Varun Beverages Limited, a key player in the beverage industry, has announced a strategic move to strengthen its presence in the South African market. The company's Investment and Borrowing Committee has approved an increase in its stake in The Beverage Company Proprietary Limited (Bevco), its South African subsidiary, from 97.42% to 97.92%.

Loan Conversion Strengthens Equity Base

The increase in stake will be achieved through the conversion of an outstanding loan of ZAR 455.7 million (equivalent to INR 2,199.68 million) into 1,005,000 ordinary shares at a price of ZAR 453.47 per share. This move is aimed at enhancing the company's worth, reducing leverage, and improving financial stability.

Bevco's Market Presence and Performance

Bevco, incorporated in 2016, is engaged in the manufacturing and distribution of PepsiCo licensed and own-branded non-alcoholic beverages in South Africa. The company also holds franchise rights from PepsiCo Inc. for operations in South Africa, Lesotho, and Eswatini.

For the financial year ended June 30, 2024, Bevco reported a consolidated turnover of ZAR 4,090 million. The company has shown consistent growth over the past three years:

Strategic Implications

Ravi Jaipuria, Chairman of Varun Beverages, commented on the development: "The conversion of loan into equity will enhance our company's worth, reduce leverage, and improve financial stability. This move ensures a stronger equity base to support future expansion plans and business growth in the South African market."

Expansion Plans in South Africa

Varun Beverages is actively pursuing growth opportunities in the South African market. The company has recently enhanced its capacity by setting up a can line in Durban, within one of its existing production facilities. Additionally, it is awaiting approval from the Competition Commission of South Africa for a land parcel purchase adjoining its production facility in Boksburg, aimed at further enhancing capacity and backward integration.

International Market Performance

During the recent earnings call, the company highlighted strong performance in its international markets, particularly in South Africa. The territory showed growth higher than the average for international markets, contributing to a 23% sales growth and a 45% EBITDA growth in the company's international operations.

Conclusion

This strategic move by Varun Beverages to increase its stake in Bevco aligns with its broader strategy of strengthening its international presence, particularly in high-potential markets like South Africa. As the company continues to invest in capacity expansion and operational efficiencies, it is well-positioned to capture emerging opportunities and drive long-term value creation in the beverage industry.

Varun Beverages Ltd (VBL), one of PepsiCo's largest franchisees, showcased its resilience in the face of challenging weather conditions during the second quarter of 2025. Despite a 3% decline in consolidated sales volume, the company managed to improve its EBITDA margin and report growth in profit after tax (PAT).

Financial Performance

VBL reported a revenue of Rs. 70,173.00 million in Q2 2025, marking a 2.5% year-on-year decline. The company's consolidated sales volume decreased by 3% to 389.70 million cases, primarily due to unseasonal rainfall in India. However, VBL's international markets demonstrated robust growth, partially offsetting the domestic slowdown.

Despite the volume decline, VBL improved its EBITDA margin by 82 basis points to 28.5%, reaching Rs. 19,987.70 million. This improvement was driven by operational efficiencies and strong currency performance in international operations. The company's PAT grew by 5% to Rs. 13,254.90 million, supported by improved operational efficiencies and lower finance costs.

Operational Highlights

• India Performance: India volumes declined by 7.1% due to abnormally high and unseasonal rainfall throughout the quarter.
• International Markets: International volumes grew by 15.1%, led by South Africa's 16.1% growth.
• Product Mix: Carbonated Soft Drinks (CSD) accounted for 75% of total volumes, Packaged Drinking Water contributed 18%, and Non-Carbonated Beverages (NCB) made up the remaining 7%.
• Low/No Sugar Products: These products contributed around 55% of consolidated volumes in H1 2025, reflecting VBL's efforts to evolve with consumer preferences.

Expansion and Strategic Initiatives

VBL commissioned four new Greenfield plants in India:

These plants enhance VBL's production capabilities and supply chain agility. Their multi-line configurations across CSD, Juice-Based Drinks (JBD), and water categories provide flexibility to meet rising demand.

In Morocco, VBL commenced commercial production of PepsiCo's snack product 'Cheetos', marking its expansion into the high-potential snacks category. The company also enhanced its capacity in South Africa by setting up a can line in Durban.

Dividend Declaration

The Board of Directors approved a second interim dividend of Rs. 0.50 per share, resulting in a total cash outflow of approximately Rs. 1,691.00 million.

Future Outlook

Ravi Jaipuria, Chairman of Varun Beverages, commented on the results, stating, "Although unseasonal rains have impacted performance during the quarter, we have successfully navigated such challenges in the past and we have emerged stronger." The company remains focused on strengthening its on-ground execution by adding more visi-coolers and ensuring wider product availability across retail touchpoints.

With robust capacities now operational, an expanding product portfolio, and a sharply focused distribution network, Varun Beverages is well-positioned to capture emerging opportunities and drive sustainable, long-term value creation for all stakeholders.

The company's strategic initiatives, including cost optimization, capacity expansion, and diversification into snacks, demonstrate its commitment to long-term growth and resilience in the face of short-term challenges. As VBL continues to navigate the evolving beverage market landscape, its strong performance in international markets and operational efficiencies position it well for future growth.