VBL’s share price shot up sharply on Wednesday morning going up over 17% to hit a new all-time high of ₹1,380.

What Happened: Varun Beverages Ltd, PepsiCo’s top franchise bottler globally, is setting its sights on The Beverage Company Ltd (BevCo) of South Africa. The proposed deal is pegged at ZAR 3 billion, equivalent to ₹1,320 crore. VBL’s Board of Directors have given their nod to the acquisition proposal, which is still subject to necessary approvals from entities including PepsiCo Inc. and the Competition Commission South Africa.

BevCo, a manufacturer and distributor of licensed PepsiCo and its own branded non-alcoholic beverages, boasts franchise rights from PepsiCo Inc. for South Africa, Lesotho, and Eswatini. The company also retains distribution rights for Namibia and Botswana.

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The move to acquire BevCo aligns with the growing affluence of South African households and the corresponding rise in soft drink consumption. VBL intends to leverage this industry growth, especially as South Africa stands as the largest soft drinks market in Africa.

VBL, as the biggest PepsiCo bottler in India, markets a variety of PepsiCo products throughout 27 states and 7 union territories in India.

Analyst Reactions: Reacting to the massive acquisition, CLSA upgraded the stock’s rating to “buy” with a price target of ₹1,419. The brokerage said that South Africa is the biggest beverage market in Africa, but PepsiCo’s share is limited.

Kotak Securities also maintained the “add” rating for the stock with a price target of ₹1,250. The domestic brokerage said that the acquisition is a significant value-creation opportunity. “We expect VBL to focus on the PepsiCo portfolio and gain share from Coca-Cola and local brands,” the analysts added.

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