Varun Beverages Enters Alcobev, Appoints Prathmesh Mishra
Varun Beverages, the primary bottler for PepsiCo, will enter the alcoholic beverages market as part of its diversification plan, as stated in a regulatory filing by the firm.
The firm will create a new subsidiary called “KIVA Spirits and Company” to venture into the ready-to-drink (RTD) alcoholic beverages sector and has designated former Diageo executive Prathmesh Mishra as its chief executive officer and managing director.
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The board of the company, at its meeting, approved “to incorporate a wholly-owned subsidiary company in India, inter alia to carry on the business of ready-to-drink, alcoholic beverages and allied products, subject to receipt of applicable requisite approvals”.
It also sanctioned the designation of Mishra as the CEO and MD of the wholly-owned subsidiary, which is being established to manage the company’s expansion into RTD, alcoholic drinks, and related products, it states.
“Varun Beverages will be the holding company of KIVA Spirits and Company Ltd,” it says.
Besides, it also approved to “incorporate a joint venture company in Tunisia, inter alia, to carry on the business of production and distribution of beverages including carbonated soft drinks, juices, water and dairy”.
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Mishra is an experienced business executive with over 30 years of experience in consumer industries. He most recently held the position of managing director for Korea and Japan at Diageo, where he was accountable for fostering business expansion and providing strategic direction in the two sophisticated, high-end Asian markets.
In June this year, Varun Beverages reestablished a revised exclusive bottling agreement and trademark licensing deal (EBA) with PepsiCo for the Indian market.
The modifications to the previously mentioned agreement involve an extension of the EBA until April 30, 2049, updated from the previous duration of until April 30, 2039.
Nonetheless, a distinction exists between the prior and the new agreements with PepsiCo. The previous EBA prohibited Varun Beverages from engaging in any activities aside from PepsiCo; however, in the new one, this condition was removed, Varun Beverages stated earlier in an exchange filing. The revised agreement allowed Varun Beverages to expand beyond PepsiCo's bottling activities.
The company intends to establish a joint venture in Tunisia for producing and distributing carbonated soft drinks, juices, water, and dairy items. Both projects require regulatory approvals. JPMorgan indicated that the recent initiatives may broaden Varun Beverages' portfolio and provide extra medium-term growth prospects. Nonetheless, investors are expected to demand more clarity regarding the company's alcobev strategy, encompassing its stance on manufacturing compared to distribution, possible partnerships or acquisitions, geographic focuses, capital expenditure needs, and intended consumer segments.
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At the same time, CLSA has upheld its 'High Conviction Outperform' rating for Varun Beverages, setting a price target of Rs.629, suggesting an upside of approximately 44 percent from Tuesday's closing price. CLSA reported that Varun Beverages has officially ventured into India's alcoholic beverage sector by establishing a specialized subsidiary aimed at RTD beverages, alcoholic drinks, and related categories.