Varun Beverages taps into dairy, sports drinks, and juices for its growth strategy

To maintain its growth trajectory, Pepsi bottler Varun Beverages Limited (VBL) is focusing on emerging performers including the value-added dairy, sports drinks, and juices categories.

According to a research released on July 10 by local brokerage business Motilal Oswal Financial Services, these underserved regions might eventually contribute significantly to the company’s growth.

In India, the market for flavored milk is anticipated to develop at a compound annual growth rate (CAGR) of 25% to reach Rs 15,860 crore between CY23 and CY28, according to a recent analysis by IMARC Group. VBL is aware of the expanding demand for dairy-based beverages as more and more health-conscious customers choose these better options over carbonated drinks.

Consumers have been pleased with VBL’s entry into the value-added dairy market under the brand name “Cream Bell.” The firm thus intends to increase its capacity in this market by the end of CY23 and hopes to introduce its value-added dairy-based drinks across the country by CY24.

According to Motilal Oswal, who examined the company’s annual report, VBL is establishing two units in Maharashtra and Uttar Pradesh to support this development, and a third facility is soon to be built in Orissa.

The sale of single-serve goods, which have better profit margins than bigger bottles do, makes the value-added dairy-based drinks market provide higher returns for VBL, according to the brokerage company.

Dairy products have a more advantageous tax structure than carbonated soft drinks (CSD), which are subject to a 40 percent tax with a Goods and Services Tax (GST) rate of 12 percent.

Through the sale of Gatorade, a product of VBL, the sports drink industry is seeing growth as well. Up until CY28, the Indian market for sports and energy drinks is anticipated to grow at a CAGR of 14% and reach $5.8 billion in sales. Furthermore, according to Motilal Oswal, VBL has created a substantial foothold in the market for fruit-based juices under the well-known Tropicana brand.

VBL continues to have faith that sales of its energy drink Sting will expand rapidly. Future plans call for increasing its reach to more sources.

Till CY25, Motilal Oswal projects a 17/19/26 percent CAGR in sales, EBITDA, and PAT. The stock has a ‘buy’ rating and a target price of Rs 940.

The stock was trading at Rs 822 on the NSE at 11 am, up more than 1.2 percent from the previous close. In the past year, the stock has nearly quadrupled investors’ wealth.