Varun Beverages surges 9% on Carlsberg deal despite poor Q2 India show

Shares of PepsiCo bottler Varun Beverages Ltd soared by over 9% after the company announced an exclusive distribution partnership with Carlsberg Breweries for select southern African markets.

Though volumes for the company's international business grew 9% year-on-year during the September quarter, they remained flat in India due to the prolonged monsoons, which impacted demand for colas, juices, and other beverages. Summer is the peak season for beverage companies.

The company's consolidated revenues rose by a modest 1.9% on-year to ₹4,896.7 crore, while earnings before interest, taxes, depreciation, and amortisation (Ebitda) fell by 30 basis points. One basis point is one-hundredth of a percentage point.

“We have delivered a steady performance during the quarter supported by a healthy traction in international markets,” Ravi Jaipuria, the company's chairperson, said in the earnings call on Wednesday. “The extended monsoon impacted consumption, but we are confident of long-term growth, especially in semi-urban and rural markets.”

Jaipuria said the company is exploring the beer business in 1-2 African nations where it already has a strong presence, explaining that these countries had relaxed alcohol sale regulations, allowing it to combine existing distribution networks and staff on the ground to supply Carlsberg beers to convenience stores and other retail shops.

The company is also spinning off its beverages operations in Kenya into a wholly-owned subsidiary, it said in a stock-exchange filing.

Campa challenge

Meanwhile in India, apart from the monsoons, cola brands are affected by the aggressive price war initiated by Reliance Consumer's Campa Cola, which is selling plastic PET bottles at a much cheaper ₹10 price point. Jaipuria, however, said he is not worried about the competition.

“The competition is growing the market for all of us,” he said. “There will be a temporary, minor effect. We have all woken up and become more attentive about going to the market more than we were before. But there is still huge headroom for growth in India. I see only a positive in this.”

PepsiCo and Coca-Cola have been introducing select products at the ₹10 price point to combat competition from Campa in small towns, while the new entrant has begun expanding its product portfolio to bigger cities and metros as well. In September, it also launched a second packaged drinking water under the sub-brand Campa Sure.

Shares of Varun Beverages closed 9.1% higher on National Stock Exchange while the benchmark Nifty 50 closed 0.45% higher.