Choice Broking has initiated a buy rating on Varun Beverages, citing long-term growth potential. While the company is expanding into the alcoholic beverage segment via its new subsidiary KIVA Spirits, shares have faced a 15% decline year-to-date in 2026 amid investor concerns over margin pressure and execution risks.
Varun Beverages (VBL) has received a fresh outlook from brokerage firm Choice Broking, which initiated coverage on the stock with a buy rating and a target price of ₹550. This development comes as the company attempts to balance its core soft drink operations with ambitious diversification into new categories. Despite the optimistic brokerage outlook, the stock has been under pressure, trading in the ₹413–₹420 range and declining approximately 15% so far in 2026.
Strategy Pivot to Alcoholic Beverages
A major focus for the company is its entry into the ready-to-drink (RTD) alcoholic beverages and allied products market. On August 25, 2026, the company announced the incorporation of a wholly-owned subsidiary, KIVA Spirits and Company Limited. To steer this new venture, VBL has hired Prathmesh Mishra, a former executive from global spirits giant Diageo, as the CEO and Managing Director. This move marks a departure from its traditional reliance on carbonated soft drinks, water, and dairy, signaling a push to capture a share of the premium beverage space.
International Expansion and Operations
Beyond domestic product diversification, the company continues to deepen its footprint in international markets. VBL has entered into a joint venture in Tunisia to handle manufacturing and distribution, where it will hold a 75% stake. This follows a broader strategy of aggressive international expansion, particularly in African markets, designed to reduce reliance on the Indian climate-sensitive demand cycle.
Financials and Execution Risks
While the long-term growth strategy is clear, recent financial performance highlights the challenges of this rapid expansion. In its Q2 2026 results released on July 28, 2026, the company reported revenue growth of 20.4% year-on-year. However, profitability metrics were impacted, with EBITDA margins contracting by 76 basis points to 27.7%. This margin compression reflects the costs associated with recent acquisitions, such as Twizza in South Africa, and the heavy spending required for new business infrastructure.
For investors, the path ahead carries clear risks. The alcoholic beverage sector requires expertise distinct from the soft drink business, including navigating complex, state-specific liquor distribution laws in India. As the company scales KIVA Spirits, the ability to maintain margins while managing these execution risks will be a key monitorable. Additionally, the market will likely track how quickly these new ventures begin to contribute meaningfully to the company’s bottom line, especially as the stock navigates a period of volatility.