Varun Beverages Limited (VBL), a Pepsi bottler, is diversifying its product portfolio to tap into untapped markets such as value-added dairy, sports drinks, and juices. These segments offer significant growth potential for VBL, attracting health-conscious consumers who are shifting towards healthier alternatives. Motilal Oswal Financial Services highlights these emerging markets as key drivers for VBL’s long-term growth trajectory.
Flavoured Milk Market Potential:
According to a recent report by IMARC Group, the flavoured milk market in India is expected to witness a robust Compound Annual Growth Rate (CAGR) of 25 percent, reaching Rs 15,860 crore between CY23 and CY28. VBL recognizes the rising demand for dairy-based beverages and aims to leverage this opportunity, capitalizing on consumers’ preference for healthier options over carbonated drinks.
VBL’s Success in Value-Added Dairy Segment:
VBL’s foray into the value-added dairy segment, operating under the brand name ‘Cream Bell’, has been well-received by consumers. To meet the growing demand, the company plans to triple its capacity in this segment by the end of CY23 and intends to expand the availability of its value-added dairy-based beverages nationwide by CY24. The sale of single-serve products in the value-added dairy segment yields higher profit margins, making it an attractive venture for VBL.
Expansion Plans and Market Potential:
VBL is establishing two new plants in Maharashtra and Uttar Pradesh, with a third unit scheduled for construction in Orissa. This expansion will support the company’s growth in the value-added dairy segment. Furthermore, VBL is making significant progress in the sports drinks market with its product, Gatorade. The Indian sports and energy drinks market is projected to grow at a CAGR of 14 percent until CY28, reaching a value of $5.8 billion. Additionally, VBL’s presence in the fruit-based juice segment under the popular brand Tropicana further strengthens its market position.
Favourable Tax Structure and Growth Prospects:
The value-added dairy and sports drinks segments offer higher returns for VBL due to favourable tax structures. Value-added dairy products are subject to a Goods and Services Tax (GST) rate of 12 percent, while carbonated soft drinks (CSD) face a 40 percent levy. VBL remains confident about the robust growth of its energy drink, Sting, and aims to expand its market presence by increasing its distribution network.
Revenue and Outlook:
Motilal Oswal forecasts a strong revenue, EBITDA, and PAT Compound Annual Growth Rate (CAGR) of 17/19/26 percent until CY25. The firm maintains a ‘buy’ rating on VBL stock with a target price of Rs 940. As of 11 am, the stock was trading at Rs 822 on the NSE, reflecting over 1.2 percent growth from the previous close. VBL has demonstrated impressive performance, nearly doubling investors’ wealth in the past year.
Conclusion:
Varun Beverages Limited’s strategic shift towards value-added dairy, sports drinks, and juices demonstrates its commitment to sustained growth. By capitalizing on emerging market segments, VBL aims to meet evolving consumer preferences and leverage the potential of healthier beverage alternatives. With expansion plans, a strong market presence, and favourable tax structures, VBL is poised to maintain its upward trajectory in the beverage industry.
