Varun Beverages: Buy, hold or sell VBL shares post Twizza acquisition?

Emkay Global on Monday maintained its 'Buy' rating on Varun Beverages (VBL) and raised its December 2026 target price by 7 per cent to Rs 615 from Rs 575 earlier, saying the Twizza acquisition strengthened VBL’s international growth runway and offered meaningful value creation.

“The valuation of the acquisition is attractive and largely in line with VBL’s historical deals, offering a 5x–6x value creation opportunity,” Emkay said, adding that this translated into around 3-4 per cent of VBL’s market capitalisation.

The brokerage said VBL’s strong balance sheet, with the company now net debt-free compared with a historical debt-to-equity ratio of around 1 time, provided ample headroom to pursue further value-accretive growth opportunities.

VBL has acquired a 100 per cent stake in Twizza, which manufactures and distributes its own branded non-alcoholic ready-to-drink (NARTD) beverages in South Africa. “With this acquisition, VBL’s volume market share in South Africa is expected to rise to around 20 per cent by CY27E from about 10 per cent currently,” it said.

Among new geographies, Emkay said South Africa gained significance as its NARTD market is large, at around 40 per cent of India’s market, though growing at a slower pace of about 3 per cent volume CAGR.

“Despite the maturity of the market, we remain confident of market-share-led double-digit volume growth, backed by VBL’s proven turnaround capabilities,” the brokerage said, citing its success in Zimbabwe and Nepal, where VBL now commanded more than 50 per cent market share after starting from scratch.

Emkay also highlighted pricing upside, noting that “portfolio-led pricing gains represent a meaningful opportunity, given that VBL’s realisations in South Africa are around 50 per cent lower than those of Coca-Cola Beverages Africa.” It added that Twizza’s backward integration across all three of its manufacturing facilities and potential cluster-based cost synergies should support margin improvement for its existing operations, where margins were about 13 per cent compared with around 23 per cent for VBL.

The brokerage said South Africa remained a large but mature consumption market, with volumes of about 125 crore cases in FY24, high urbanisation of around 70 per cent, and per-capita consumption of nearly 100 litres per annum, about four times that of India. “Improved brand investments, product mix and go-to-market execution should aid market share gains and allow better penetration of high-realisation, high-margin PepsiCo products,” Emkay said.

On the broader region, Emkay said Africa continued to be a large long-term opportunity for PepsiCo bottlers. “PepsiCo’s relatively low penetration in Africa and the presence of fragmented regional competition create scope for sustained growth through improved affordability, affinity and availability,” it said, while reiterating confidence in VBL’s ability to consistently outperform FMCG peers and create value in international markets.