Varun Beverages has corrected c.30% from its peak – a function of weak demand and rise in competitive intensity with aggression from Campa on pricing, channel margins, media visibility and distribution expansion. As per our checks: a) Campa is targeting states with higher salience of mass-end consumer/regional brands, b) within carbonated beverages, Campa has seen traction in INR 10 SKU (OOH consumption); while in large packs (in-home consumption), PepsiCo/Coca-Cola remain preferred brands, c) impact is likely to be higher in mass/mid segment packaged water/soda segment where regional brands have higher play and consumer pricing/product availability is more important than brand, & d) driving profitability in INR 10 PET remains a challenge. In CSD, brand equity, taste/flavours and availability are key elements for success. The latter part, especially, requires a strong manufacturing and distribution capability that further strengthens the brand, and VBL has built the same over a decade. Hence, Campa’s execution on these parameters needs to be monitored. Overall, India remains a key ‘Anchor market’ for Pepsico Inc. We believe VBL has many levers for growth in the domestic business (capacity/distribution/portfolio expansion), and the Africa opportunity is large and well intact. Moreover, a strong summer augurs (link) well for both the segment and VBL. Hence, we believe the recent correction is overdone and the prevailing market pessimism should be used as an opportunity to Add.
Leave a Reply