- Varun Beverages reports strong performance from BevCo acquisition with 141 million cases in South Africa over trailing four quarters, reflecting ~13% growth YoY
- African footprint now spans 10 countries with franchise rights and 4 countries with distribution rights
- Q1 2025 consolidated sales volume grew by 30.1% YoY to 312.4 million cases, driven partly by BevCo’s contribution
- Company successfully commenced commercial production at new Kinshasa facility in Democratic Republic of Congo (DRC)
- CRISIL upgraded VBL’s credit rating to ‘AAA/Stable’ citing reduced debt levels and strengthened business risk profile following ₹7,500 crore QIP in November 2024
GURUGRAM: Varun Beverages Limited (VBL), PepsiCo’s second-largest franchisee globally, has reported significant progress in its African expansion strategy, with particularly strong performance from its South African operations following the ₹13,200 crore acquisition of The Beverage Company (BevCo) in the first half of 2024. The company’s Q1 2025 financial results and recent CRISIL credit rating upgrade reveal substantial growth in African markets, contributing significantly to VBL’s overall performance.
Stock Performance: Varun Beverages (BSE: 540180)
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52-week High/Low: ₹[682.4]/₹[419.4]
Market Cap: ₹[1,77,311.22] crore
Table of Contents
BevCo Integration Progress
The integration of BevCo’s operations has progressed well according to Chairman Ravi Jaipuria, with the South African business achieving 141 million cases in the trailing four quarters, representing approximately 13% growth over the same period last year. The acquisition, completed in H1 2024 for approximately ₹13,200 crore, has significantly expanded VBL’s African footprint.
“The integration of the SA territory has progressed well, with focused efforts on strengthening on-ground infrastructure, streamlining operations, and enhancing execution across the market. We achieved 141 million cases in SA over the trailing four quarters, marking a growth of ~13% over the same period last year. Historically, net realizations in SA are lower due to a higher mix of own brands; however, we are actively working to scale PepsiCo’s portfolio, which is expected to support improvements in realizations and margins going forward,” said Ravi Jaipuria, Chairman of Varun Beverages Limited.
Through BevCo, VBL secured franchise rights from PepsiCo in South Africa, Lesotho, and Eswatini, along with distribution rights for Namibia, Botswana, Mozambique, and Madagascar. BevCo operates five manufacturing facilities across South Africa—two in Johannesburg and one each in Durban, East London, and Cape Town—with a total installed capacity of approximately 3,600 BPM (bottles per minute).
Credit Rating Upgrade
CRISIL Ratings, an S&P Global Company, recently upgraded VBL’s long-term rating for bank loan facilities to ‘CRISIL AAA/Stable’ from ‘CRISIL AA+/Stable’. The upgrade reflects the significant improvement in VBL’s financial risk profile following the issuance of shares through qualified institutional placement (QIP) of ₹7,500 crore in November 2024, as well as the strengthening of its business risk profile.
The rating agency specifically highlighted VBL’s expansion into African markets as a key strength, noting: “Following the acquisition of the southern and western territories of PepsiCo in 2019, VBL has presence in 26 States and six union territories in India (except Andhra Pradesh, Jammu and Kashmir and Ladakh), accounting for more than 90% of the beverage sales of PepsiCo in India. It also has sole franchisee operations in Nepal, Sri Lanka, Morocco, Zambia and Zimbabwe. Furthermore, VBL continues to expand internationally and has incorporated new subsidiaries in DRC and in South Africa in last two years.”
The CRISIL report further emphasizes that “The company is also in the process of acquiring franchise rights in Tanzania and Ghana. Expansion in Africa will help VBL counter the seasonality of sales and diversify its revenue streams.”
Financial Performance
The African expansion has contributed significantly to VBL’s overall financial performance, with consolidated revenue growing by 28.9% year-on-year in Q1 2025.
| Financial Parameters (₹ in Crore) | Q1 2025 | Q1 2024 | YoY Change (%) |
|---|---|---|---|
| Total Revenue | 5,566.9 | 4,317.3 | 28.9% |
| EBITDA | 1,263.9 | 988.8 | 27.8% |
| EBITDA Margin (%) | 22.7% | 22.9% | -20 bps |
| Profit After Tax (PAT) | 731.4 | 548.0 | 33.5% |
Consolidated sales volume grew by 30.1% to 312.4 million cases in Q1 2025 from 240.2 million cases in Q1 2024, driven by both strong organic volume growth in India (15.5%) and inorganic contributions from South Africa and DRC.
However, the company noted that EBITDA margins marginally declined at the consolidated level by 20 basis points due to the lower profitability in the South African market (14.4% EBITDA margin) and its higher mix in Q1 2025. The company attributed this to a higher proportion of own brands in South Africa, which typically yield lower realizations compared to PepsiCo brands.
Financial Risk Profile Strengthening
According to the CRISIL rating report, “VBL’s capital structure strengthened after it raised Rs 7,500 crore in November 2024 via QIP, issuing (4.1% fresh Capital), diluting existing Shareholders proportionately including Promoters. Post the issuance of shares through QIP, the debt has reduced significantly to Rs 2,634 crore as on December 31, 2024 (net debt being negative Rs 86 crore), compared with Rs 6,288 crore as on June 30, 2024, while the tangible networth increased to Rs 16,609 crore from Rs 6513 crores as on December 31, 2023.”
This has dramatically improved the company’s financial metrics, with gearing improving to 0.14 time as on December 31, 2024, compared with 0.80 time as on December 31, 2023, and the net cash accrual to adjusted debt ratio (NCAAD) improving to 1.51 times in calendar year 2024, compared with 0.49 times in calendar year 2023.
Recent Developments in African Territories
VBL has made significant strides in expanding its African operations beyond the BevCo acquisition:
- Democratic Republic of Congo: In July 2024, the company commenced commercial production of carbonated soft drinks and packaged drinking water at its new Kinshasa facility. The plant features two CSD/Water PET lines with an installed capacity of 550 BPM each.
- Mozambique Subsidiary: In November 2023, VBL incorporated a new subsidiary in Mozambique, VBL Mozambique, SA, to strengthen its presence in Southern Africa.
- Backward Integration in DRC: The company has established backward integration facilities at its DRC plant, enhancing operational efficiency and supply chain capabilities.
- Expansion into Snack Foods: VBL has entered into an exclusive franchising agreement with PepsiCo to manufacture, distribute, and sell “Simba Munchiez” snack products in Zimbabwe and Zambia. Distribution began in February 2025, with manufacturing facilities expected to be operational by FY26.
The company disclosed that it had entered into binding agreements to acquire 100% stakes in SBC Beverages Tanzania Limited and SBC Beverages Ghana Limited in November 2024. However, these agreements were terminated due to “non-fulfilment of certain conditions precedent before the long stop date,” according to the company’s regulatory filings.
Outlook for African Operations
VBL’s investment in South African operations continues to deepen, with the company investing an additional ₹4,128.04 million in Q1 2025 to subscribe to 1,984,695 ordinary shares of BevCo. Following this investment, VBL now holds 97.41% of the effective share capital of BevCo.
The company’s focus on African markets aligns with its strategy to diversify geographically and reduce dependence on seasonality in the Indian market. African operations have seen their contribution to total revenues increase to approximately 17% in FY24, up from a much smaller base just a few years ago.
Moving forward, VBL plans to:
- Further scale PepsiCo’s portfolio in South Africa to improve realizations and margins
- Continue backward integration efforts to enhance operational efficiency
- Expand its product portfolio, particularly in the snack food segment
- Explore new markets for potential expansion, potentially revisiting the Tanzania and Ghana opportunities when conditions are more favorable
Challenges and Risk Factors
Despite the strong performance, VBL faces several challenges in its African expansion:
- Lower Margins in South Africa: The current lower EBITDA margin of 14.4% in South African operations, compared to the company average, poses a challenge for overall profitability.
- Currency Fluctuations: As noted in VBL’s recent credit rating upgrade by CRISIL, “Susceptibility to forex fluctuations and adverse geopolitical scenario in African territories as contribution from these regions increases” remains a significant risk factor.
- Integration Complexities: Managing operations across diverse African markets with varying regulatory environments, consumer preferences, and infrastructure challenges requires significant management bandwidth.
- Competitive Pressures: Local competitors and other multinational beverage companies maintain strong presences in many African markets.
According to CRISIL’s rating rationale, “To mitigate potential risks associated with international operations, VBL employs a natural hedging strategy, wherein revenues and most of the expenditures are denominated in local currencies, and debt is typically incurred in the same currency. Any further impact of currency is usually passed on to the consumers through price hikes.”
The rating agency also noted that “VBL has established a proven track record of operating successfully in Africa, having maintained franchise rights in Morocco, Zambia, and Zimbabwe since 2018. Nevertheless, any significant geopolitical developments that could potentially impact the company’s business risk profile will remain monitorable.”
About Varun Beverages Limited
Varun Beverages Limited is a key player in the beverage industry and one of the largest franchisees of PepsiCo in the world (outside USA). The company produces and distributes a wide range of carbonated soft drinks (CSDs), as well as a large selection of non-carbonated beverages (NCBs), including packaged drinking water sold under trademarks owned by PepsiCo.
VBL has been associated with PepsiCo since the 1990s and has operations spanning 10 countries with franchise rights and 4 countries with distribution rights. The company has 36 manufacturing facilities in India and 12 internationally, with a robust distribution network that includes over 130 owned depots, 2,500+ owned vehicles, 2,500+ primary distributors, and over 10.2 crore installed visi-coolers.
Footnotes:
- BPM (Bottles Per Minute) is a standard industry metric used to measure the production capacity of beverage manufacturing lines.
- EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a measure of a company’s overall financial performance and is used as an alternative to net income in some circumstances.
- “bps” refers to basis points, with 100 bps equal to 1 percentage point. A decrease of 20 bps in EBITDA margin represents a 0.2 percentage point reduction.
- PET (Polyethylene Terephthalate) is a common thermoplastic polymer resin used in the production of beverage bottles.
- “Long stop date” refers to the final date specified in a contract by which certain conditions must be fulfilled for the transaction to proceed.
- QIP (Qualified Institutional Placement) is a capital raising tool where a listed company can issue equity shares and other securities to qualified institutional buyers.
- Information about VBL’s African operations and the BevCo acquisition sourced from VBL’s Q1 2025 financial results press release dated April 30, 2025.
- Credit rating information and risk assessment sourced from CRISIL’s rating rationale report for VBL dated February 18, 2025.
- Financial metrics and operational data sourced from VBL’s consolidated unaudited quarterly financial results for the quarter ended March 31, 2025.
- Information about VBL’s corporate structure and manufacturing facilities sourced from the company’s website and public corporate filings.
Disclaimer: This article may contain forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those anticipated or implied in such forward-looking statements due to various factors including changes in economic, political, regulatory, business or other market conditions. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.