepsiCo, Hindustan Lever Limited and
Union Carbide and has successfully handled
diverse assignments.
Dr. Ravi Gupta holds a Bachelor’s degree and a
Master’s degree in commerce from the University
of Delhi. He also holds a Bachelor’s degree in law
from the University of Delhi, a diploma in labor law
from the Indian Law Institute, a Master’s degree in
business administration from the Faculty of Dr. Ravi Gupta appears to have a strong
Management Studies, University of Delhi and a educational background and professional
doctorate in philosophy for his thesis on ‘Country experience, particularly in commerce, law,
3 Dr. Ravi Gupta Independent Director
Risk Analysis in Investment Financing Decision and academia making him a suitable
Making’ from the University of Delhi. He was candidate to serve as an Independent
employed as an Associate Professor in the Director on the board of a company.
commerce department of Shri Ram College of
Commerce, University of Delhi. He was appointed
by the Government of India as a member of the
committee constituted for simplification of Income
Tax Act.
Mrs. Sita Khosla holds Bachelor’s of Arts degree
from St. Stephen’s College and LLB from the
Faculty of Law, University of Delhi and is enrolled
with the Bar Council of Delhi. She practices in the
areas of corporate, contract and commercial laws
since 1992. She has been involved in providing Mrs. Sita Khosla appears to have a strong
advice on a wide range of issues from company educational background and extensive
formation, corporate governance and regulatory experience in corporate and commercial law
4 Ms. Sita Khosla Independent Director
compliance to mergers and acquisitions, which makes her a potentially capable
corporate restructuring, joint ventures, foreign candidate for serving as an Independent
investments, exchange control regulations and Director.
securities laws. She has acted as India legal advisor
to major players in the civil aviation sector
including international commercial airlines, MRO
organizations and ground handling operators in
respect of their operations in India.
Mrs. Rashmi Dhariwal holds a bachelor’s degree in
Arts from the University of Delhi and is a practising
advocate at the Calcutta High Court since 1978. Mrs. Rashmi Dhariwal appears to have a
She is also the trustee of a non-profit organization diverse and extensive background in law,
Ms. Rashmi
5 Independent Director called Prayatn which provides education to education, and work in leading firms, which
Dhariwal
underprivileged children. She has also worked in may make her a strong candidate for an
several leading firms in India including Khaitan & independent director role.
Co, Calcutta and Delhi, Mulla & Mulla, Mumbai
and also in the Philippines.
Source: Company Analysis
Academic Research Project – Not a Recommendation

Varun Beverages Ltd

Commentary

The company has strong management with vast experience and technical expertise. Further, the independent directors come from
diversified industries and include dignified professions such as Cardiothoracic Surgeon, mechanical engineering, advocate, etc. Basis on our
screening of publicly available data, we do not found any prominent political connections of leadership and independent directors with
national and regional political parties. Further, we do not found any conflict of interest of Independent directors with the company, as
reported.

The current Managing Director of the company Mr. Varun Jaipuria has been actively working with the Company since 2009 and has been
instrumental in comprehensive development of Company’s business including acquisitions and integration of acquired territories. Under
his leadership, Varun Beverages was awarded PepsiCo’s Best Bottler in AMESA (Africa, Middle East and South Asia) sector in 2021 in
recognition of Company’s operational excellence, governance practices and sustainability initiatives. The top and bottom line of the
company has grown 3.42x and 13.71x respectively from 2015 to 2022. Mr. Varun Jaipuria has been actively working for the company for 13
years, other directors have been associated with the company for more than 26 years.

Shareholding Pattern

The company has majority of its shareholding with Promoters of 63.09%. As on September, 2023, Promoters are holding 63.09%, FIIs are
holding 27.55%, DIIs are holding 3.36% and public holding is at 6.01%. The Promoters Pledging stood at 0.04% shares of their holdings in
December 2021 and stands flat at 0.04%. Promoter’s Shareholding has been reduced from 73.66% in March 2017 to 63.09% in quarter
ended in September 2023. Though, there is a decrease in promoter holdings, it is not significant to conclude management’s strategic exit
from the business.

Yearly Shareholding Pattern of the company is as under:

Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Sep-23

Promoters 73.66% 73.57% 73.56% 68.04% 66.40% 64.89% 63.90% 63.09%
FIIs 10.55% 13.41% 13.51% 19.82% 20.28% 21.03% 26.00% 27.55%
DIIs 1.07% 4.91% 6.42% 6.30% 5.90% 7.21% 3.67% 3.36%
Public 14.72% 8.11% 6.51% 5.84% 7.42% 6.87% 6.41% 6.01%

Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23

Promoters 64.89% 64.89% 63.90% 63.90% 63.90% 63.90% 63.61% 63.09%
FIIs 21.23% 21.03% 23.93% 25.01% 26.45% 26.00% 26.71% 27.55%
DIIs 7.06% 7.21% 5.31% 4.45% 3.42% 3.67% 3.16% 3.36%
Public 6.82% 6.87% 6.86% 6.62% 6.20% 6.41% 6.52% 6.01%

Quartery Promoter Holding vs Pledge Quartery FII Holding Pattern

70%
30%
60%
25%
50%
20%
40%
15%
30%
10%
20%

10% 5%

0% 0%
Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23

Promoter Holding % of Promoters Holding Pledged

Source: Company Analysis, Trendlyne

 Academic Research Project – Not a Recommendation

Varun Beverages Ltd

Commentary

Management Remuneration

During FY22, the company has incurred managerial remuneration of INR 497.32 million as against INR 263.76 million in FY21 (88.55% increase
in YoY basis). The details are as under:
Name Designation Ratio of Remuneration with FY22 FY21 Growth in Sales Growth Net Profit
median employee salary (x) Remuneration YoY% Growth YoY%
Mr. Ravi Jaipuria Non-Executive Chairman 199 73.46 - - 49.30% 100.99%
Mr. Varun Jaipuria Executive Vice-Chairman 148 54.69 48.39 13.02% 49.30% 100.99%
& Whole-time Director
Mr. Raj Gandhi Whole-time Director 153 56.60 63.47 -10.82% 49.30% 100.99%
Mr. Kapil Agarwal Whole-time Director 641 237.21 78.60 201.79% 49.30% 100.99%
Mr. Rajinder Jeet Whole-time Director 142 52.45 40.49 29.54% 49.30% 100.99%
Singh Bagga
Mr. Rajesh Chawla Chief Financial Officer 26 9.61 3.4 182.65% 49.30% 100.99%
Mr. Ravi Batra Chief Risk Officer & 36 13.30 10.99 21.02% 49.30% 100.99%
Group Company
Secretary
Mr. Vikas Bhatia Chief Financial Officer - - 18.42 - 49.30% 100.99%
Total 497.32 263.76 88.55% 49.30% 100.99%

Median ratio of Key Managerial Personnel remuneration with median employee salary is 148x.

We have observed variation in revenue growth of the company and growth in KMP remuneration. The revenue grew at 26.89% CAGR over
the last 5 years and 22.71% CARG in the last 3 years. Whereas, the KMP remuneration has increased by 19.85% CAGR over last 5 years and
increased by 40.03% over last 3 years.

FY2018 FY2019 FY2020 FY2021 FY2022

Revenue 5,105 7,130 6,450 8,823 13,173
Revenue Growth 27.50% 39.67% -9.54% 36.79% 49.30%
Remuneration 232.29 181.36 216.73 263.76 497.32
Growth in KMP Remuneration 15.34% -21.93% 19.50% 21.70% 88.55%

Board Efficiency

Basis our research, Board of Directors (BOD) has adequate representation of independent directors, industry experts, finance and legal
experts as required by the statue.

The efficiency of BOD can be gauged with their contribution in various important meetings held in FY22. The details are as under:

Name of the Director Designation & Category No of Board Meetings

Attendance at last AGM
Held Attended
Mr. Ravi Jaipuria Promoter (Non -Executive Chairman) 6 6 Yes
Mr. Varun Jaipuria Promoter, Executive Vice Chairman & Whole-
6 6 Yes
time Director)
Mr. Raj Gandhi Whole-time Director (Executive Director) 6 6 Yes
Mr. Kapil Agarwal Whole-time Director (Executive Director) 6 5 Yes
Mr. Rajinder Jeet Singh Bagga Whole-time Director(Executive Director) 6 6 Yes
Dr. Naresh Trehan Non-executive & Independent Director 6 6 Yes
Dr. Ravi Gupta Non-executive & Independent Director 6 6 Yes
Mr. Pradeep Sardana Non-executive & Independent Director 6 6 Yes
Ms. Rashmi Dhariwal Non-executive & Independent Director 6 6 Yes
Ms. Sita Khosla Non-executive & Independent Director 6 6 Yes

During FY22, the company has been supervised by the BOD efficiently as majority of members of the board have attended all the board
meetings which shows good participation by the board in key matters discussed during the year and helped the company in taking effective
decisions.

Source: Company Analysis

Academic Research Project – Not a Recommendation

Varun Beverages Ltd

Quarterly Snapshot

FY22 FY23
Particulars (INR Mn)
Q1 Q2 Q3 Q4 Q1 Q2 Q3E Q4E
Net Revenues 28,275 49,548 31,766 22,142 38,930 56,110 37,586 25,973
Total Expenditure 22,965 37,042 24,776 19,067 30,949 41,010 29,044 22,084
EBITDA 5,310 12,506 6,990 3,075 7,981 15,100 8,542 3,889
EBITDA Margins (%) 18.8% 25.2% 22.0% 13.9% 20.5% 26.9% 22.7% 15.0%
Depreciation 1,313 1,531 1,531 1,797 1,722 1,720 1,790 1,795
Interest 470 464 453 475 626 690 500 490
Other Income 85 105 106 92 101 420 122 106
Profit before EO expense 3,612 10,616 5,112 896 5,734 13,110 6,374 1,710
Extraordinary Expense - - - - - - - -
Profit before Tax 3,612 10,616 5,112 896 5,734 13,110 6,374 1,710
Tax Rate (%) 25.0% 24.5% 22.6% 9.0% 23.5% 23.0% 22.0% 22.0%
Net Profit 2,542 7,874 3,810 748 4,291 10,050 4,806 1,256
Net Profit Margins (%) 9.0% 15.9% 12.0% 3.4% 11.0% 17.9% 12.8% 4.8%

Annual Snapshot

Particulars (INR Mn) FY17 FY18 FY19 FY20 FY21 FY22 FY23E FY24E
Sales 40,035 51,053 71,296 64,501 88,232 131,731 161,894 188,385
YoY Change % 3.7% 27.5% 39.7% -9.5% 36.8% 49.3% 22.9% 16.4%
Material Cost 18,101 22,441 32,194 27,639 40,347 62,612 76,147 88,094
Employee Cost 4,628 5,830 8,108 8,897 10,077 12,166 14,510 16,653
Other Cost 8,947 12,716 16,517 15,946 21,262 29,072 36,150 41,657
Total Expenses 31,676 40,987 56,819 52,482 71,686 103,850 126,807 146,404
Total Expenses % of Sales 79.1% 80.3% 79.7% 81.4% 81.2% 78.8% 78.3% 77.7%
EBITDA 8,359 10,066 14,477 12,019 16,546 27,881 35,087 41,981
EBITDA Margins (%) 20.9% 19.7% 20.3% 18.6% 18.8% 21.2% 21.7% 22.3%
Depreciation 3,466 3,851 4,886 5,287 5,313 6,172 7,385 8,229
EBIT 4,893 6,215 9,591 6,732 11,233 21,709 27,703 33,752
EBIT Margin (%) 12.2% 12.2% 13.5% 10.4% 12.7% 16.5% 17.1% 17.9%
Interest Expenses 2,122 2,126 3,096 2,811 1,847 1,861 2,357 1,728
Other Income 125 218 425 370 679 388 512 550
Profit Before Tax & EO Item 2,896 4,308 6,919 4,290 10,066 20,236 26,082 31,521
Extraordinary Item - - - -665 - - - -
Profit Before Tax 2,896 4,308 6,919 3,625 10,066 20,236 26,082 31,521
Tax 769 1,339 2,241 52 2,606 4,735 6,263 7,542
Net Profit 2,102 2,928 4,690 3,290 6,941 14,974 19,551 23,692
Net Profit Margins (%) 5.3% 5.7% 6.6% 5.1% 7.9% 11.4% 12.1% 12.6%

Source: Company Analysis, Consensus

Academic Research Project – Not a Recommendation

Varun Beverages Ltd

Commentary

Revenue Sales vs Sales Growth

In Q2 FY2023, the company posted revenue of Rs. 56,114 million 200,000 60%
(increase of 13.24% QoQ) driven by growth in international 50%
markets. The company have delivered a resilient performance in 150,000 40%
the quarter despite facing a soft demand environment in India
30%
due to abnormal high unseasonal rain throughout the quarter.
100,000 20%
With expanded facilities, the company is expected to produce
10%
reasonably high double-digit revenue growth in the future. The
thumb rule is to do revenue 1.8x-2x of CAPEX. In FY2022, 71% 50,000 0%
volumes came from selling Carbonated Soft Drinks (CSDs), 20.9% -10%
volumes came from selling packaged drinking water, and the rest 0 -20%
8.1% volumes came from selling Non-Carbonated Beverages FY19 FY20 FY21 FY22 FY23E FY24E
(NCBs). Sales volume have grown by 27% CAGR from FY2017-
Sales Sales Growth
FY2022 with 80% volume coming from India and rest
Internationally.

EBITDA Margins

In Q2 FY2023, Gross Margins improved by 196 basis points to

52.5% from 50.5%, due to softening of PET chip prices. As a result
of higher gross margins and operational efficiencies, EBITDA saw EBITDA & Margins Growth
an increase of 20.8% to Rs. 15,110 million with EBITDA margin
improving by 169 basis points to the level of 26.9% in Q2 FY2023. 50,000 24%
This progress is due to reduction in commodity prices. The 40,000
company has given guidance for EBITDA margins in the range of 22%
21%-22%. EBITDA Margins have increased from 18.6% in FY 2020 30,000
to 21.2% in FY 2022, mainly due to sales volume growth and 20%
improvement in realization per case. 20,000
18%
10,000

Inventory 0 16%
FY19 FY20 FY21 FY22 FY23E FY24E
While company’s revenue growth and growth in Inventory is
almost aligned, there is a marginal decline witnessed in EBITDA EBITDA Margins
Inventory days during FY22 (116 days vs 131 days in FY21).
Considering the size and scale of companies operations, the
inventory days seems to be normal.

Revenue Growth vs Inventory Growth Inventory

60.0% 14,000 140
50.0% 12,000 120
40.0% 10,000 100
30.0%
8,000 80
20.0%
6,000 60
10.0%
0.0% 4,000 40
-10.0% 2,000 20
-20.0% 0 0
FY17 FY18 FY19 FY20 FY21 FY22 FY17 FY18 FY19 FY20 FY21 FY22

Sales Growth Inventory Growth Sales Inventory Inventory Days

Source: Company Analysis

Academic Research Project – Not a Recommendation

Varun Beverages Ltd

Commentary

Trade Receivables Revenue vs Receivables Growth

The company’s trade receivable has grown slower than its 60%
revenue specifically from FY2017. The revenue of the company
has grew at 27% CAGR, whereas the debtors has grew at 15% 40%
CAGR in the last 5 years. The debtors grew by 40% in FY2020 due
to the impact of Covid-19 pandemic. In FY2021 the revenue grew 20%
by 36.8% while the debtors reduced by 8.7%, as the economy
was recovering from the Covid-19 impact. The company’s 0%
receivable days are lowest in FY2022 being 8 days which was
-20%
reduced significantly from 14 days in FY2020.
Basis our research on quality of receivables, we noted that FY17 FY18 FY19 FY20 FY21 FY22
majority of due receivables were collected before 6 months and
Revenue Growth Receivables Growth
receivables with critical credit risk (Ageing > 6 Months) is
miniscule as compared to total revenue (0.1%). In FY2022, the
trade receivables is 2.3% of the revenue which was 3.8% in
FY2020. In FY2022, the debtors (Ageing > 6 Month) is 5.8% of the Receivables vs O/S Days
total receivables which is reduced from 9.9% in FY2021. 3500 16 Days
3000 14 Days
2500 12 Days
10 Days
2000
8 Days

2990
1500

2420
6 Days

2210
1730
CAPEX 1000
1500

4 Days
1280

500 2 Days
During FY22 the company invested in various expansion projects 0 0 Days
including Rs. 6300 million for greenfield expansion in Bihar and FY17 FY18 FY19 FY20 FY21 FY22
Jammu and brownfield expansion at Sandila facility. Amount of
Rs. 2500 million towards brownfield expansion in Zimbabwe and Debtors Debtor Days
Morocco. Additionally, Rs. 3700 million for purchasing land for
capacity expansion in future years.
As of 31st December 2022, the company had a CWIP of Capex
approximately Rs. 6066 million for further greenfield expansion
in Rajasthan and Madhya Pradesh and for FY23 brownfield 25,800
expansion at six existing plants in India. The total Net CAPEX
estimated for FY2023 is around 15,000 million.
12,500
7,915
5,600
3,500

Debt
FY18 FY19 FY20 FY21 FY22
Net Debt stood at Rs. 34,096 million as on Dec 31, 2022 as
against Rs. 30,053 million as on Dec 31, 2021. Net Debt increased
on account of Greenfield expansion in Rajasthan and Madhya Debt
Pradesh and Brownfield expansion at six plants for FY2023 in 34,096
India. 32,461
30,158 30,053
As of June 30th, 2023, net debt stands at Rs. 31,716 million 26,715
showing a decrease from Rs. 34,096 million reported in Dec 31st,
2022. The debt figures includes 9,000 million for CWIP and
Capital Advances allocated for the CAPEX planned in
Maharashtra, Uttar Pradesh, and Odisha for the FY2024 season.
The company’s financial leverage remains solid and Debt-Equity
and Debt-EBITDA ratio stands at 0.48x and 0.96x respectively.
FY18 FY19 FY20 FY21 FY22

Source: Company Analysis

Academic Research Project – Not a Recommendation

Varun Beverages Ltd

DuPont Analysis - Return on Equity & Return on Assets

Return on Equity (ROE)
Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22
Net Profit 42 210 293 469 329 694 1,497
Average Shareholder Equity 959 1,732 1,884 2,663 3,426 3,802 4,591
Return on Equity 4.42% 12.14% 15.54% 17.61% 9.60% 18.26% 32.62%

ROE - Dupont Equation

Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22
Net Profit 42 210 293 469 329 694 1,497
Revenue 3,861 4,004 5,105 7,130 6,450 8,823 13,173
Net Profit Margin (A) 1.10% 5.25% 5.74% 6.58% 5.10% 7.87% 11.37%

Revenue 3,861 4,004 5,105 7,130 6,450 8,823 13,173

Average Total Asset 4,628 5,050 5,637 7,187 8,411 9,013 10,599
Asset Turnover Ratio (B) 0.83 0.79 0.91 0.99 0.77 0.98 1.24

Average Total Asset 4,628 5,050 5,637 7,187 8,411 9,013 10,599
Average Shareholder Equity 959 1,732 1,884 2,663 3,426 3,802 4,591
Equity Multiplier (C) 4.83 2.92 2.99 2.70 2.46 2.37 2.31

Return on Equity (A*B*C) 4.42% 12.14% 15.54% 17.61% 9.60% 18.26% 32.62%

Return on Asset
Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22
Net Profit 42 210 293 469 329 694 1,497
Average Total Asset 4,628 5,050 5,637 7,187 8,411 9,013 10,599
Return on Asset 0.92% 4.16% 5.20% 6.53% 3.91% 7.70% 14.13%

ROA - Dupont Equation

Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22
Net Profit 42 210 293 469 329 694 1,497
Revenue 3,861 4,004 5,105 7,130 6,450 8,823 13,173
Net Profit Margin (A) 1.10% 5.25% 5.74% 6.58% 5.10% 7.87% 11.37%

Revenue 3,861 4,004 5,105 7,130 6,450 8,823 13,173

Average Total Asset 4,628 5,050 5,637 7,187 8,411 9,013 10,599
Asset Turnover Ratio (B) 0.83 0.79 0.91 0.99 0.77 0.98 1.24

Return on Asset (A*B) 0.92% 4.16% 5.20% 6.53% 3.91% 7.70% 14.13%

DuPont Summary
ROE of Varun Beverages made a low of 9.60% in FY2020 due to COVID-19 Pandemic, which now has rose to Pre-Covid levels and
currently at 32.62% as of 31 Deceember 2022.
ROE has been increased significantly in past 7 years from 4.42% to 32.62%. The company was able to increase the net margins from
1.10% in FY2016 to 11.37% in FY2022. Asset efficiency of the company is significantly improved, leading to increase in ROE. The
Financial Leverage has seen a slight decrese in recent years.
ROA of Varun Beverages has been increased from 0.92% in FY2016 to 14.13% in FY2022. This significant increase is due to Improved
margins and asset efficiency.

Source: Company Analysis

Academic Research Project – Not a Recommendation

Varun Beverages Ltd

Peer Comparison
Peer Stock Performance (1Y) - Indexed

Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23 Oct-23

VBL Hatsun Agro Bikaji Foods Mrs Bectors Dodla Dairy Parag Milk Foods

Source: Yahoo Finance

Peers Financial Performance

# Name CMP Mkt Cap PEG P/E Debt Int Coverage EBITDA (%) ROCE % ROE % EV /EBITDA
1 Varun Beverages 1003 130245 1.3 65.2 3726.4 11.9 23% 27% 34% 37.4
2 Hatsun Agro 1110 24732 8.7 107.9 1973.5 3.3 11% 11% 13% 32.5
3 Bikaji Foods 524 13101 4.0 76.0 180.0 30.2 14% 18% 14% 46.9
4 Mrs Bectors 1214 7141 3.2 63.7 127.3 14.0 15% 21% 18% 33.2
5 Dodla Dairy 736 4377 2.0 32.1 42.4 128.8 8% 16% 13% 17.6
6 Parag Milk Foods 221 2592 -11.3 29.9 541.4 2.3 6% 10% 10% 16.1
Source: Screener.in
Academic Research Project – Not a Recommendation

Varun Beverages Ltd

Analyst Coverage Universe

Peers Financial Performance

# Date Research House Rating Price at Reco Target

1 07-Nov-23 Keynote Capitals Ltd Buy 991.2 1108
2 07-Nov-23 Axis Direct Buy 991.2 1050
3 06-Nov-23 Motilal Oswal Buy 945.7 1090
4 07-Aug-23 Bonanza Buy 824.1 929
5 04-Aug-23 Axis Direct Buy 825.3 920
6 03-Aug-23 Keynote Capitals Ltd Buy 822.6 962
7 03-Aug-23 ICICI Securities Limited Hold 822.6 825
8 04-May-23 Bonanza Buy 721.3 1662
9 03-May-23 ICICI Securities Limited Hold 1430.2 1400
10 03-May-23 Axis Direct Buy 1430.2 1600
11 03-May-23 ICICI Direct Hold 1430.2 1470
12 02-May-23 Motilal Oswal Buy 1415.1 1690
13 02-May-23 Keynote Capitals Ltd Buy 1415.1 1626
14 16-Mar-23 ICICI Securities Limited Hold 1306.2 1290
15 09-Mar-23 Motilal Oswal Buy 1345.8 1620
16 24-Feb-23 Axis Direct Buy 1291.6 1500
17 08-Feb-23 Bonanza Buy 1304.1 1520
18 07-Feb-23 ICICI Direct Hold 1304.1 1340
19 07-Feb-23 Keynote Capitals Ltd Buy 1304.1 1461
20 07-Feb-23 Axis Direct Buy 1304.1 1450
Source: Trendlyne

Disclaimer: This is an academic project and doesn’t meant for commercial usage.

This information/document does not constitute an offer to sell or solicitation for the purchase or sale of any financial
instrument or as an official confirmation of any transaction. The information contained herein is obtained from publicly
available data or other sources believed to be reliable and the Author has not independently verified the accuracy and
completeness of the data and hence it should not be relied upon as such.

Author is not SEBI registered investment analyst. This document is prepared as part of academic project.
Investment is securities are subject to market risks, read all the related documents carefully before investing. The
securities quoted are for illustration only and are not recommendatory. Registration granted by SEBI and certification
from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.