Varun Beverages Limited has announced the enhancement of its corporate guarantee for wholly-owned subsidiary Varun Beverages International DMCC, increasing the guarantee amount from $27.50 million to $49.50 million. The disclosure was made on January 14, 2026, in compliance with Regulation 30 of SEBI Listing Obligations and Disclosure Requirements Regulations, 2015.

Corporate Guarantee Enhancement Details

The enhanced corporate guarantee has been structured to secure credit facilities extended to the Dubai-based subsidiary by ICICI Bank Limited through its DIFC Branch in the United Arab Emirates. The guarantee carries a validity period extending until June 30, 2027.

Subsidiary and Transaction Structure

Varun Beverages International DMCC operates as a wholly-owned subsidiary of Varun Beverages Limited, based in Dubai, United Arab Emirates. The corporate guarantee enhancement represents a strategic financial backing to support the subsidiary's operational requirements and credit facility arrangements.

Regulatory Compliance and Impact Assessment

The company has confirmed that the transaction adheres to arm's length principles, with no promoter, promoter group, or group companies having any interest in this arrangement. According to the regulatory disclosure, the enhanced corporate guarantee will have no material impact on the listed entity's financial position.

The disclosure was signed by Ravi Batra, Chief Risk Officer and Group Company Secretary, and has been uploaded to the company's official website at www.varunbeverages.com for stakeholder reference.

Varun Beverages has attracted attention from Morgan Stanley, which maintains a bullish stance on the PepsiCo franchisee despite its premium valuation. The investment bank has retained its overweight rating with a target price of Rs. 600, suggesting significant upside potential from current market levels.

Stock Performance and Valuation

The company's shares closed at Rs. 488.85, declining from the previous close of Rs. 500.75, with a market capitalisation of Rs. 1,65,328 crores. The stock's performance has been mixed across different timeframes:

Currently trading at 47x 12-month forward P/E, the stock remains below its 3-year historical average of 54x, though the valuation appears stretched by conventional metrics.

Morgan Stanley's Investment Thesis

Morgan Stanley's overweight rating with a Rs. 600 target price represents a 23% upside from current levels. The brokerage's positive stance is anchored on several key factors:

• Strong fundamental business metrics and growth prospects
• Expected optimistic management commentary during 4QCY25 earnings regarding India business outlook for 2026
• Strategic focus on portfolio expansion in existing markets as a sustainable growth driver
• Company's position as one of PepsiCo's largest global franchisees outside the US

Business Operations and Expansion

Varun Beverages operates as a major PepsiCo franchisee, manufacturing and distributing carbonated soft drinks, non-carbonated beverages, and packaged water across an extensive distribution network. The company is pursuing aggressive expansion strategies across multiple geographies and product categories.

Key expansion initiatives include establishing a wholly-owned Kenya subsidiary for dairy and beverages, testing beer distribution in Southern Africa through a Carlsberg partnership using an asset-light model. In the food and snacks segment, Morocco's plant operates at full scale while Zimbabwe's facility is expected by year-end, contributing to a Rs. 300 crore run-rate.

Financial Performance and Metrics

The company demonstrates robust financial fundamentals with strong capital efficiency metrics:

However, recent quarterly performance showed significant decline. Sales dropped from Rs. 7,017 crores in Q2CY25 to Rs. 4,897 crores in Q3FCY25. Operating profit fell from Rs. 1,998 crores to Rs. 1,146 crores, while net profit declined to Rs. 745 crores from Rs. 1,325 crores over the same period.

Growth Drivers and Product Innovation

The company maintains strong momentum in new product categories, supported by consistent innovation. In India, growth is driven by smaller, emerging categories with notable performance in specific segments:

• Nimbooz recorded over 50% growth
• Value-added dairy portfolio doubled with approximately 100% growth
• Rising consumer traction and successful category expansion across product lines

Despite the premium valuation and recent quarterly softness, Morgan Stanley's continued confidence reflects expectations of sustained growth momentum and strategic execution in key markets.