Varun Beverages - Hungry For More; Scaling Up Snack Food Business: Motilal Oswal

Motilal Oswal Report

Varun Beverages Ltd. has inched closer to its goal of becoming a full-scale food and beverage player with the recent agreement with PepsiCo to manufacture, distribute, and sell snack food items in Zimbabwe and Zambia.

We believe this agreement will serve as a building block for Varun Beverage’s snack food business.

This is an exclusive snacks franchising agreement with PepsiCo to manufacture, distribute, and sell snack foods under the brand name “Simba Munchiez” in Zimbabwe and Zambia.

Varun Beverages will set up a 5,000 million tonnes per annum manufacturing capacity in each location for aggregate capex of ~Rs 1.2 billion.

The total addressable market for Varun Beverages’ snack food division has expanded by 67% with the addition of two new geographies (versus only Morocco earlier). The snack food products market in these geographies is valued at ~$833 million (aggregate) in CY24. This region accounts for ~6.5% of Africa’s snack market size of $12.9 billion, which is expected to clock an ~8.1% CAGR over CY24-29E. PepsiCo, which holds the highest market share globally in this segment (as of CY23), will be a perfect partner for Varun Beverage to tap into this massive opportunity.

Going ahead, we believe Varun Beverages and PepsiCo may expand their partnership in this segment, especially within the African continent, where PepsiCo does not have any manufacturing partner and primarily relies on imports.

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