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MOSL: VARUN BEVERAGES: Sting – Energizing the growth path

.  VARUN BEVERAGES: Sting – Energizing the growth path

(VBL IN, Mkt Cap USD8.2b, CMP INR1045, TP INR1230, 18% Upside, Buy)

VBL's newly launched segments - energy drink, dairy beverages and juices are registering strong growth v/s existing product segments. The company has entered into the energy drink segment in CY17 with the launch of Sting in India, thereby competing with global players. The contribution from this segment to overall VBL's portfolio has been moving up since the launch.

• The Indian energy and sports drinks market is expected to witness ~13.3% CAGR during CY22-CY27.
• The energy drink 'Sting' has been performing very well for VBL with 2.9x YoY volume growth and contributing ~7.2% of its total domestic sales volumes in 1HCY22.
• Coca-Cola's 'Charged' is the major competitor of 'Sting' with both companies targeting the lower end of the price range in the domestic energy drink market.

Robust growth aided by wide distribution and attractive prices

• VBL's latest entry into the energy drink segment through 'Sting' has garnered good response from the consumers leading to robust growth. The product has witnessed exponential volume growth of ~5.4x YoY to 23m cases in CY21 and surged further by 2.9x YoY to 30m cases in 1HCY22. It accounted for 7.2%/11% of total domestic sales volumes /revenue of VBL in the 1HCY22, respectively.
• According to our calculation, the revenue of Sting in CY21 was estimated at ~INR5.6b; it further crossed ~INR7.2b in just the first half of CY22 (refer to Exhibit 3). As per Tofler, one of the VBL's competitors in the premium segment, which have more than a decade of presence in the Indian market have been able to generate a domestic revenue of ~INR5b in CY21.
• The high growth of Sting was further supported by increasing distribution outlets of VBL that stood at more than 3m outlets, including the 0.4m exclusive outlets for Sting. Management aims to expand VBL's distribution network by at least ~8-10% p.a. going forward.
• VBL is already selling Sting in the overseas markets and has recently launched the product in Nepal.

 

Targeting masses to gain volumes amid a highly attractive segment

• The energy drink segment is doing extremely well globally and the same is expected to be replicated in India. The contribution from the energy drink market has reached ~12-15% of the total mix for various countries, whereas it is still very low in India.
• According to '', the global energy drink market was valued at USD65.3b in CY21 and it is likely to reach USD114.1b by CY29, registering a 7.2% CAGR.
• However, the Indian sports and energy drinks market is expected to grow at a much faster pace. The industry size touched USD2.4b in CY21 and it is anticipated to reach USD5.0b by CY27, recording a 13.3% CAGR (according to a report from ).
• Various domestic and international players are competing in the Indian energy drink market with Red Bulls, Monster, Sting, Charged, Rio, Ocean, Budweiser Beats and Hell being some of the widely available brands here.
• The Red Bull and Monster are some of the higher-end products with price range of INR100+. In contrast, Hell, Ocean, Budweiser Beats and Rio are selling within the price segment of INR50-90 (refer to Exhibit 4).
• VBL's Sting is operating in the lowest price brand with a price point of INR20 and hence it is targeted for the mass market. Coca-Cola's newly launched energy drink 'Charged' is the only widely available brand competing in the same price/quantity segment (all the prices mentioned are for 250ml product size, except Monster, which has a quantity of 350ml).