Varun Beverages: Beyond the Growth Numbers

Varun Beverages Ltd (NSE: VBL | BSE: 540180)

FMCG – Beverages | Bottling & Distribution | August 2026 | Independent Investment Research – Indian Markets | Research Note

Quick Snapshot

Metric	Value
CMP (as of 14 Aug 2026)	₹435
Market Cap	~₹1,47,000 Cr
52-week High / Low	₹556 / ₹381
P/E (TTM)	~43–44x
P/B	~6.8–7.0x
ROE	~15–17%
ROCE	~17–20%
Debt-to-Equity (Consolidated)	~0.01–0.10x
Promoter Holding	59.43%
Face Value	₹2
Dividend Yield	~0.3–0.4%

Executive Summary

Varun Beverages is PepsiCo’s second-largest bottler outside the United States. It has exclusive rights across 26 Indian states and six union territories under an agreement that now runs to April 2049. The business is also broader than the traditional Pepsi / Mountain Dew / 7UP portfolio: packaged water, sports drinks, dairy and snack co-manufacturing have become part of the mix. International operations across Nepal, Sri Lanka and several African markets contributed 33% of CY2025 net revenue.

Recent results continue to show strong volume growth in both India and international markets. What I find more useful than the headline growth, however, is the split underneath it: international volumes are growing much faster, while India is seeing some pressure on realisations. That makes the next phase of the story a little more interesting than simply asking whether VBL can keep growing.

The franchise itself looks considerably more secure after the 2049 extension. The question I keep coming back to is the price being paid for that security. At around 43–44x trailing earnings, the market is already expecting a lot from the business.

A note on conflict of interest: at the time of publication, the author holds a long position in Varun Beverages Limited (VBL) through portfolios managed by the author. This holding is disclosed in the interest of transparency. Readers should treat that bias as a given and verify independently rather than taking our word for it.

Business Overview and Business Model

Varun Beverages Limited manufactures, bottles and distributes beverages. It is PepsiCo’s second-largest bottling company outside the United States. Incorporated in 1995 as a subsidiary of RJ Corp and named after founder Ravi Jaipuria’s son, the company has grown into one of PepsiCo’s key bottling partners.

The basic model is straightforward. PepsiCo brings the brands, concentrates, product innovation and marketing support. VBL handles manufacturing, packaging, supply chain, distribution and execution in the markets where it has the franchise. In India, VBL accounts for more than 90% of PepsiCo’s beverage sales volume and has exclusive rights across 26 states and six union territories. Internationally, it has franchise rights in nine countries. The India bottling agreement was extended to April 2049.

Product Portfolio

Carbonated Soft Drinks (CSDs) remain the dominant part of the business, at roughly 70–75% of volumes. The portfolio includes Pepsi, Pepsi Zero, 7UP, Mountain Dew, Mirinda, Sting and others.
Non-carbonated beverages and water account for roughly 20% of volumes and include Tropicana, Slice, Gatorade, Duke’s club soda, Lipton and Aquafina packaged water.
Beyond beverages, VBL also has snack co-manufacturing for products such as Cheetos and Kurkure, along with Cream Bell milkshakes and value-added dairy.

Geographic Footprint and Scale

India remains the largest market, contributing 67% of CY2025 net revenue.
International operations contributed 33% of CY2025 net revenue and span Nepal, Sri Lanka, Morocco, Zambia, Zimbabwe, South Africa, Lesotho, Eswatini and the Democratic Republic of Congo, along with distribution rights in several other African markets.

As of CY2025, VBL operated around 50 production facilities, including 38 in India and 12 internationally. The company has also built a sizeable distribution network, with backward integration and continued investment in cold-chain infrastructure such as visi-coolers.

Investment Thesis

1. A much longer runway for the core franchise

The extension of the India bottling agreement to April 2049 substantially reduces the recontracting risk that usually hangs over a franchise business. VBL also has exclusivity across its territory and accounts for more than 90% of PepsiCo’s beverage sales volume in India. That changes the way I look at the business: the main question is no longer whether VBL will have to fight for its existing PepsiCo franchise, but how much the overall beverage category can grow and how well VBL can capture that growth.

2. Diversification is happening, but CSDs are still the centre of the story

CSDs still make up roughly 70–75% of volumes, so it would be premature to describe VBL as a fully diversified beverage company. At the same time, water, sports drinks, dairy and snack co-manufacturing are becoming meaningful additions to the portfolio. I see this as a useful buffer rather than a replacement for the core business, particularly as consumption patterns change and beverage demand remains seasonal.

3. Africa is becoming an increasingly important part of VBL

International operations already contribute 33% of CY2025 net revenue, and Africa is the clearest growth engine. VBL is using both organic capacity additions and acquisitions to build scale there. The attraction, in my view, is not simply the higher growth rate. VBL is also taking a distribution and manufacturing model that it has already developed in India into markets where bottling and cold-chain infrastructure can be less developed.

That opportunity comes with a trade-off: the growth is attractive, but the business also takes on currency, integration and execution risk. Twizza is a good example. It is contributing significant volume, but it is currently operating at lower margins.

4. The PepsiCo relationship is no longer the only source of optionality

The 2026 amendment to the India agreement removed earlier restrictions that had effectively kept VBL focused on the PepsiCo franchise. VBL has since signed an alliance with Japan’s Asahi Group to manufacture, distribute and sell CALPIS in India, with launch planned for the second half of 2026. It has also entered alcoholic beverages for the first time through a distribution agreement with Carlsberg in selected African markets.

I would not build the core VBL thesis around either development yet. Neither is financially material at this stage. What they do show is that VBL is beginning to test whether its manufacturing and distribution network can be used beyond the traditional PepsiCo portfolio.

Industry & Competitive Position

India’s packaged beverage market is still relatively under-penetrated compared with several other emerging markets. Rising incomes, urbanisation, premiumisation, improving rural demand and longer summers all support the broader category. The opportunity is therefore less about a sudden change in consumer behaviour and more about a long period of rising beverage consumption.

The CSD market remains dominated by Coca-Cola and PepsiCo through their bottling partners. NielsenIQ data cited by The Economic Times put their combined share at about 85% during January–September 2025. That structure has not disappeared, although competition has become more visible with the return of Reliance’s Campa Cola and aggressive pricing from regional players.

For VBL, distribution remains one of the more important competitive advantages. Manufacturing density, cold-chain infrastructure and established consumer preferences are difficult to build overnight. In Africa, VBL is trying to use the same advantages in markets that can be more fragmented and less developed from an infrastructure standpoint.

Financial Analysis

VBL has grown considerably faster than the underlying beverage market over the past several years, with consolidated revenue CAGR of roughly 24–27% over recent multi-year periods. That growth has come from a combination of organic expansion and acquisitions.

The June quarter (Q2 CY2026) gives a useful picture of where the growth is coming from. Consolidated sales increased 20.4% year-on-year to ₹8,451 crore. Volume grew 19.8%, with India at 14.4% and international markets at 38.4%. International growth was led by Africa and included 11.8 million cases from the Twizza acquisition in South Africa. Consolidated PAT increased 15.1% to ₹1,525 crore, while basic EPS for the period was ₹4.50.

The realisation numbers are worth looking at alongside the volume numbers. Consolidated realisation per beverage case improved 1.2% year-on-year, helped by international markets. India was different: realisation per case declined 0.6% in Q2 after a 1.5% decline in Q1. Competitive pricing, mix changes and volume initiatives such as pack upsizing were part of the pressure.

That is one of the numbers I would keep watching. Strong volume growth is encouraging, but the eventual earnings outcome depends on how much of that growth survives pricing and margin pressure.

Seasonality also matters. A large portion of VBL’s annual profit is generated during the April–June period, so a weak summer or an early monsoon can have a disproportionate effect on full-year results. Quarterly numbers therefore need to be read with the weather cycle in mind.

Capital Allocation

VBL is clearly a reinvestment-led business rather than a dividend-led one. The modest dividend yield of around 0.3–0.4% reflects that approach. Management is putting capital into capacity, distribution infrastructure and new territories rather than returning a large portion of earnings to shareholders.

The African expansion is the clearest example. VBL acquired BevCo in 2024 and completed the Twizza acquisition in South Africa in 2026 at an enterprise value of roughly ZAR 2,095 million, or around ₹1,120 crore. Twizza added three manufacturing facilities and contributed 11.8 million cases in its first partial quarter of consolidation.

CALPIS and the Carlsberg distribution arrangement are different in nature. They require much less capital and give VBL a way to test new categories using infrastructure it already has. For now, I would view these as experiments with potential rather than meaningful earnings drivers.

Management & Governance

VBL remains promoter-led, with Ravi Jaipuria as Chairman and Varun Jaipuria as Executive Vice Chairman and Managing Director. The management commentary in the latest earnings call also gives some insight into the way the business is being run.

Management has said it can protect margins despite geopolitical and transportation-cost pressures and expects some improvement once those pressures ease. More interestingly, on the ₹10 category, Varun Jaipuria indicated that price point is not a profitable category for the company.

To me, that comment matters because it shows that management is not willing to chase every unit of volume at any price. Given the recent pressure on India realisations, that discipline will be worth watching.

Risks

Weather remains one of the simplest but most important risks. VBL’s business is highly seasonal, and an early or prolonged monsoon can materially affect domestic beverage volumes.
The PepsiCo relationship is much more secure contractually after the 2049 extension, but VBL is still economically dependent on the franchise. Changes in concentrate pricing, royalty terms, brand support or other commercial terms would directly affect profitability.
Competition has intensified, particularly from lower-priced products such as Campa Cola and regional players. The recent decline in India realisations shows that this is not just a theoretical risk.
PET resin, sugar and other input costs can move quickly. In a competitive market, VBL may not always be able to pass those increases through immediately.
Regulatory changes are another variable to monitor, including potential sugar or health taxes, GST changes, plastic-packaging restrictions and water-extraction rules.
Africa offers strong growth potential but also brings currency, geopolitical and integration risks. BevCo and Twizza increase the execution burden, and Twizza currently operates at lower margins. It diluted consolidated EBITDA margin by 76 bps in Q2 CY2026.

Valuation

At ₹435, VBL trades at roughly 43–44x trailing earnings and around 23–27x EV/EBITDA, giving it a market capitalisation of approximately ₹1.47 trillion. That is a clear premium to most domestic FMCG companies.

There are understandable reasons for the premium: the long PepsiCo franchise, strong distribution network, international expansion, African growth and a near net-debt-free position in the Indian business. The premium valuation implies continued strong earnings growth over the next several years, and current estimates point to mid-teens revenue and PAT CAGR over the next two to three years. If those estimates are delivered, the multiple on CY27 earnings would fall into the mid-to-high 30s.

I don’t think the useful question here is simply whether 43–44x earnings look expensive in isolation. The more useful question is what the business needs to deliver from here for that valuation to remain reasonable.

What I am watching

India volume growth, particularly whether double-digit growth can continue without increasing pricing pressure.
India realisation per case, because this is where recent competitive pressure has been most visible.
Africa integration and the pace at which Twizza can improve its margins.
Whether international growth continues to offset some of the pressure seen in India.
How effectively new initiatives such as CALPIS and the Carlsberg arrangement use VBL’s existing infrastructure without becoming distractions from the core business.

Conclusion

VBL is, in my view, an unusual combination of a long-duration franchise and a business that is still expanding into new markets. The 2049 PepsiCo agreement removes a major uncertainty around the core India business, while Africa is becoming a much more important source of growth. At the same time, the company is beginning to test whether its distribution and manufacturing capabilities can be used beyond PepsiCo.

The part I find most important from here is not whether VBL can continue to grow. The recent numbers suggest that it can. The more interesting question is what that growth looks like once it passes through realisations, margins, acquisitions and the capital required to support international expansion.

For me, the next few quarters will therefore come down to two things: whether India can maintain its volume growth without giving up too much on realisations, and whether Africa can scale without keeping margins under pressure. Those developments should tell us more about VBL’s next phase than another quarter of headline revenue growth alone.

Sources & References

Primary Sources

Varun Beverages Limited — Annual Reports and company filings
Varun Beverages Limited — Investor Presentations and Quarterly Results
Varun Beverages Limited — Earnings Call / Management Commentary
Varun Beverages Limited — Corporate Announcements and Exchange Filings

Industry & Market Sources

NielsenIQ — Indian Beverage / Soft Drinks Market Data
The Economic Times — Industry and Market Share Coverage

Market & Financial Data

Screener.in — Financial and valuation data
NSE/BSE — Market and Corporate information

Data Cut-off: 14 August 2026

— The Investor Behind Arthaay

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