IGI Logo

Underpenetrated market paving the way for growth

VBL has a diversified growth strategy, with multiple levers in place to drive its long-term growth. We expect volume growth momentum to continue, with: a) a gradual gain in market share on increasing penetration in underpenetrated markets, b) higher acceptance of recently launched products, and c) ramp-up of operations in new regions (South and West India). Key insights are highlighted below:

Greenshoots will continue to propel growth

We expect the out-of-home consumption mix for VBL to return to normal levels (~65%) after the lifting of COVID-related restrictions, with increasing intensity in domestic and international travel.

Apart from increasing out-of-home consumption in existing territories, the pick-up in volumes in the newly acquired territories of South and West India will drive overall sales volumes as these markets have not seen normal sales after their acquisition due to the COVID-19 pandemic. Strong demand for newly launched products (Mountain Dew – Ice, Sting, and Dairy Beverages) will continue to grow at a faster pace

At the time of acquisition (in CY19), South and West India recorded volumes of 135m units v/s 205m units in the preceding two years. VBL plans to achieve similar volumes over the next one-to-two years. Post that, its focus will be to increase penetration levels, which, in turn, will support volume growth.

Around 90% of sales occur via the general trade channel and the balance from the HORECA segment and modern trade channel, whose performance is expected to improve. Lower occupancy in theaters and COVID-related travel restrictions are affecting HORECA volumes. Going forward, it expects to see a strong recovery in this segment as travel increases.

The company saw an increasing volume mix (~5%) from Sting, which is a relatively new addition to its portfolio. Product launches (Mountain Dew – Ice), ambient temperature dairy beverages, etc., were unable to make a significant contribution as the soft launch was impacted by COVID-related restrictions. With the lifting of lockdown restrictions, VBL aims to aggressively distribute and market these products.

The company signed a co-packing agreement to manufacture ‘Kurkure Puffcorn’ for PepsiCo India Holdings in Feb’22. Kurkure is a brand of crunchy puffs made up of rice, lentils, and corn. It is produced and marketed by PepsiCo India. VBL is setting up a new manufacturing facility in Uttar Pradesh at a dedicated capex of INR200-250m. This is the first time that it has ventured into the manufacture of nonBeverages. Pepsi’s Snacking business is valued at INR40-43b as per industry sources. In the long-term, the company may acquire additional manufacturing and distribution rights of other food products of PepsiCo. The contribution of this business in the short-term is neither significant to revenue nor profit.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer