Varun Beverages: 7x rise in five years

Varun Beverages has featured in nearly every "Hot Stocks" list for a while now. It has generated a mind-boggling 74 per cent annualised return in the last three years and presently has a market capitalisation of over Rs 1 lakh crore.

While we usually stay away from the finance paparazzi, the success of this beverage behemoth deserves introspection.

So, here's what fueled Varun Beverage's rise to become an FMCG giant.

PepsiCo's trust

PepsiCo, the beverages and snacks giant, operates in India through its various franchises, Varun Beverage being one. However, the company's efficiency and consistent performance over the last decade made PepsiCo take notice and grant it the exclusive rights of manufacturing and distribution in almost the entirety of India.

As a result, its share in PepsiCo's total sales in India grew from 45 per cent in 2016 to over 90 per cent in FY22.

Focus on efficiency

With PepsiCo taking care of R&D and advertising, the company has the luxury to focus solely on improving efficiency. It has made the most of this and enhanced its efficiency through vertical integration, i.e., it has full control over every aspect of the manufacturing and distribution process; it manufactures the bottles in-house and owns the transport vehicles, warehouses and distribution depots. This higher efficiency and control over the entire supply chain has translated into higher margins over the years.

International expansion

Along with cementing its position as one of the Indian FMCG leaders, the company has expanded into international markets. It has set up manufacturing and distribution facilities in Nepal, Sri Lanka, Morocco, Zambia and Zimbabwe over the last decade. In addition, it is planning to expand into the Democratic Republic of Congo and South Africa.

A word of caution

Varun Beverages has indeed rewarded its investors in the recent past. However, every business has its risk, and Varun Beverages is no exception.

For example, just from the above factors, it is evident that any tussle with PepsiCo in the future can have a catastrophic impact on its business. In addition, its expansion efforts in uncharted international territories might have a disastrous end.

So, before you rush to invest, note that this is not a stock recommendation. Do the due diligence before investing. Past performance is not a guarantee for future returns .

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