With Varun Beverages foraying into contract manufacturing for Pepsi’s snack brand Kurkure Puffcorn, most of the brokerages’ term it a small-step towards growth and also see an potential upside with in the shares of the company up to 31 per cent with positive near-term outlook. 

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On February 28, 2022, the company's board approved the proposal to enter into an agreement to manufacture 'Kurkure Puffcorn' for PepsiCo India Holdings Private Limited as a part of their network of co-packers. Kurkure is a brand of crunchy puffs made up of rice, lentil and corn. 

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Varun Beverages is a key player in beverage industry and one of the largest franchisee of PepsiCo in the world (outside USA). 

ICICI Direct  

Depending on the Varun’s progress in Kurkure Puffcorn business, we expect Pepsi to offer more products and regions to the company. While Varun Beverages has not worked on foods portfolio earlier, The brokerage house believe Jaipuria group has strong understanding of foods value chain due to other group companies like Devyani and Cream bell dairy.  

We continue to stay positive on the company due to its competitive advantages and strong relationships with Pepsi. We model Varun to report a PAT CAGR of 29.3 per cent over CY21-23E with an improving RoE.  

The brokerage maintains ADD with a revised DCF-based target price of Rs 1,030 per share, with an upside of over 14 per cent (38x CY23E). The stock on Monday closed over 3 per cent lower to Rs 903 per share on the BSE, as compared to 2.74 per cent fall in the BSE Sensex. 

Kotak Institutional Equities 

The company has forayed into manufacturing and packaging of PepsiCo’s ‘Kurkure Puffcorn’ a small step that offers significant LT potential. Even as VBL’s role is limited to contract manufacturing of one product at this point, the scope of this partnership can expand over time given: 

*Varun’s distribution and execution strength 

*Relationship with PepsiCo 

* Track record of converting optionality into reality.  

The brokerage likes Varun Beverage’s execution and management’s relentless focus on unlocking future growth engines and maintains a Buy stance with a target price of Rs 1100 per share, upside of around 22 per cent. 

Motilal Oswal 

VBL has a diversified growth strategy, with multiple levers in place to drive its long-term growth. The brokerage expects volume growth momentum to continue, with gradual gain in market share on increasing penetration in underpenetrated markets; higher acceptance of recently launched products, and ramp-up of operations in new regions (South and West India).  

The company saw an increasing volume mix (around 5 per cent) 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.  

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.