Detailed Rationale

Crisil Ratings has reaffirmed its rating on the long-term bank facilities of Varun Beverages Limited (VBL; part of the Varun Beverages group) at ‘Crisil AAA/Stable’.

 

VBL operating performance continues to remain healthy with net revenue growth of 8% year-on- year to Rs 21,714 crores in calendar year 2025 from Rs 20,151 crore in calendar year 2024, driven by international volume growth of 23.3% to 374 million cases (30.8% of total volumes). The volume growth in international markets was driven by strong growth across African territories with ramp up of BevCo. Furthermore, acquisition of Twizza (Pty) ltd in March 2026, should help increase the international revenues over the medium term. Domestic volume growth remained modest at 2.2% in calendar year 2025 due to early onset of monsoons, however, Crisil Ratings expects revenues to grow by double digits in calendar year 2026 supported by increasing domestic penetration and a growing international portfolio.

 

The EBITDA margins increased to 24.5% in calendar year 2025 compared to 24.1% in calendar year 2024 due to better operating leverage, backward integration and cost optimisation measures implemented by the company. The margins are expected to remain at a similar level over the medium term, supported by prudent raw material sourcing strategies, improved scale of operations, better operating leverage, cost optimization measures, and realization growth in select product segments.

 

The financial risk profile remains strong, driven by a healthy gearing ratio of 0.11x and debt-to-EBITDA of 0.38x in CY25, supported by a robust net worth. Crisil Ratings expects the debt-to-EBITDA ratio to stay below 0.5x over the medium term, fueled by accretive cash flows driven by improved penetration in existing territories, product diversification and growing international presence. However, currency fluctuations and geopolitical scenario in Africa remain  monitorable.

 

The ratings reflect the leadership position of the Varun Beverages group in the franchisee operations of PepsiCo, diversity in geographical reach, strong financial risk profile and robust operating efficiency. These strengths are partially offset by susceptibility of business to changes in regulations, customer preferences, risks of currency fluctuations and adverse geopolitical scenario in Africa as contribution from this region increases.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of VBL and all its subsidiaries. All these entities, collectively referred to as the Varun Beverages group, have business and financial linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers - Strengths

Market leadership and geographical diversity in domestic and global markets

Consistent ramp-up in operations via organic and inorganic routes has helped VBL significantly strengthen its market position and enhance geographical diversity. The Varun Beverages group is the second largest franchisee for PepsiCo outside the US and the largest in India. Following the acquisition of the southern and western territories of PepsiCo in 2019, VBL has presence in 26 States and six union territories in India (except Andhra Pradesh, Jammu and Kashmir and Ladakh), accounting for more than 90% of the beverage sales of PepsiCo in India. It also has sole franchisee operations in Nepal, Sri Lanka, Morocco, Zambia and Zimbabwe. Furthermore, VBL continues to expand internationally and has incorporated new subsidiaries in DRC, Kenya and in South Africa in last two years. Through its acquisition of BevCo in South Africa, VBL gained franchise rights in South Africa, Lesotho and Eswatini and distribution rights in Botswana, Namibia, Mozambique and Madagascar. The company also acquired Twizza (Pty) ltd in March 2026, which should help increase footprint in South Africa. Expansion in Africa will help VBL counter the seasonality of sales and diversify its revenue streams. Additionally, the company has entered into an exclusive snacks franchising agreement with PepsiCo for its territories in Morocco, Zimbabwe, and Zambia and has signed exclusive distribution agreement with Carlsberg Breweries A/S for African markets. This will help the company in enriching the portfolio and leveraging synergies with its existing infrastructure. However, with the growing share of revenue from Africa, currency fluctuations and geopolitical scenario in Africa will remain monitorable.

VBL has over 15 brands across carbonated soft drinks (CSD), non-carbonated beverages and packaged drinking water segments, with CSD contributing to ~74% of the volume in calendar year 2025. The non-carbonated drink portfolio consisting of juice-based drinks, sports drink and ambient temperature value-added dairy beverages. VBL has expanded the capacity of non-carbonated drink portfolio at four greenfield plants at Uttar Pradesh, Himachal Pradesh, Bihar, and Meghalaya in CY25.

 

Benefits from the dominant position of VBL in the franchisee operations of PepsiCo in India, extensive domestic distribution network and overseas geographies will continue to aid the business.

 

Robust operating efficiency

The group continues to derive efficiency from backward integration of operations, with facilities to manufacture crown corks, PET pre-forms, corrugated boxes, shrink wrap sheets, plastic cap closures and plastic shells. Furthermore, presence in contiguous territories helps efficiently manage logistics and other operating costs and maintain the economies of scale. EBITDA margins increased to 24.5% in 2025 from 24.5% in 2024, supported by better operating leverage, cost optimisation measures and realisation growth in a few product segments. The margins are expected to remain at a similar level over the medium term, supported by prudent raw material sourcing strategies, improved scale of operations, better operating leverage, cost optimization measures, and realization growth in select product segments.

 

Strong financial risk profile

The financial risk profile has strengthened with the issuance shares through QIP of Rs 7,500 crore in November 2024. Financial risk profile continues to remain strong supported by healthy gearing and TOL/TNW at 0.11 times and 0.32 times in CY25 as against 0.15 times and 0.42 times in CY24, supported by strong networth. Debt to EBITDA continues to remain healthy at 0.38 times in CY25. Crisil Ratings expects the debt to operating Ebitda ratio to sustain below 0.5 time over the medium term, despite the capex and acquisition, supported by accretive cash flow due to better penetration in existing territories, product diversification and geographical expansion strategies deployed by the group. However, any large, debt-funded capex continues to be monitorable.

Key Rating Drivers - Weaknesses

Susceptibility of business to changes in regulations and customer preferences

The domestic beverage industry remains susceptible to regulatory changes regarding the content in soft drinks and the increasing environmental concerns over ground water depletion and discharge of effluents by bottling plants in India. Evolving environmental concerns like disposal of plastic bottles may have a continuing impact on industry. The company has expanded from CSD to non-CSD category with presence in juice-based drinks, sports drinks and value-added dairy beverages as it plans to cater to customer preferences across categories. Even catering to a wide variety of taste preferences of the consumers in new geographies may involve higher spending advertising and promotion efforts that may lead to variations in return expectations over the medium term.

 

Susceptibility to forex fluctuations and adverse geopolitical scenario in African territories as contribution from these regions increases

While VBL's revenue streams are presently dominated by domestic operations, the company's international footprint is anticipated to expand gradually, driven by the ramp-up of its Bevco and DRC facilities, as well as forthcoming acquisitions in Africa. To mitigate potential risks associated with international operations, VBL employs a natural hedging strategy, wherein revenues and most of the expenditures are denominated in local currencies, and debt is typically incurred in the same currency. Any further impact of currency is usually passed on to the consumers through price hikes. Furthermore, the company's international operations are concentrated in regions that are not subject to US sanctions. VBL also has established a proven track record of operating successfully in Africa, having maintained franchise rights in Morocco, Zambia, and Zimbabwe since 2018. Nevertheless, any significant geopolitical developments that could potentially impact the company's business risk profile will remain monitorable.

Liquidity Superior

Cash accrual remains healthy at Rs 3771 crore for calendar year 2025 (Rs 3257 crore in the previous year). With ramp-up of capacities and scale-up of new territories, Crisil Ratings expects the cash accrual to remain healthy in calendar year 2025. The repayments are expected to be minimal at Rs 100-120 crore in calendar year 2026. Furthermore, overall working capital requirement of VBL remains moderate. Cash and bank balance was around Rs 1600 crore as on December 31, 2025. Utilisation of bank lines (sanctioned limit of Rs 880 crore) was 0% on average over the six months through January 2026.

ESG Profile

Environment, social and governance (ESG) profile

The ESG profile of VBL supports its strong credit risk profile. The fast-moving consumer goods sector has a moderate environmental and social impact, primarily driven by plastic waste generation, intensive water usage and direct impact of its products on the health and wellbeing of its customers.

 

Key ESG highlights

• VBL has implemented phase-wise recycling of used PET bottles, has recycled 100% of its used PET bottles sold in calendar year 2025.
• VBL aims to increase the contribution of renewable energy to 30% of the overall energy consumption by 2030, from base year of 2021. In 2025, renewable energy contribution increased to 21%, up from 16% in 2024.
• VBL aims to reduce water usage ratio to 1.40 times by 2030 from 1.89 times in 2021 and has implemented several measures toward water conservation. Water usage ratio was 1.50 times in 2025.
• In order to sustain the water recharge at 2.0 times of the total water consumption, VBL has maintained more than 300+ water bodies.
• VBL has implemented the prevention of sexual harassment and corporate social responsibility policies. It had nil sexual harassment cases files in 2025.
• The company’s governance structure is characterised by 60% of its board comprising independent directors, dedicated investor grievance redressal system and extensive disclosures.
• VBL has committed to achieving Net Zero emissions by 2050, with its net-zero targets officially validated by the Science Based Targets initiative (SBTi).
• The company is recognised by CDP, with an A- rating for Climate, A- rating for Water Security, and an A rating in the Supplier Engagement Assessment in the year 2025.

 

There is growing importance of ESG among investors and lenders. The commitment of VBL to the ESG principle will play a key role in enhancing stakeholder confidence given shareholding by foreign portfolio investors and access to both domestic and foreign capital markets.

Outlook Stable

Crisil Ratings believes VBL will sustain healthy business and financial risk profiles over the medium term, supported by strong accrual due to growth in new territories and integration benefits as well as gradual reduction in debt.

Rating sensitivity factors

Downward factors

• Weakening of the financial risk profile on account of large, debt-funded capex or acquisition leading to debt to Ebitda ratio above 1.25 times on a sustained basis
• Lower-than-expected operating performance leading to a significant decline in cash accrual
• Significant forex fluctuations and adverse geopolitical events in Africa impacting the company’s operating performance

About the Company

VBL was established in 1995 by the promoter, Mr Ravi Kant Jaipuria, to cater to the beverage operations of PepsiCo in India. The company manufactures and distributes sweetened aerated water (soft drinks), non-sweetened aerated water (soda), packaged drinking water and juice-based drinks. It is the largest franchisee for PepsiCo in India. It has 38 manufacturing units in India and 15 in international geographies.

 

It has franchisee rights in 10 countries - India, Nepal, Sri Lanka, Morocco, Zambia, Zimbabwe, South Africa, Lesotho, Eswatini and DRC and distribution rights in four countries - Namibia, Botswana, Mozambique and Madagascar.

Key Financial Indicators (Crisil Ratings Adjusted)

For the 12 months ended December 31		2025	2024
Operating income	Rs crore	21714	20151
Profit after tax	Rs crore	3062	2634
PAT margin	%	14.1	13.2
Adjusted debt/adjusted networth	Times	0.11	0.15
Adjusted interest coverage	Times	27.9	10.1

Above reflects analytical adjustments made by Crisil Ratings and may not be same as company reported financials.

Any other information: Not applicable