Varun Beverages ($VBL)

Pepsi's master India franchisee looks interesting on improving growth and distribution; reduction in debt

Key Insights

o Growth drivers include -

  1. Scaling up the execution in newly acquired territories (7 recently acquired states provide 55% of incremental opportunity to distribute Pepsi products)
  2. Tropicana, Bottled water, Energy drink key growth opportunities going ahead,
  3. Scaling up overseas operations (20% of revenue; majority comes from Nepal, Sri Lanka, Morocco, Zimbabwe)

o Improvement in margins: VBL has started in-house manufacturing for Tropicana which will help improve margins.

o Distribution dynamics: Rising electrification has helped increase distribution to deeper markets. VBL expects ~3-4% y/y increase in distribution reach per annum.

o Reducing Leverage: Debt levels already reduced to near last year’s level despite acquiring new territories. VBL borrowed ~Rs18bn debt for acquisition for 7 new markets (which have been paid back through ~Rs9bn QIP and internal accruals). VBL expects debt levels at ~Rs30bn by Dec’19.

Disclaimer: The above report is compiled from information available on public platforms. inChat team advises users to check with certified experts before taking any investment decisions.

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