Varun Beverages share price
Varun Beverages’ acquisition of South Africa-based Twizza Proprietary Ltd is set to bring market share gains for the Indian beverage company as it strengthens its presence in Africa’s biggest soft drink market, analysts said on Monday.
Favourable demographics and high per capita consumption of beverages, analysts said, underscore the growth potential from Twizza’s acquisition.
“Twizza’s acquisition is in-line with Varun Beverages’ ambition to tap the large and attractive Africa opportunity. We believe the acquisition will strengthen Bevco’s position in terms of pricing/promotional intensity in the largest soft drink market, and provide additional capacities to enable faster scale up and market share gains,” said analysts at JM Financial Institutional Equities.
The brokerage has maintained its ‘Buy’ rating on VBL stock with a share price target of ₹570.
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Varun Beverages to acquire Twizza
On December 21, Varun Beverages said VBL Board has approved to acquire 100 per cent share capital of South Africa-based Twizza Proprietary Limited (Twizza), through their subsidiary company in South Africa i.e. The Beverages Company Proprietary Limited (Bevco).
The acquisition will be made at an enterprise value of ZAR 2,095 million. Assuming 1 ZAR equalling 5.34 Indian rupees, the enterprise value stands at ₹1,118.7 crore.
According to JM Financial, the enterprise value implies an EV-to-sales multiple of 1.24x, based on FY25 financials, and EV/Ebitda multiple of 7-8x.
For Emkay Global Financial Services, the deal valuation implies a 1.2x trailing sales for Twizza vs ~7.5x for VBL.
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Twizza financials and growth opportunities
Twizza, which is engaged in manufacturing and distribution of own-branded non-alcoholic beverages, operates through three manufacturing facilities (all backward integrated) at Cape Town, Queenstown, and Middelburg.
The facilities have a combined annual production capacity of around 100 million cases. Its portfolio includes carbonated soft drinks (98 per cent of its overall volumes), energy drinks (0.9 per cent of volumes), and functional drinks & mixers (1.4 per cent of volumes).
The brand has a strong presence in South Africa, as well as Lesotho, Eswatini, Botswana, and Namibia.
Analysts note South Africa is the largest soft drink market in Africa with an industry size of 1.25 billion cases (which is about 50 per cent of India market). While global brands account for 50-55 per cent of the market (predominantly Coca-Cola), the balance 45-50 per cent is with the regional brands.
They, however, see Twizza-VBL partnership cornering a 20 per cent market share in South Africa by calendar year 2027, from 10 per cent as present.
Financially, Twizza’s sales have grown at a CAGR of 4 per cent over the last three years, to ZAR 1.7 billion (₹902 crore). This is, roughly, 4-5 per cent of VBL’s consolidated sales. The entity, however, has tad better Ebitda margins (around 15 per cent) compared to Bevco.
Analysts pointed out that though Twizza’s revenue CAGR in constant currency (CC) terms is weak, they believe VBL’s execution capabilities can help accelerate the same.
“The Twizza acquisition would lead to VBL’s volume share rising to ~20 per cent by CY27, improvement in its distribution/manufacturing strengths, and better scope for in-roads for the high-realization/high-margin Pepsico products in SA. Proof points of success in Zimbabwe/Nepal (with over 50 per cent share now after starting from scratch) and VBL’s best-in-class execution strengths grant us confidence in the company gaining market share in SA too,” said Emkay Global analysts.
Overall, analysts are confident that Varun Beverages will be able to gain market share in a “mature” South Africa market, aided by double-digit volume growth, portfolio-led pricing gain, and cluster-based cost synergies.
VBL’s solid balance sheet, with a net debt-free status, they said, allows it to pursue growth, presenting scope to capture such value accretive opportunities. Disclaimer: View and outlook shared on the stock belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers discretion is advised.