Consumption demand in the rural markets has been in distress over the last few years from the demonetization of 2016 to the liquidity crisis in 2018 and the onslaught of Covid19 epidemic in 2020. The rural sector has been seeing erratic growth and low consumption volume over the last few years on the back of significant inflation impacting particularly the low-income households and demand environment. On the other hand, urban markets have been growing rapidly with premiumization as a key focus adopted by most FMCG companies. The year 2024 has turned out to be a decent year for the rural sector with after a gap of nearly six quarters, rural demand has outpaced the urban demand with many Research reports indicating a 7.6% rise in demand year on year for the three months ending March 2024. FMCG companies have been expanding their outreach in the rural sector in broadening their product offerings by introducing new affordable and rural-specific packaging across various categories.
Moreover, with the onset of moderation in inflation the demand environment is gradually picking pace and returning to normalcy. FMCG companies have been deepening their reach by penetrating small towns and large villages and increasing their distribution points. FMCG companies are bullish on increasing consumption demand during the FY 2024-25 due to the formation of the new government at the center and the continuity of existing policies and reform process. With improvement in macroeconomic indicators, the prospect of a normal monsoon across the country and visibility of green shoots witnessed in rural demand after a gap of nearly six quarters definitely bode well for a revival in consumer demand. Sales of beverages is in hot demand for FMCG companies as suppliers are struggling to keep pace due to the blistering heatwave scorching a large part of the country. With temperatures crossing the 50-degree mark in some parts of the country, beverage companies are expecting a very strong summer and growing demand for summer-centric products .
Varun Beverages Limited is part of the RJ Corp Group and a key player in the Indian beverage industry and one of the largest franchisees of PepsiCo in the world outside of USA . Varun Beverages has been associated with PepsiCo over the last three decades increasing the number of licensed territories, producing and distributing a wider range of beverages and expanding the distribution network. PepsiCo brands produced and sold by Varun Beverages include Pepsi, Pepsi Black, Mountain Dew, Sting, Seven-Up, Mirinda Orange, Seven-Up and Nimbooz Masala Soda , Tropicana Slice, Tropicana Juices , Seven-Up Nimbooz, Gatorade as well as packaged drinking water under the brand Aquafina.
It has a franchise for various PepsiCo products across 27 States and 7 Union Territories in India and territories of Nepal, Sri Lanka, Morocco, Zambia and Zimbabwe. Varun Beverages reported a revenue growth of 11% year on year for Q1FY25 led by a 7% year-on-year volume growth. EBITDA margins expanded by 240 basis points year on year led by improved gross margins. The company has been quite investor friendly with regular bonus issues on the back of solid financial performance. The Varun Beverage stock currently quoting at Rs 1520 on the bourses can be accumulated by portfolio investors for a 35% price appreciation in the next six to nine months time frame.