Volumes are popping, but pricing is going flat—and that's putting Varun Beverages in a tricky spot. Brokerages remain broadly positive on the PepsiCo bottler's long-term prospects, but a spate of recent target cuts reflect rising concern over realisations, discounting, and margin sustainability—making the upcoming summer season a key inflection point for the stock.
Brokerage commentary points to a growing disconnect between demand strength and pricing power. Varun Beverages continues to report robust volume growth across India and international markets, aided by wider distribution, affordability-led strategies and portfolio refreshes. However, higher discounting, SKU resizing and an increasing mix of lower-priced packs are weighing on average realisations and margins.
Recent quarterly performance reinforced this trend. While consolidated revenues and EBITDA grew at a healthy pace on the back of double-digit volume growth, India realisations declined year-on-year, prompting analysts to revisit earnings assumptions despite resilient demand.
Target Cuts, But Long-Term View Intact
Morgan Stanley cut its price target to Rs 522 from Rs 600, citing lower Indian segment growth assumptions and near-term earnings downgrades. The brokerage lowered its CY26 and CY27 revenue estimates for India and trimmed earnings forecasts, but retained an Overweight rating, arguing that valuation remains attractive relative to long-term growth potential.
Morgan Stanley's risk-reward framework highlights a base-case value of Rs 517, assuming sustained volume growth with gradual margin normalisation. Its bull-case scenario of Rs 652 factors in stronger-than-expected revenue growth, successful new launches and improved competitive dynamics, while the bear-case value of Rs 326 reflects heightened competition, prolonged pricing pressure and weaker execution in international markets.
Citi also turned more conservative, cutting its target price to Rs 575 from Rs 675 after lowering earnings estimates on weaker realisations. Still, it reiterated a Buy rating, noting that volume growth remains resilient and operating leverage should support profitability once pricing pressure eases.
Investec maintained its Buy call with a slightly reduced target of Rs 562.3. The brokerage highlighted robust volume-led growth, improving return ratios and multiple growth levers-from portfolio initiatives and distribution expansion to international scaling-despite near-term margin pressure from SKU resizing and higher staff costs.
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Among the more cautious brokerages, Jefferies cut its price target and outlined a clear 12-month risk-reward framework, while maintaining a Buy rating. Jefferies' base case pegs the stock at Rs 550, assuming around 11% annual revenue growth over CY24-27 with flat margins. Its upside scenario values the stock at Rs 600, based on stronger revenue growth of about 13%, 80 basis points of margin expansion, and faster EBITDA growth. On the downside, Jefferies sees a valuation of Rs 400, assuming slower revenue growth of roughly 9%, 50 basis points of margin contraction, and lower valuation multiples.
Jefferies flagged an upside-to-downside skew of roughly 2:1, but stressed that pricing discipline, competitive intensity and execution through the upcoming summer will be critical swing factors.
India Watches Pricing, Innovation Supports Volumes
In India, brokerages expect volumes to remain steady, supported by distribution expansion and new product launches. Portfolio initiatives such as Nimbooz Jeera are seen as positive for driving incremental demand and expanding consumption occasions, particularly in urban and semi-urban markets. However, analysts caution that launches at sharper price points could keep realisations under pressure in the near term.
International markets continue to act as a buffer. Africa and other overseas geographies are delivering strong volume growth, backed by capacity additions, improved execution and deeper market penetration. South Africa is increasingly viewed as margin-accretive over the medium term, helping offset domestic pricing headwinds.
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