Varun Beverages a Buy now? Motilal Oswal sees 35% upside as bottler evolves into consumer play

In its latest note, the brokerage firm maintained a ‘Buy’ rating on the stock with a target price of Rs 550, implying around 35% upside. 

Here’s a closer look at the brokerage’s investment rationale.

A muted year, but not a broken story

According to the report, CY25 was a subdued year for Varun Beverages, with volume growth coming in at just 8% globally and 2% in India due to unusually heavy rainfall affecting demand. The report further noted that realisations also remained largely flat during the year.

The brokerage points out that underlying demand drivers, such as retail expansion, better electrification, and stronger cold-chain infrastructure, remain firmly in place and should support long-term growth.

A shift beyond beverages

According to the report, a key change that Varun Beverages underwent is its transition from being a pure-play bottler to a broader consumer-based platform. The company is using its distribution network to expand into a variety of categories such as snacks, energy drinks, dairy and even alcoholic beverages in a few markets. 

Its partnership with Carlsberg, for instance, signals a potential entry into beer in African markets, the report added. The company has also made a few investments in visi-cooler manufacturing in order to enhance control over its supply chain. 

Capacity expansion and innovation to drive growth

The company has added significant manufacturing capacity over the past two years and commissioned four new plants in India to support future demand, the report noted. 

At the same time, it is expanding its portfolio with new launches and health-focused products, including low- and no-sugar beverages, which are helping drive premiumisation, the report noted. The weather could also turn into a tailwind. Rising probability of El Niño conditions could lead to hotter summers, which typically boost demand for beverages.

International business gaining traction

Another key growth driver, as per the brokerage firm, is the company’s attempts at expanding its international presence. The company has been scaling up its operations across Africa and other markets with the help of acquisitions, partnerships and capacity additions. As a result of this, International volumes are growing faster than India, and now is contributing a larger share of the business. 

This diversification is helping reduce dependence on the domestic market and providing an additional growth engine, the report acknowledged. 

Margins steady, cash flows strong

Despite the weak volume growth in CY25, the company managed to maintain stable margins and strong cash generation. Operating cash flow increased during the year, even as return ratios moderated and working capital requirements rose. Motilal Oswal believes the company’s consistent execution, disciplined capital allocation, and expanding capacity will continue to support profitability over the medium term.

Valuation and outlook

The brokerage expects Varun Beverages to deliver steady growth, building in a revenue, EBITDA, and profit CAGR of around 13–16% over CY25–27. It values the stock at 45 times CY27 estimated earnings, maintaining its ‘Buy’ rating with a target price of Rs 550.

Motilal Oswal believes Varun Beverages’ weak performance in CY25 is largely due to temporary factors such as weather-related disruptions rather than any structural slowdown. As it expands into new categories, grows its international business, and continues to invest in capacity and distribution, Varun Beverages looks better prepared to keep its growth going over the long term.

Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.