Markets
Varun Beverages battles pricing wars, ramps up on expansion to protect turf
Summary
- The PepsiCo bottler is facing competitive pressures from Campa Cola’s aggressive pricing, Coca-Cola’s India restructuring, and softening urban demand. But with a capex push, international growth, and pricing tweaks, it’s betting on resilience.
Varun Beverages Ltd, one of PepsiCo’s largest bottlers globally, is navigating pricing battles, shifting consumer trends, and an aggressive expansion both in India and overseas.
Concerns around Reliance Industries-backed Campa Cola’s disruptive pricing, Coca-Cola’s India restructuring, and an urban demand slowdown have cast a shadow on earnings prospects. The stock has fallen 19% from its 52-week high of ₹681 in July 2024. In response, Varun Beverages is implementing measures to fortify its market position.
Read this | Varun Beverages is betting big on growth amid rising competition
Campa Cola has made waves with sharp pricing, undercutting Coke and Pepsi by 30-40% per ml in states like Tamil Nadu, Andhra Pradesh, Telangana, Uttar Pradesh and West Bengal.
JM Financial Institutional Securities Ltd notes that while Campa Cola is carving out a niche in the low-ticket segment, the real volume game is in larger packs (750ml/2.25L), where PepsiCo and Coca-Cola dominate. Here, brand equity, distribution muscle and consumer loyalty remain formidable barriers. Packaged water and soda could also face the heat of pricing wars.
For now, Varun Beverages has countered with aggressive pricing. A ₹10 glass bottle and a 400ml PET pack at ₹20 (250ml + 150ml free) have been introduced, while a ₹10 Zero Sugar variant is likely in the pipeline to tap peak summer demand.
Read this | Campa, Smoodh and now, Amul Tru: India's ₹10 beverage market is starting to get crowded
Beyond pricing, the company is ramping up capacity and strengthening its African footprint. Distribution is also getting sharper, with a 15% increase in visi-cooler placements this year to ensure products remain within easy reach. Energy drink Sting now contributes 15% of volumes, and the launch of Sting Gold could provide another boost.
Varun Beverages has incurred a capex of ₹10,000 crore between calendar years (CY) 2022 and 2025 for 10 greenfield plants and nine brownfield expansions, including international markets, said an Emkay Global Financial Services report on 13 March. This has expanded Varun Beverages' capacity by around 65%, and a normal summer can positively surprise the street estimates for CY25, added the report.
Varun Beverages follows a January to December accounting year, and reported 38.1% overall volume growth in Q4CY24, driven by strong international volumes following the BevCo and DRC inclusion, while India grew 5%. The management has set a ₹3,100 crore capex target for CY25 as it eyes double-digit volume growth in India and international expansions.
Meanwhile, the company used proceeds from its qualified institutional placement to pare debt in Q4CY24, making its balance sheet net-debt-free. The impact of competition on India margins and the pace of Campa Cola’s scale-up will be key watchpoints.
Also read | Competition a positive force, keeps us sharp: Coca-Cola president Murphy
However, international operations—now contributing 33% of total revenue—offer a cushion. South Africa, in particular, presents tailwinds as Varun Beverages moves toward backward integration and strengthens its general trade network.
Bloomberg data shows that the stock is trading at a CY25 price-to-earnings multiple of 55x times, which is not cheap against this backdrop.
