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Grabbing opportunities, nailing execution

India business – play on portfolio and distribution expansion: VBL’s share in PepsiCo’s soft drinks total volume sales in India increased to c.90% in CY24, up from <30% in CY11 – a function of geographic expansion and superior execution on go-to-market (GTM) and supply chain. While territory acquisitionled growth opportunity is not much, we see multiple growth drivers in India – a) leveraging Pepsico’s innovation capabilities to scale up presence in noncarbonated beverages (NCB), energy drinks – success visible from performance of Sting & Tropicana, b) headroom to expand disitrbution (outlet reach of 4mn vs. universe of 10mn and visi-cooler presence of 1.1mn) – targeting to add 300k-400k retail outlets and 0.1mn visi-coolers per annum, and c) expand/optimise manufacturing capabilities to ensure better servicing of the market. We expect current level of healthy margins to sustain given initiatives in backward integration, low sugar usage and enhanced market reach.

Doubling down on Africa: The Africa growth story is shaping really well with VBL prudently tapping into the large opportunity (headroom to acquire newer territories and gain market share given PepsiCo’s relatively weaker share vs. Coca-Cola). With well demonstrated execution in Zimbabwe, Zambia, & Morocco VBL has become a preferred choice as a franchise partner in Africa too – this is evident from acquisition of rights in large geographies like South Africa and Tanzania, and capacity expansion in Congo. Apart from scale-up in these three large geographies, the foods business (currently not factored in our estimates) can become another major growth driver over the long term - three manufacturing plants coming up in Zimbabwe, Zambia and Morocco with revenue potential of USD 100mn {combined TAM of these three regions is USD 800mn} and optionality to get rights for foods in more territories.

An execution powerhouse; initiate with ‘BUY’ and TP of INR 725: The recent fund-raise through QIP is EPS accretive (by c.7%, despite dilution of c.4%) interest cost savings from debt repayment which is what we have factored in our CY25E. While we await more data points on Tanzania acquisitions, our base case calculations suggest marginal accretion to CY25/26E EPS. With strong execution sustaining, we expect consolidated sales to grow at a CAGR of 18.7% aided by 16.6% volume CAGR over CY24-26E. While margin expansion from current healthy levels is unlikely given the focus on driving volume growth, interest cost savings will drive higher earnings CAGR of 29%, much better vs global peers & highest among our staples/F&B coverage universe. We initiate coverage on VBL a BUY rating and TP of INR 725, valuing at (55x Dec’26E EPS, +1 SD above 5 yr avg).

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