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PepsiCo bottling partner shares can continue to see 33% upside despite near-term challenges, HSBC saysVarun Beverages has the majority of PepsiCo's India operations consolidated, with bottling capacity investments ahead of the curve to drive consumer demand and has best-in-class EBITDA margin, according to the brokerage.By Shloka Badkar   July 10, 2025, 11:39:46 AM IST (Published)3 Min ReadShares of Varun Beverages Ltd. declined on Thursday, July 10, as brokerage firm HSBC Global Ratings cut its price target on the stock by over 7%, adjusting for projected weak volumes in the June quarter.

Yet, HSBC has maintained its "buy" rating on Varun Beverages and has reduced its price target to ₹620 per share from the previous ₹670 apiece. This is still implies a potential upside of 33% from its previous closing price of ₹465.75 apiece.

Varun Beverages follows the calendar year format to report its financials, hence it marks the April to June period as the second quarter.

The brokerage said with weak second quarter volumes priced in, the main question from investors is whether the slowdown is seasonal or structural.

HSBC thinks it is seasonal and reflects an early monsoon, rather than competitive dynamics. It said Varun Beverages' direct distribution capabilities and point of sale execution capabilities could help drive a fast recovery.

The changing competitive dynamics are healthy for a growing soft drink market, the brokerage said, adding that Varun Beverages should sustain growth in-line with the industry.

It said Coca-Cola's new bottling partner in India, Jubilant Bhartia, will usher in heavier investment in digital capabilities and affordability. However, that does not have to be bad news for Varun Beverages.

HSBC said the market leader Coke's focus on protecting and growing the category at a faster rate may help Varun Beverages, as the number 2 player, which is focused on keeping pace and taking market share.

HSBC said market development is born out of a client-centric culture and that is a good place to start looking for evidence of structural change in the industry.

Meanwhile, Varun Beverages has the majority of PepsiCo's India operations consolidated, with bottling capacity investments ahead of the curve to drive consumer demand and has best-in-class EBITDA margin, according to the brokerage.

It also believes the discounter brand Campa is adding new consumers to beverage occasions at an attractive price point. If Varun Beverages scales on profitability, discounter volume can become future Pepsi market share, the note added further.

The brokerage is of the view that favourable demographics and healthier competitive dynamics in a growing soft drinks industry can drive faster market expansion. If Varun Beverages continues to invest in expanding capacity and on point-of-sale execution, it may grow even faster, it said.

However, HSBC said it is watchful of competitive risks. It has tweaked its model forecasts to account for weak volumes in the second quarter but its growth expectations for the medium term remain intact.

Varun Beverages trades at 48 times its price-to-earnings ratio on the estimated 2026 earnings per share (EPS) and at a discount of around 15% in comparison to the FMCG peer multiples, HSBC said.

Of the 29 analysts that have coverage on the stock, 27 have a "buy" rating and two have  a "hold" rating.

Varun Beverages shares declined 1.4% to hit an intraday low of ₹459.25 apiece on Thursday, July 10. The stock was down 0.8% at ₹462 apiece at 10.10 am. The stock has declined 29% this year, so far.

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