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Our analysis of CY24 AR suggests that VBL is making big investments to capture industry tailwinds, expand new categories, and ramp-up its presence in Africa, with recent acquisition of rights for South Africa/Tanzania regions. With likely commissioning of 4 more plants, VBL’s peak-month capacity is ~65% higher ahead of CY25 season vs CY22, which remains a big edge in times of high competitive intensity. In addition, focus remains on serving the market better with consolidation of distributors and distribution expansion with accelerated visi-cooler placements (up ~15% in CY24). Initial trends in acquired territories is encouraging with South Africa delivering double-digit growth in CY24 and Tanzania seeing growth acceleration with introduction of new PET lines (vs glass). Among other major geographies, Sri-Lanka is back on a strong growth trajectory, Zimbabwe should see growth revival in CY25 after implementation of Sugar Tax in mid-CY24, while Morocco continues to see robust trends. With an ESG focus, VBL is light-weighting its SKUs, reducing sugar/water usage, and investing in renewable energy, which are enabling growth and driving margin gains. Operating cash flows remain healthy at 85-90% of post-tax EBITDA, while capacity expansion drove negative FCF. RPTs aligned with historical trends in CY24. We remain confident of continued healthy growth trends for VBL, albeit heightened competitive intensity can impact near-term margin of the India business. We maintain BUY on upgrade potential to street numbers.

Big capacity/distribution expansion provides scope for earnings beat:

Through the CY22-CY25 seasons, VBL has incurred a capex of ~Rs100bn toward 10 greenfield plants (incl CWIP plants in Buxar, Mandi, Gorakhpur, and Meghalaya), and 9 brownfield expansions (incl international). Such big investments have expanded VBL’s capacity by ~65% over CY22-25 and a normal summer can positively surprise the street estimates for CY25. Related-party transactions were mainly with SMV Group; however, the same remained stable and in-line with historical trends.

Focused ESG investments driving cost savings and growth investments:

VBL is making focused ESG investments toward reduction of water usage, non-renewable energy, plastic, and sugar. In line with investments, the water usage ratio has declined to 1.56x (per liter of beverage produced) from 1.94x in CY19, with a target of reaching 1.40x by CY25. VBL is also light-weighting pre-forms/closures by 6-15% across SKUs vs CY15-19. VBL also aims to increase its r-PET usage to 30% by CY25, through backward integration and a JV with Indorama. VBL aims to service 25% of its utility needs via renewable resources by CY30 (from 16%/7% in CY24/CY20). Focused launches are also driving improved mix in favor of low/no-sugar products (53% vs 40% YoY).

International business making a healthy bottom-line contribution:

International geographies are now contributing encouragingly to PAT, albeit the subsidiary PAT contribution dipped to ~16% in CY25 vs ~18% in CY24, whereas rev mix increased to ~33% due to South Africa acquisition (vs 25% in CY24). Lower PAT mix is likely due to weakness in Zimbabwe (sugar-tax) and current weak PAT profile of acquired SA business. Morocco continues to see strong momentum with 22% topline growth, Sri-Lanka has seen healthy growth acceleration (40% in CY24), while FX fluctuation/sugar-tax has likely impacted Zimbabwe/Zambia’s profitability. Despite flat topline in Nepal, PAT expanded ~2.0x vs CY24 on better margins and lower tax. Despite heat waves impacting peak-CY24 season, India business saw decent PAT growth at ~30% on under penetration, expanded distribution, and a 200bps margin gain amid better revenue mix and cost-saving initiatives.

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