FMCG major gravitate to healthier beverage space; here’s 4 stocks to look at

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26 Aug, 2025 12:21

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Anubhav Sahu
Moneycontrol Research

Coca-Cola’s acquisition of coffee chain Costa for $5.1 billion underlines the global shift in preference towards non-carbonated beverages. With its foray into the hot beverage territory, along with its intention to venture into the ready-to-drink segment (bidding for Horlicks), the entire beverage competitive landscape is getting redefined.

Action heats up in the branded hot beverage retail chain segment
With the Costa acquisition, Coca-Cola has added an important beverage sub-segment to its stable, adding about 4,000 physical stores worldwide. While this helps in reach, it also addresses the need for branding in an otherwise commoditised tea/coffee industry. As far as the Indian market is concerned, Costa is a small player (47 stores versus 1,722 stores for Café Coffee Day), however it does underline the expanding competitive landscape with relatively newbies like Chai Point and Chaayos garnering private equity investments. Chai Point, backed by Paragon Partners, operates through 100 stores, while Chayoos led by Tiger Global aims to scale up to 300 stores in 5 years from around 50 at present.

This has interesting implications for Tata Global Beverages, whose joint-venture with Starbucks has recently broken even. Even as it continues to restructure, the management is focusing on its branded portfolio. It is also toying with the idea of a tea café by launching a branded tea cafe chain named Tata Cha.

Non-carbonated cold drink/juices space sizzles
Globally, carbonated drink majors are shifting towards healthier drink options after having experienced stagnancy in the carbonated drinks segment. This is reflected in their India strategy as well. For instance, PepsiCo India aims to double the sales of Tropicana by 2020. PepsiCo’s franchise - Varun Beverages which accounts for over half of the former’s sales volume in India - is also witnessing a spurt in volume growth from the non-carbonated space. In Q2 CY18, the company posted double-digit volume growth, aided by distribution rights for Tropicana. Its non-carbonated segment (water and juices) now contributes about 21 percent of volumes sold versus 18 percent in Q2 CY17.

Varun Beverages manufactures and distributes carbonated drinks along with packaged water (Aquafina). It currently distributes most of the fruit juice-based (Tropicana) and sports (Gatorade) drinks. This is going to change soon as it has a Rs 450 crore capex plan for production of both Tropicana and Gatorade, which would aid margin. The stock is currently trading close to 50 times CY19 estimated earnings. It an interesting stock to look at given the expected earnings CAGR (compounded annual growth rate) of 30 percent over CY18-CY20. The heightened competition needs to be tracked, though Tropicana remains the second biggest player with over 30 percent market share.

Heightened competition; Dabur makes a redux
Dabur India, which is leader in this segment (55 percent market share), was earlier struggling with competition from the unlisted players like Hector Beverages. In Q1 FY19, the juices segment, which contributes about 18-20 percent of total sales, saw a 27 percent year-on-year recovery in sales growth.

Positioning with respect to innovations (ethnic mixers), pricing, packaging and branding along with healthy options (non-aerated, low on preservatives and sugar) are key differentiating factors for the segment. Earlier catching up with this theme helped new players like Hector Beverages. The Sequoia Capital-backed company reported Rs 69 crore in sales in FY17 and has a market share of about 3-4 percent in the Rs 2,500 crore branded juices industry. News reports earlier this year suggest Tata Global Beverages had been interested in acquiring it. While there is no update from the management at present, a possibility of such a consolidation or entry for new players remain.

Another interesting bet is from ITC’s B Natural which commands 7 percent market share and aims at 12 percent share by FY20 by focusing on concentrate-free juice drink offerings.

Ready-to-drink/health food drink space up for rejigAnother interesting trend is consolidation in the health food drink space, which has a market size of around Rs 10,000 crore. Newsflow suggests that Coca-Cola is a frontrunner to acquire GlaxoSmithKline Pharmaceuticals’ consumer health portfolio. Here too numerous players have forayed recently. Patanjali Ayurved has entered this market as a discount player with its brand Power Vita. Nestle has re-entered the market with its Milo brand and Danone, Venky’s (India) and Sri Sri Ayurveda have launched new brands. Meanwhile, Abbott India has worked with the medical fraternity to generate favourable opinion for its protein rich supplement Pediasure.

Rejigs in the non-alcoholic beverage industry implies that earlier straitjacketed sub-segments like hot beverages, non-carbonated options, ready-to-drink are not valid and global and regional giants are considering entering sub-segments where they didn’t had an exposure before. The overriding theme however remains the consumer shift towards healthier drink options. From the investment universe, Varun Beverages, Tata Global Beverages, Dabur and ITC should be closely watched for their change in portfolio mix, positioning and volume growth.

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