Varun Beverages achieves 52-week high

Varun Beverages (VBL), a prominent FMCG player, is venturing into the South African market by acquiring The Beverage Company (Bevco). The acquisition, valued at Rs 1,320 crore, resulted in VBL securing a 100 per cent stake in Bevco. As a result, the company's shares have soared, breaching the 52-week high and marking a 16 per cent increase in the last week.

What does The Beverage Company do?

Much like Varun Beverages, Bevco has a partnership with Pepsico for bottling and distributing the brand's products. Serving as the sole licensed bottler in South Africa, Swaziland, and Lesotho, Bevco also holds exclusive distribution rights in Botswana and Namibia. In addition to this, Bevco boasts its own brands, such as Refreshhh, Reboost, Coo-ee, and Jive. With five manufacturing facilities and a total installed capacity of 3,600 BPM (bottles per month), Bevco plays a crucial role in the South African beverage industry.

Rationale behind the move

South Africa, being the largest soft drink market in Africa with the second-highest per capita consumption, presents a lucrative opportunity for Varun Beverages. The dominance of local B-brands in the South African market offers VBL opportunities to expand the presence of Pepsi in the region. Additionally, only 15 per cent of Bevco's total volumes in FY23 are attributed to Pepsi brands, leaving vast potential for growth with VBL's strategies.

Investors' corner

Varun Beverages already significantly contributes to Pepsico's global revenue and forms over 90 per cent of Pepsico's India revenue. While this acquisition is expected to fuel VBL's future growth, it's important to note that, as of June 2023, the company does not have enough cash in its balance sheet. VBL has mentioned the possibility of securing a minority investment from an equity fund, but to finalise the transaction, it may resort to taking on additional debt.

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