Varun Beverages share price jumps over 17% to 52-week high on South Africa’s Bevco acquisition
Varun Beverages share price rallied over 17% to hit a fresh 52-week high on Wednesday after the company announced the acquisition of South Africa’s Bevco, which analysts believe to be a good value creation opportunity. Varun Beverages shares jumped as much as 17.78% to a 52-week high of ₹1,380.45 apiece on the BSE. One of the largest franchise bottlers of PepsiCo in the world, Varun Beverages announced that its board of directors approved the acquisition of 100% stake in South Africa’s The Beverage Company Ltd (BevCo) with plans to expand its geographical footprint in Africa.
The proposed transaction at an enterprise level is valued at ZAR 3 billion, or ₹1,320 crore. Acquisition funding shall be a co-investment from a PE fund and remaining through debt raise by the company. Read here: PepsiCo bottler Varun Beverages to acquire South Africa's BevCo for ₹1,320 cr Bevco is engaged in the business of manufacturing and distribution of licensed (PepsiCo Inc.) / own-branded non-alcoholic beverages in South Africa.
Bevco has franchise rights from PepsiCo Inc. in South Africa, Lesotho and Eswatini. Further, it also has distribution rights for Namibia and Botswana.
With Bevco’s acquisition, Varun Beverages has access to 10 African nations (including 5 existing nations) and now controls most of southern Africa. Analysts at Emkay Global Financial Services believe the acquisition multiple at 0.7x CY23E sales is attractive, in-line with the previous acquisitions and provides a 5x-7x value creation opportunity. South Africa is a large consumption market ($5.4 billion in FY20) but is a relatively mature market with 60-80% urbanization and high per-capita consumption.
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