25x in returns, ₹25 lakh for every ₹1 lakh: Can Varun Beverages do it again?

For me, that stock is Varun Beverages.

Varun Beverages went public in 2016 with a market capitalization of around ₹8,000 crore. Back then, its sales stood at about ₹4,000 crore, with net margins of just 5%. I got in early and held the stock for a couple of years. The investment doubled during that time—a solid 100% return on a modest amount.

Naturally, I thought, “This is great, time to book profits!” and exited my position. Then came the covid-19 pandemic. The stock dropped 30%—a confirmation bias moment for me. “Glad I sold it,” I thought. I assumed the story was over.

But boy, was I wrong.

From that low, the stock rebounded, and since then, it hasn’t looked back. Today, it’s up almost 12x from where it was. From its initial public offering (IPO) in 2016 to now, Varun Beverages has delivered a jaw-dropping 25x return, which translates to a 50% compound annual growth rate (CAGR) over eight years.

Truly incredible.

Yet, here I am, still wondering: Is it too late to re-enter? Have I missed the bus for good? Or is there more juice left in this rally? That’s exactly what we’re going to analyze in this article. Let’s dive in.

India’s non-alcoholic beverage market: Bursting with potential

At first glance, India’s non-alcoholic beverage market—valued at around $15 billion—might seem impressive. But is it really? Not quite.

When you compare it to China, where the market is a staggering 10 times bigger, or even Coca-Cola’s global revenue, which is nearly three times the size of India’s entire market, it’s clear that India has a long way to go.

But that’s also what makes it exciting—the untapped potential.

The Indian beverage market is made up of three main segments: carbonated drinks (CSDs), juices, and water. While carbonated drinks have traditionally dominated, the tide is clearly shifting. The non-carbonated beverage (NCB) segment is growing at a pace that’s three times faster than carbonates.

Why? Because consumer preferences are changing, and health-conscious habits are reshaping the market.

Over the past decade, major beverage companies have expanded their portfolios significantly, diversifying beyond fizzy drinks to cater to this growing demand for healthier options. With increasing awareness about the health risks of sugary carbonated drinks, consumers are moving toward non-carbonates like juices, flavoured water, and functional beverages. This trend has positioned the NCB segment as the biggest beneficiary of this shift in preferences.

Industry market share within CSD category:

Industry market share within the packaged water category:

 

Industry market share within packaged juice category:

PepsiCo, in particular, is well-placed to ride this wave. It has a strong portfolio of non-carbonated beverages, from juices under the Tropicana brand to packaged water like Aquafina, and even energy drinks like Sting. With a robust pipeline of new product launches, PepsiCo is doubling down on the NCB opportunity.

Making sense of Varun Beverages’ business

Varun Beverages plays a crucial role in the success of PepsiCo’s beverage empire in India and beyond. As one of PepsiCo’s largest bottling partners globally, Varun Beverages doesn’t just bottle soda—it manages the entire journey from factory to shelf.

PepsiCo supplies the concentrate—the secret formula behind its drinks—while Varun Beverages takes on the complex tasks of manufacturing, bottling, and distributing these products. With an extensive network of 48 bottling plants and access to over four million retail outlets, Varun Beverages ensures that every Pepsi, Mountain Dew, and Tropicana finds its way to consumers across its markets, including India, Sri Lanka, Nepal, and Africa.

But it’s not just about scale.

Varun Beverages’ success comes from efficiency. They’ve built a streamlined operation that balances high production capacity with effective logistics, allowing them to generate ~ ₹20,000 crore in revenue in FY25, compared to just ~ ₹4,000 crore in FY16. This growth isn’t accidental—it’s the result of careful execution in a complex, competitive industry.

At this point, let’s take a detour to understand PepsiCo’s business model.

PepsiCo’s business model: The art of focused outsourcing

While PepsiCo is known for its drinks, its true expertise lies in creating brands that resonate with consumers globally. From Pepsi to 7UP and Gatorade, PepsiCo’s strength is in product innovation and marketing. Yet, as a global giant, managing every aspect of production and distribution across diverse markets would be impractical.

This is why PepsiCo doesn’t own bottling plants or distribution networks in most markets. Instead, it partners with specialized bottlers like Varun Beverages to handle these capital-intensive and logistically challenging tasks.

This setup allows PepsiCo to:

-Focus on product development and branding.

-Operate with lower capital requirements.

-Rely on bottlers’ expertise in local markets, where nuances in consumer behaviour and infrastructure can make or break sales.

By outsourcing bottling, PepsiCo remains asset-light, nimble, and focused on its core mission: building global beverage brands.

Why bottlers like Varun Beverages are essential

Running a beverage business isn’t just about creating a great product; it’s about delivering that product efficiently to millions of customers across urban and rural markets. This is where bottlers like Varun Beverages step in.

Bottlers handle the capital-heavy side of the business—building plants, maintaining fleets of delivery vehicles, and negotiating with retailers. They also bring local market expertise, ensuring that products are distributed efficiently in regions with diverse logistics challenges.

How PepsiCo ensures bottlers stay aligned

PepsiCo ensures its bottlers, like Varun Beverages, stick to its standards through a well-structured system.

It grants exclusive rights to bottlers for specific regions—Varun Beverages handles over 85% of PepsiCo’s distribution in India—eliminating internal competition and ensuring focus. Revenue sharing aligns their goals: Varun Beverages pays 14% of net revenues as royalties, 8% for PepsiCo’s concentrate, and another 6% each on above-the-line (ATL) advertising like TV campaigns and below-the-line (BTL) promotions like in-store branding. For products like Aquafina and Evervess Soda, royalties are 1.3% and 1%, respectively.

For more such analysis, read Profit Pulse.

PepsiCo also enforces strict standards for quality, pricing, and distribution, requiring bottlers to meet its expectations across over four million retail outlets in Varun Beverages’ case. Underperformance can lead to losing exclusive rights. This system ensures bottlers operate independently while staying tightly aligned with PepsiCo’s goals, creating a win-win partnership that drives growth and consistency.

How Varun Beverages delivered 25x returns in eight years, and can it continue?

Varun Beverages has been a phenomenal wealth creator, delivering almost 50% CAGR over the last eight years. This impressive growth comes from its efficient business operations and strong partnership with PepsiCo. But here’s the big question: Can it keep delivering solid returns in the next decade? Let’s break it down.

Can PepsiCo’s brands keep dominating?

It’s very likely. In the FMCG world, it’s incredibly tough for a new entrant to break in and dominate a category overnight. Why? Because distribution is expensive, and the cost of promotions—whether through in-store displays or large-scale advertising—is massive.

PepsiCo is already doing all this exceptionally well. While there’s always competition between existing players like Coca-Cola and PepsiCo, it’s rare for a completely new player to come in and take over. Even if one brand loses a bit of market share in a category, PepsiCo and Coca-Cola are so big that they usually just buy out the competition.

A great example is Sting Energy. Originally part of Rockstar Inc., it was acquired by PepsiCo in 2020. This strategy of diversification helps PepsiCo expand its portfolio and cater to evolving consumer preferences.

Varun Beverages, too, is diversifying. In 2018, it acquired the rights for Quaker Oats Milk from PepsiCo, though it was later discontinued. Varun Beverages also runs Creambell, a dairy brand licensed from Devyani Foods. For this, Varun Beverages pays ~1% of wholesale prices to PepsiCo to use its infrastructure for manufacturing and distribution. With the growing awareness around healthier consumption habits, products like flavoured milk and non-carbonated energy drinks are expected to gain traction. Varun Beverages’s management believes these categories could contribute significantly to sales over the next decade.

International markets: A huge growth opportunity

Varun Beverages isn’t just about India any more. The company has franchise rights for PepsiCo products in markets like Nepal, Sri Lanka, Morocco, Zambia, and Zimbabwe. These are relatively untapped markets with immense growth potential.

Varun Beverages’ India vs international business

Over the past five years, VBL has been making steady progress internationally, with volume growth of 22% CAGR from 2017 to 2022. What’s even better is the seasonal offset—while India’s peak beverage demand is in the summer, peak seasons in Morocco, Zambia, and Zimbabwe fall during different times of the year. This helps smooth out the seasonal nature of the business.

In FY23, international markets already contributed ~24% of VBL’s revenue, and this share is expected to grow as the company deepens its presence in these regions.

Margin improvements: The secret sauce

Margins are where Varun Beverages truly stands out. Globally, bottlers typically operate with slim margins. For example, the Coca-Cola Bottling Company in the US operates with a net margin of just ~6%, and its price-to-sales ratio is around 1.5x. In contrast, Varun Beverages enjoys margins of over 20% Ebitda and commands a price-to-sales multiple of 10x.

This margin strength comes from two key areas:

Higher margins in juices and water: Compared to carbonated drinks, juices and water deliver better margins. With growing consumer awareness around health and a shift toward NCBs, this segment is expected to grow faster, helping Varun Beverages maintain or improve its overall margins.

Operational efficiency: Varun Beverages’ scale, backward integration, and cost controls have allowed it to achieve margins that are unheard of for bottlers globally.

Varun Beverages’ operating and net profit margin

Can sales hit ₹40,000 crore in five years?

At its current growth rate, this seems achievable. Varun Beverages already holds 15% of India’s non-alcoholic beverage market, and with a strong push in non-carbonated segments and continued international expansion, it’s likely to gain a few more percentage points in market share.

Adding to this is the growth in India’s beverage market itself, which is still far smaller than global peers like China. International markets, which are less saturated, will further boost sales. A 15% CAGR in revenue over the next five years seems realistic, which would bring Varun Beverages’ sales to around ₹40,000 crore.

What could go wrong?

Of course, no growth story comes without risks. The biggest potential challenges for Varun Beverages would be:

PepsiCo’s brand decline: If PepsiCo’s products lose relevance or fail to innovate, it could affect Varun Beverages’ growth. However, given PepsiCo’s strong track record of staying ahead of consumer trends, this seems unlikely.

PepsiCo revoking rights: Theoretically, PepsiCo could take away Varun Beverages’ franchise rights, but that would disrupt PepsiCo’s operations in one of its most important markets. This, too, is a slim possibility.

Why Varun Beverages still looks like a great opportunity

If you missed the incredible returns over the past eight years, don’t worry—it seems like there’s still a lot of juice left in this bottle (pun intended). Varun Beverages’ strong execution, expanding portfolio, international growth, and industry-leading margins make it a solid long-term play.

With sales growth likely to hit ₹40,000 crore in the next five years and margins expected to hold steady, VBL seems poised to maintain its premium valuation. While risks exist, the chances of PepsiCo or its brands faltering are slim, making this a compelling investment story for the years ahead.

Note: We have relied on data from the annual report and industry reports for this article. For forecasting, we have used our assumptions.

The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only. The views expressed are my own and do not reflect or represent the views of my present or past employers.

Parth Parikh has over a decade of experience in finance and research, and he currently heads the growth and content vertical at Finsire. He has a keen interest in Indian and global stocks and holds an FRM Charter along with an MBA in Finance from Narsee Monjee Institute of Management Studies. Previously, he has held research positions at various companies.

Disclosure: The writer and his dependents do not hold the stocks discussed in this article.