Shares of Varun Beverages Ltd (VBL), one of India’s largest beverage bottlers and a key PepsiCo franchisee, have lost momentum recently, raising concerns among investors. Despite a strong fundamental business model and a history of robust earnings, the stock has faced notable headwinds in recent trading sessions, shedding nearly 12% over the past month and underperforming the broader FMCG index. This development has triggered debates among analysts about whether the dip is a short-term correction or a signal of deeper structural issues.
Market watchers have pointed to a mix of operational, macroeconomic, and valuation-related challenges that are causing Varun Beverages shares to “lose fizz.” The stock, which had delivered stellar returns over the past two years, may now be entering a phase of consolidation amid mounting expectations and cost pressures.
Let’s delve deeper into the key risks, potential catalysts, and future outlook for this FMCG major as it navigates a rapidly evolving consumption environment in India and abroad.
Revenue Growth Slows in Q2: Early Signs of Pressure?
Varun Beverages recently posted its Q2CY25 earnings, which saw revenue growth of just 9.5% year-on-year — the slowest pace in eight quarters. Volume growth, which has been a key driver for the company, also dipped to 7.3%, a stark contrast to the 14-18% growth seen in previous quarters.
The slowdown has been attributed to:
- Unseasonal rains in North India impacting summer beverage sales.
- High base effect from previous years.
- Increased competitive pressure from regional brands and new entrants in the ready-to-drink space.
- Weak rural sentiment due to erratic monsoons and inflation-led demand erosion.
| Quarter | Revenue (₹ Cr) | Volume Growth (%) | Gross Margin (%) | PAT (₹ Cr) |
|---|---|---|---|---|
| Q2CY24 | 5,093 | 14.2 | 53.7 | 662 |
| Q3CY24 | 4,312 | 10.8 | 52.5 | 545 |
| Q4CY24 | 3,698 | 9.5 | 51.2 | 481 |
| Q1CY25 | 4,980 | 7.3 | 50.9 | 460 |
While margins have remained largely intact, net profit dipped by nearly 10% quarter-on-quarter, largely due to higher input and packaging costs, which are now becoming increasingly sticky.
Key Risks Dampening Investor Sentiment
1. Input Cost Volatility
PET resin, sugar, and fuel — the three main input costs for Varun Beverages — have seen significant price fluctuations. Despite strategic hedging, the company remains vulnerable to global commodity price volatility.
2. Valuation Concerns
At a forward P/E of 59x, Varun Beverages is trading at a significant premium to its FMCG peers. While the premium was justified during its high-growth phase, any hint of slowdown now makes the stock vulnerable to sharp corrections.
3. Rural Market Weakness
VBL derives over 40% of its volumes from rural and semi-urban markets, where demand has remained subdued due to inflation, uneven monsoons, and lower wage growth.
4. Rising Competition
While VBL holds exclusive rights to bottle and distribute PepsiCo beverages in India, the market is witnessing rising competition from regional players and health-oriented drink brands, putting pressure on pricing and market share.
5. International Expansion Uncertainty
The company’s foray into African markets and Southeast Asia, while promising in the long term, has yet to deliver the margin accretion and scale that analysts expected.
What Could Trigger a Re-rating?
Despite current headwinds, Varun Beverages is still seen as a long-term structural growth story by many analysts. Here are some potential triggers for a stock re-rating:
- Volume uptick in H2CY25, supported by festive season demand and improved rural sentiment.
- Stabilization of raw material costs, especially sugar and packaging.
- New product launches including energy drinks, flavored water, and healthier variants.
- Capex payoff from its recently commissioned greenfield plants in Bihar and Rajasthan.
- Sustained growth in exports as international bottling operations reach scale.
Institutional View: Mixed Sentiments Emerge
Brokerages are divided on their outlook:
| Brokerage | Rating | Target Price (₹) | Comments |
|---|---|---|---|
| Kotak Securities | HOLD | 1,440 | Valuation expensive; wait for volume recovery |
| CLSA | BUY | 1,650 | Long-term prospects intact; dip is a buying opportunity |
| ICICI Securities | REDUCE | 1,380 | Earnings disappointment may continue in near term |
| Jefferies | HOLD | 1,420 | Exports are encouraging, but core domestic growth underwhelming |
| Motilal Oswal | BUY | 1,600 | Margin profile strong; risk-reward favorable post correction |
Industry Comparison: Varun Beverages vs Peers
| Company | P/E (TTM) | ROCE (%) | Revenue Growth (YoY) | Dividend Yield (%) |
|---|---|---|---|---|
| Varun Beverages | 59.2 | 24.8 | 9.5 | 0.40 |
| Nestle India | 70.5 | 49.2 | 11.1 | 1.02 |
| Britannia Industries | 46.8 | 36.5 | 8.7 | 1.55 |
| Hindustan Unilever | 58.3 | 45.1 | 6.4 | 1.75 |
| Tata Consumer | 51.7 | 21.3 | 10.2 | 0.90 |
Varun Beverages’ high valuation, despite relatively lower ROCE and revenue growth, raises red flags about sustainability at current price levels, unless volume momentum is regained soon.
Management Commentary
In the latest earnings call, VBL Chairman Ravi Jaipuria stated:
“We remain committed to long-term growth and are confident about demand recovery in the second half of the year. While near-term challenges persist, our investments in capacity and innovation will yield results. We are actively working to offset cost pressures and improve efficiencies.”
The management has also indicated plans to increase focus on newer product categories like fruit juices, dairy-based drinks, and premium water, with innovation pipelines geared toward shifting consumer preferences.
Future Outlook: Time to Be Cautious or Optimistic?
The recent correction in Varun Beverages’ share price is not entirely unexpected, especially after a prolonged bull run. With input cost inflation, rural demand uncertainty, and valuation stretch all coming to the forefront, investors may need to moderate their near-term expectations.
However, the company’s strong distribution muscle, dominant brand association with PepsiCo, and ability to scale across diverse geographies make it a compelling long-term bet for patient investors.
Traders and short-term investors should be cautious until there’s visibility on volume rebound and cost moderation, while long-term investors may consider staggered accumulation during dips, especially below ₹1,350 levels.
Disclaimer: This article is intended for informational purposes only and does not constitute investment advice. Investors are advised to consult their financial advisors before making any investment decisions. Stock prices and financial metrics mentioned are based on publicly available data as of July 2025 and are subject to change.
