Synopsis: Morgan Stanley remains bullish on Varun Beverages despite a rich 47x forward P/E, citing strong fundamentals, portfolio expansion, and an optimistic India outlook, while maintaining an overweight rating with a Rs. 600 target.
This company produces and distributes a wide range of carbonated soft drinks, non-carbonated drinks, and packaged water sold under trademarks owned by PepsiCo is now in the spotlight after Morgan Stanley is bullish on it.
With a market capitalisation of Rs. 1,65,328 cr, the shares of Varun Beverages Ltd closed at Rs. 488.85 per share, down from its previous close of Rs. 500.75 per share.
The stock has delivered an impressive 454% return over the last five years, but performance has been volatile recently. It declined by 19% over the past year, while showing a recovery with 5% returns in the last six months and 3.5% gains in the past month.
Morgan Stanley on VBL
Morgan Stanley has maintained an overweight rating on VBL with a target price of Rs 600, a 23% upside from current levels. The brokerage sees the company’s strong fundamentals and growth prospects as key reasons for its positive stance.
Analysts believe that management commentary during 4QCY25 earnings is likely to reflect an optimistic outlook for VBL’s India business in 2026. Additionally, the company’s focus on portfolio expansion in existing markets is considered a major driver for sustainable growth.
Currently, VBL trades at a 47x 12-month forward P/E, which is below its 3-year historical average of 54x. Despite this high valuation, Morgan Stanley remains bullish due to the company’s strong growth potential and strategic initiatives in the Indian market.
About the company & Financials
Varun Beverages Limited is one of PepsiCo’s largest global franchisees (outside the US), manufacturing and distributing a wide range of carbonated and non-carbonated beverages, including packaged drinking water, across an extensive and well-established distribution network.
VBL is expanding into new markets and products, setting up a wholly-owned Kenya subsidiary for dairy and beverages, and testing beer distribution in Southern Africa via a Carlsberg partnership using an asset-light model.
In food and snacks, Morocco’s plant is now at full scale, and Zimbabwe’s is expected by year-end, contributing to a Rs. 300 crore run-rate. New product momentum remained strong, supported by a steady innovation cadence. In India, growth was led by smaller, emerging categories, with Nimbooz recording over 50% growth, while the value-added dairy portfolio doubled, growing by around 100%, highlighting rising consumer traction and successful category expansion.
The company shows strong fundamentals with excellent capital efficiency and profitability. ROCE of 24.8% and ROE of 22.5% (3-year average 28.2%) indicate efficient use of capital, while a very low debt-to-equity ratio of 0.12 and reduced debt highlight a healthy balance sheet with low financial risk.
Growth has been robust and consistent, with profit growing at a 41.4% CAGR over the last five years and median sales growth of 24.7% over the past decade. Sales of the company significantly slipped from Rs. 7,017 cr in Q2CY25 to Rs. 4,897 cr in Q3FCY25. Operating profit fell from Rs. 1,998 to Rs. 1,146 cr. Net profit declined to Rs. 745 cr from Rs. 1,325 cr over the same period.
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