Varun Beverages increasing its dominance in FMCG
Varun Beverages was the best performer in the FMCG sector during the last year with a return of 60 per cent. This is three times that of its competitor index Nifty FMCG.
Brokers believe that the company, which has recorded 22 percent sales during the last nine months of calendar year 2023, can maintain its strong momentum with the help of strong distribution reach, new offerings and international expansion.
The company’s revenue growth was helped by sales growth of 15.4 percent year-on-year. The company’s sales increased to 22 crore boxes. While sales growth was focused on Indian (14.8 per cent YoY) and international markets (17.5 per cent), realizations were driven by international markets.
The company’s double-digit growth is better than its FMCG competitors. This was helped by rural penetration and strong market strategy. The company has been able to reach 1.25 crore retail outlets, whereas at present the number is around 35 lakh.
Apart from core carbonated soft drinks, the company is also focusing on expanding the reach of higher margin Sting energy drinks across all outlets. In the non-carbonated segment, the company is expanding its presence in dairy (including mango shake and cold coffee), sports drinks (Gatorade) and juices (Tropicana, Slice, Nimbooz).
Devanshu Bansal and Vishal Panjwani of MK Research believe that the company is likely to gain growth from new products (energy/sports/dairy) at affordable prices.
This can boost operating and net profit growth of 25-30 percent in the calendar year 2022-25. Analysts have increased valuation multiples and earnings given the company’s stellar performance compared to its FMCG peers.
To meet the growing demand, the company is expanding its manufacturing reach and has spent around Rs 2,000 crore in 9 months of calendar year 2023 to set up new units in Bundi in Rajasthan and Jabalpur in Madhya Pradesh.
The company also plans to expand in India and abroad. Varun Beverages also plans to set up three new plants in Uttar Pradesh, Maharashtra and Odisha in calendar year 2024.
