Varun Beverages Ltd Management Discussions

Economic Overview & Outlook

Indian Economy

India continued to be one of the worlds fastest-growing large economies in 2025, supported by resilient domestic demand, sustained government-led infrastructure investment, and ongoing structural reforms. According to the International Monetary Fund (IMF), Indias real GDP growth is expected to remain strong in 2026, outpacing most global peers and underscoring its role as a key driver of global growth.

Several constructive developments through the year have strengthened the foundation for Indias medium- to long-term economic growth. Policy initiatives such as direct tax relief and GST rationalisation are expected to support consumption, improve formalisation, and enhance the efficiency of the economy over time, while accommodative monetary conditions have ensured effective liquidity transmission across the financial system. Rural demand showed gradual improvement, supported by better agricultural output and continued government programmes, while urban consumption remained steady on the back of rising disposable incomes and stable employment across services and manufacturing. With inflation moderating and sustained policy focus on infrastructure, manufacturing competitiveness, and digitalisation, the macro environment continues to provide a supportive platform for durable, broad-based growth in the years ahead.

Source: IMF - World Economic Outlook

Soft Drinks Market Overview & Outlook

The Indian soft drinks industry demonstrated resilience in 2025, despite a challenging consumption environment, due to unprecedented rainfall throughout the year, impacting beverage consumption. While the sector continues to be supported by favourable long-term fundamentals such as a young population, rising disposable incomes, and increasing urbanisation, domestic demand during the year remained subdued due to weather-related disruptions.

Despite these transient challenges, the underlying structure of the market remains intact. Expansion of retail reach, improved electrification, and investments in cold- chain infrastructure strengthening product availability and on-ground execution. The continued deployment of visi-coolers across under-penetrated markets has improved access to chilled beverages, supporting deeper market penetration over time.

The industry continues to see a gradual diversification of consumption, with carbonated soft drinks remaining the largest category, while non-carbonated beverages, juice- based drinks, sports and energy drinks continue to gain traction. Brands focused on delivering diverse product offerings, with a wide range of flavors and superior product variants helping sustain consumer engagement. These segments are being supported by evolving consumer preferences, broader product portfolios, and improved availability across retail channels, as brands expand their offerings to cater to a wider range of consumption occasions.

Looking ahead, the Indian soft drinks industry remains well positioned for a healthy recovery, with a stronger season on the horizon, supported by low per-capita consumption, favourable demographics, and sustained investments in manufacturing capacity, distribution reach, and cold-chain infrastructure. As weather patterns normalise, the sector is expected to benefit from stronger on-ground execution, deeper market penetration across urban and rural markets, and continued innovation across products and formats.

Soft Drinks - Key Growth Drivers and Opportunities

The soft drinks market in India is poised for substantial growth, driven by several key factors:

Urban Growth and Rising Spending Power: Rapid urbanisation, a growing middle class, and rising disposable incomes continue to support higher consumption of packaged beverages. Increasing on- the-go consumption, driven by changing lifestyles in urban and semi-urban markets, has strengthened demand for convenient beverage formats across categories. The growing participation of women in the workforce is also contributing to higher household incomes, enabling broader consumption across food and beverage segments.

Youthful Demographics and Evolving Preferences: Indias large and young population remains a key driver of category expansion. Younger consumers are more inclined to experiment with new flavours, formats, and brands, encouraging innovation and the introduction of differentiated offerings. This demographic continues to influence consumption trends, supporting growth across carbonated, non-carbonated, and emerging beverage segments.

Energy, Hydration and Sports Drinks - Driven by Active Lifestyles and On-the-Go Consumption: Energy, hydration and sports drinks are gaining momentum, driven by active lifestyles and on-the- go consumption. Energy drinks appeal to younger consumers seeking quick energy and alertness, while sports drinks support hydration and recovery among fitness-oriented consumers. Innovation in low-and zero-sugar formulations, natural ingredients, flavours, and convenient formats is supporting sustained growth across both segments.

GST Rationalisation Supporting Consumption Growth: Rationalisation of GST rates in the juice and packaged water categories is expected to improve affordability and accessibility, particularly for price- sensitive consumers. Lower tax incidence has led to lower retail prices, encouraging higher trial and repeat consumption, and supporting deeper penetration across urban, semi-urban, and rural markets.

Rural and Semi-Urban Market Expansion: Rural and semi-urban markets represent a significant untapped opportunity for the soft drinks industry. Strengthening last-mile distribution, improving affordability through smaller SKUs, and expanding localised marketing initiatives are enabling deeper penetration. Improvements in electrification and ongoing investments in chilling infrastructure, including the deployment of visi-coolers, are improving access to chilled beverages in underserved markets, supporting more consistent consumption over time.

Climatic Conditions: Indias diverse climatic conditions, with a significant portion of the population living in regions characterized by hot, dry, or moderate weather, create a natural demand for refreshing beverages. However, short-term consumption can be impacted by weather variability, including unseasonal or extended rainfall, as witnessed last year. Despite these near-term disruptions, rising temperatures and longer summer periods across several regions continue to provide a supportive backdrop for soft drink consumption over the medium to long term.

Product Innovation and Health Led Portfolio Expansion: Ongoing innovation across flavours, packaging, and formats continues to broaden the appeal of soft drinks across consumption occasions. Brands are expanding their portfolios with low- and no-sugar options, juice based functional beverages, and differentiated offerings, enabling them to cater to evolving consumer preferences. The growing focus on health is further driving innovation in organic and natural ingredient-based drinks, supporting sustained category relevance and growth.

Business Overview - A Key Player in the Beverage Industry

VBLs Presence

Varun Beverages Limited ("VBL" or the "Company") is a key player in beverage industry and one of the largest franchisee of PepsiCo in the world (outside USA) with operations spanning across 10 countries with franchise rights and additional 4 countries with distribution rights. India is the largest market and contributed 67% of revenues from operations (net) in Fiscal 2025.

Symbiotic Relationship with PepsiCo

VBL continues to enjoy a longstanding, collaborative, and highly synergistic partnership with PepsiCo, a relationship that spans over three decades since PepsiCos entry into the Indian market. The Company accounts for more than 90% of PepsiCos sales volumes in India, highlighting the significance of this collaboration.

Leveraging its extensive manufacturing footprint and well-established sales and distribution network, VBL produces, markets, and distributes a wide range of PepsiCo products across carbonated soft drinks (CSD), juice-based drinks (JBD), sports and energy drinks, and packaged drinking water. The Company works closely with PepsiCo on brand development, product formulation, and packaging innovation, while executing local advertising, merchandising, and in-market activation through its experienced on-ground sales and distribution teams.

The portfolio of PepsiCos CSD brands manufactured and sold by VBL includes Pepsi, Pepsi Zero, Mountain Dew, Sting, Seven-Up, Mirinda, Seven-Up Nimbooz Masala Soda, and Evervess. Its NCB portfolio includes Slice, Tropicana Juices (100% and Delight), Seven-Up Nimbooz, Gatorade, and packaged drinking water under the Aquafina brand.

VBL has been granted franchises for various PepsiCo products across 26 States and 6 Union Territories in India. The Company has also been granted the franchise for various PepsiCo products for the territories of Nepal, Sri Lanka, Morocco, Zambia, Zimbabwe, South Africa, Lesotho, Eswatini & DRC and distribution rights for Namibia, Botswana, Mozambique and Madagascar.

The relationship has further expanded with VBLs entry into the snacks segment. The exclusive rights to manufacture and distribute PepsiCo snack brands, such as Cheetos in Morocco, Zimbabwe, and Zambia, mark a significant step in enriching VBLs portfolio and leveraging synergies with its existing infrastructure.

? Production Facilities

? Sales & Distribution - GTM & Logistics

? In-outlet Management - Visi-Coolers

? Consumer Push Management (BTL) - Market Share Gains

? Trademarks

? Formulation through Concentrate

? Product & Packaging innovation through investment in R&D

? Consumer Pull Management (ATL) - Brand Development

Business Model

The Company manufactures and distributes a wide range of carbonated soft drinks ("CSD"), along with a diversified portfolio of non-carbonated beverages ("NCB"), including packaged drinking water. With its end-to-end execution capabilities, VBL oversees the entire value chain from manufacturing and distribution to warehousing, customer management, in-market execution, cash flow management, and supporting future growth. PepsiCo provides brands, concentrates, product & packaging innovation, and marketing support, while VBL manages manufacturing operations, supply chain processes, and capital allocation strategies, enabling market share gains and operational efficiencies.

VBLs business model is supported by its extensive experience in managing large-scale beverage operations involving complex logistics and packaging requirements across diverse markets. While the operating framework remains consistent, each geography presents unique challenges related to electricity availability, refrigeration infrastructure, logistics capabilities, demographic diversity, and socioeconomic conditions. VBL addresses these challenges through localized operating strategies, ensuring consistent service levels and operational resilience across markets.

The Companys well-established distribution network spans urban, semi-urban, and rural markets, enabling it to cater to a broad consumer base. Strategically located distribution centers and depots support deep market penetration across licensed territories in India and international markets. VBLs

manufacturing capabilities and distribution reach allow it to respond effectively to competitive dynamics, shifts in consumer demand, and evolving consumption patterns across territories.

As of December 31, 2025, the Company operates 50 state- of-the-art manufacturing facilities, comprising 38 facilities in India and 12 in international territories. Continued investments in cold-chain infrastructure and logistics ensure seamless product availability and enhanced market reach, particularly in under-penetrated regions.

Over the years, VBL has expanded its operations through a combination of organic capacity additions and inorganic growth, including the acquisition of additional territories from PepsiCo and previously franchised regions. Supported by an experienced and dedicated sales force, the Company focuses on driving category growth and expanding market share through localized promotions, in-store activations, customer relationship management, merchandising, and strategic placement of vending machines and visi-coolers in high-demand locations.

To enhance operational efficiency and cost competitiveness, VBL has implemented backward integration initiatives and centralized raw material sourcing. The Company has established in-house manufacturing capabilities for preforms, crowns, plastic closures, corrugated boxes, corrugated pads, plastic crates, and shrink-wrap films at select locations. These initiatives support consistent quality standards, improve supply chain reliability, and strengthen VBLs operational backbone.

Key Business Developments - 2025

Acquisition of 100% stake in Twizza (Pty) Limited, South Africa:

? On 21 December 2025, VBL, through its subsidiary, The Beverages Company Proprietary Limited, entered into a share purchase agreement with Twizza (Pty) Limited for the purchase of 100% of the share capital, subject to regulatory and other approvals (if any), including but not limited to the Competition Commissions of South Africa, Botswana and Eswatini, at an enterprise value of ZAR 2,095 million. The acquisition is expected to be completed on or before 30 June 2026

Incorporation of wholly-owned subsidiary in Kenya:

? The Company incorporated a wholly-owned subsidiary in Kenya viz. VBL Industries (Kenya) Limited to carry on the business of manufacturing, distribution and selling of beverages

Exclusive Distribution Agreement with Carlsberg Breweries A/S for African markets:

? The Company entered into an exclusive Distribution Agreement with Carlsberg Breweries A/S for its brand, Carlsberg, to test market beer in the territories of certain African subsidiaries of VBL

Agreement to distribute & sell PepsiCos snack products in Zimbabwe and Zambia:

? Varun Zimbabwe and Varun Zambia (subsidiaries of the Company) commenced distribution & selling of PepsiCos snack products in the territory of Zimbabwe and Zambia w.e.f. 1 February 2025

Commencement of Commercial Production at 4 Greenfield facilities:

? For CY2025 season, the Company commissioned

4 new greenfield production facilities in India at Prayagraj; Uttar Pradesh, Damtal; Himachal Pradesh, Buxar; Bihar, and Mendipathar; Meghalaya

? Further, the Company set up backward integration facilities at our Prayagraj plant in India, as well as at our DRC plant in the international region

Commencement of Commercial Production of PepsiCo Snacks at Morocco and Zimbabwe:

? Varun Beverages Morocco SA and Varun Beverages Zimbabwe (subsidiaries of the Company) commenced commercial production of PepsiCos snacks products, "Cheetos" in Morocco and Zimbabwe

Acquisition of 50% stake in Everest Industrial Lanka (Private) Limited:

? VBL acquired 50% equity share capital of Everest Industrial Lanka (Private) Limited ("EIL"). EIL, a company in Sri Lanka is engaged in the business of production, manufacturing, distribution and selling of commercial visi-coolers and related accessories

? Further, VBL formed a joint venture, "White Peak Refrigeration Private Limited" in partnership with EIL, to carry on the business of manufacturing of visi- coolers and other refrigeration equipment in India

Credit Rating Upgrade:

? CRISIL (an S&P Global Company) upgraded the companys long-term rating for bank loan facilities to Crisil AAA/Stable from Crisil AA+/Stable

Dividend:

? The Companys board of directors formalized a dividend strategy in line with good corporate governance practices with the Companys listing in November 2016

Salient Features:

? Endeavor to maintain a dividend payout in the range of 10-30% of annual profit after tax on standalone financials

? Consider financial parameters like earnings outlook, future capex requirements, organic growth plans, capital restructuring, debt reduction, cash flows, etc

? Consider external parameters like macro-economic environment, regulatory changes, technological changes, statutory and contractual restrictions, etc

? For a detailed perspective, please refer to the Companys website at www.varunbeverages.com/

? For CY2025, in line with the guidelines of dividend policy, the Board of Directors have recommended a payment of final dividend of 0.50 (Fifty paise only) per equity share of the face value of 2 each

Financial Summary

P&L

Particulars ( million)	31-Dec-25	31-Dec-24	YoY (%)
1. Income
(a) Revenue from operations	222,255.84	204,813.28	8.5%
(b) Excise Duty	5,402.05	4,736.78	14.0%
Net Revenues	216,853.79	200,076.50	8.4%
(c) Other income	3523.48	1212.68	190.6%
2. Expenses
(a) Cost of materials consumed	93,370.62	82,937.43	12.6%
(b) Purchase of stock-in-trade	3,694.53	6,859.21	-46.1%
(c) Changes in inventories of FG, WIP and stock-in-trade	89.14	(749.40)	-111.9%
(d) Employee benefits expense	22,007.43	18,850.26	16.7%
(e) Finance costs	1,695.79	4,503.86	-62.3%
(f) Depreciation, amortization and impairment expense	12,164.63	9,473.86	28.4%
(g) Other expenses	47,198.38	45,068.29	4.7%
Total expenses	180,220.52	166,943.51	8.0%
EBITDA	50,493.69	47,110.71	7.2%
3. Profit before share of loss of associate and joint venture (1-2)	40,156.75	34,345.67	16.9%
4. Share of loss of associate and joint venture	(60.27)	(14.78)	-307.8%
5. Profit before tax (3+4)	40,096.48	34,330.89	16.8%
6. Tax expense	9,476.06	7,988.04	18.6%
7. Net profit after tax (5-6)	30,620.42	26,342.85	16.2%

Balance Sheet

Particulars ( million)	31-Dec-25	31-Dec-24
Equity and liabilities
Equity
(a) Equity share capital	6,763.98	6,763.02
(b) Other equity	189,023.06	159,335.27
(c) Non-controlling interest	1,622.51	1,298.07
Total equity	197,409.55	167,396.36
Liabilities
Non-current liabilities
(a) Financial liabilities
i. Borrowings	5404.49	8,406.89
(ia) Leased Liabilities	3,997.96	3,570.86
(b) Provisions	1,904.61	1,894.34
(c) Deferred tax liabilities (Net)	6,191.92	4,879.09
(d) Other non-current liabilities	3.58	47.31
Total non- current liabilities	17,502.56	18,798.49

Particulars ( million)	31-Dec-25	31-Dec-24
Current liabilities
(a) Financial liabilities
(i) Borrowings	14,836.70	15,235.76
(ia) Lease liabilities	842.68	1,049.03
(ii) Trade Payables	14,013.04	15,604.27
(iii) Other financial liabilities	5,953.85	7,043.41
(b) Other current liabilities	4,465.13	4,916.55
(c) Provisions	505.26	739.00
(d) Current tax liability (Net)	122.79	656.23
Total current liabilities	40,739.45	45,244.25
Total liabilities	58,242.01	64,042.74
Total Equity and liabilities	255,651.56	231,439.10

Particulars ( million)	31-Dec-25	31-Dec-24
Assets
Non-current assets
(a) Property, plant and equipment	138,373.67	106,225.51
(b) Capital work in progress	2,663.04	11,623.43
(c) Right of Use of Assets	13,690.47	13,631.22
(d) Goodwill	3,542.13	3,009.37
(e) Other intangible assets	11,983.00	11,151.26
(f) Intangibles assets under development	44.83	43.69
(g) Investment in associates and Joint Venture	1,632.62	534.47
(h) Financial assets	1,499.42	1,266.68
(i) Deferred Tax Assets (Net)	244.40	196.31
(j) Other non-current assets	3,017.55	5,117.42
Total non-current assets	176,691.13	152,799.36
Current assets
(a) Inventories	29,517.89	27,912.34
(b) Financial assets
i. Trade receivables	12,490.31	8,458.42
ii. Cash and cash equivalents	17,841.77	22,662.83
iii. Other bank balances	2,143.14	1,837.71
iv. Others	11,721.11	8,356.16
(c) Current tax assets (Net)	59.66	48.72
(d) Other current assets	5,120.15	9,363.56
Total current assets	78,894.03	78,639.74
Assets classified as held for sale	66.40	-
Total assets	255,651.56	231,439.10

S. No.	Key Financial Ratios	CY2025	CY2024	Change	Reason for variance if more than 25%
1	Debtors Turnover (Days)	18	11	60%	Refer note (i) below
2	Inventory Turnover (Days)	108	101	7%
3	Interest Coverage Ratio	29.8	10.5	185%	Refer note (ii) below
4	Current Ratio	1.9	1.7	11%
5	Debt Equity Ratio	0.0	0.0	NA
6	EBITDA Margin (%)	23.3%	23.5%	-26 bps
7	Net Profit Margin (%)	14.1%	13.2%	95 bps
8	Return on Net Worth (RoNW) %	15.5%	15.7%	-23 bps

Notes:-

? Increase is on account of higher mix from the South Africa territory, where the mix of sales through the modern trade channel is higher than rest of the territories, resulting in longer debtor days.

? During the year CY2024 the Company had repaid majority of its borrowings from the proceeds of Qualified institutions placement (QIP), due to which ratios are impacted significantly

? Computaion of Key Financial Ratios

? Debtors Turnover (Days) = Average Trade Receivables / Net Revenue from operations * 365

? Inventory Turnover (Days) = Average Inventory / Cost of goods sold * 365

? Interest Coverage Ratio = Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) / Finance costs

? Current Ratio = Current Assets / Current Liabilities (including. current maturities of long-term debts)

? Debt Equity Ratio = [(Non-current borrowings + Current borrowings + Lease liabilities) less Cash and cash equivalents] / Shareholders Equity

? EBITDA Margin (%) = Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) / Net Revenue from operations

? Net Profit Margin (%) = Net Profit after tax / Net Revenue from operations

? Return on Net Worth (RoNW) % = Net Profit after tax / Shareholders Equity

Sales Volume

Total Sales Volumes (MN Cases* )

India International

*A unit case is equal to 5.678 liters of beverage divided in 24 bottles of 237 ml each

Varun Beverages reports its financials on a calendar yearly basis. Given that the soft drinks business is seasonal, with the bulk of sales occurring during the summer season, it is best to track the Companys performance on an annual basis. Revenues and profits follow a bell-curve with a significant portion accruing in the April-June quarter.

In CY2025, Varun Beverages Limited delivered a steady financial performance, the Company recorded growth across key financial parameters. Consolidated sales volumes increased by 7.9%, while net realisation per case improved marginally by 0.5%, resulting in revenue growth of 8.4% and PAT growth of 16.2%.

Net revenue from operations increased to 216,853.8 million in CY2025, compared to 200,076.5 million in CY2024. Total sales volumes for the year stood at 1,213.1 million cases, as against 1,124.4 million cases in the previous year. While volume growth in India was impacted due to adverse weather conditions during parts of the year, with India volumes delivering double-digit growth in both first and fourth quarter of the year. International operations continued to scale steadily, led by African markets. At the consolidated level, carbonated soft drinks constituted 73.9%, non-carbonated beverages 5.9%, and packaged drinking water 20.2% of total sales volumes in CY2025. Net realisation per case increased by 0.5% to

178.8, supported by improved realisations in international markets.

Gross margins remained largely stable at 55.2% during the year, compared to 55.5% in CY2024. EBITDA increased by 7.2% to 50,493.7 million, while EBITDA margins stood at 23.3%, reflecting a marginal contraction of 26 basis points. The moderation in margins was primarily attributable to a one-time incremental cost arising from the notification of the four Labour Codes by the Government of India, which consolidated the existing labour laws, as well as operating deleverage from fixed costs associated with newly commissioned capacities. These impacts were absorbed within the Companys overall operating performance. During the year, the contribution of low- sugar and no-sugar products increased to approximately 59% of consolidated sales volumes, compared to around 53% in CY2024, reflecting continued progress in portfolio evolution.

Depreciation increased by 28.4% in CY2025, primarily reflecting the commissioning of new greenfield production facilities in India and brownfield expansions across international markets. Finance costs declined sharply during the year, driven by the repayment of debt using QIP proceeds, resulting in negligible finance costs in India. At the consolidated level, finance costs largely related to international operations, particularly South Africa, and included fair value adjustments of leases in accordance with Ind AS 116. Profit after tax increased by 16.2%, rising to 30,620.4 million in CY2025 from

26,342.8 million in CY2024, supported by volume growth, lower finance costs, and higher other income including interest on deposits in India and favorable currency movement in international operations.

Net capitalised capex stood at approximately 45,000 million as of December 31, 2025, of which around

16,500 million was spent in CY2024. Of the total capex, approximately 17,000 million was deployed towards the establishment of four greenfield production facilities at Prayagraj (Uttar Pradesh), Buxar (Bihar), Damtal (Himachal Pradesh) and Mendipathar (Meghalaya). An additional 3,000 million was utilised for brownfield expansions at Sricity and Gorakhpur, while around 13,000 million was invested in international markets, including backward integration and a CSD PET line in the DRC, snacks manufacturing facilities in Morocco and Zimbabwe, and a CAN line in South Africa. The balance capex comprises of visi-coolers, glass bottles, pallets, vehicles, assets written off, and foreign exchange fluctuations.

As of December 31, 2025, capital work-in-progress and capital advances stood at approximately 5,400 million. VBL India continued to remain net debt-free, with free cash of 12,250 million, while consolidated net debt stood at 256 million. The balance sheet remained strong, supported by healthy cash flows and disciplined capital allocation. During the year, the Companys long- term credit rating for bank loan facilities was upgraded by CRISIL to AAA/Stable.

Growth Outlook

Volume Gains

? Well-positioned to leverage PepsiCo brand to increase market penetration

in licensed territories

? Consolidating existing distributors and increasing distribution in

underpenetrated regions

Acquisitions

? Penetrate newer geographies.

? Identify strategic consolidation opportunities

in South Asia / Africa

Strengthen Balance Sheet

? Repayment of debt through strong cash generation

? To enable significant interest cost savings

Operating Leverage

? Contiguous territories/ markets offer better operating leverage and asset utilization

- economies of scale

? Production and logistics optimization

? Packaging synchronization and innovations

? Technology use to improve sales and operations processes.

Diversified Portfolio

? To periodically launch innovative products in select markets

in line with changing consumer preferences

? Focus on non- cola carbonated beverages and NCBs

? Bottled water provides significant growth opportunity

Looking ahead, VBL is well positioned to sustain its long- term growth trajectory, supported by strong execution capabilities, an expanding manufacturing footprint, and a diversified presence across domestic and international markets. The Companys performance during CY2025, delivered despite weather-related disruptions, underscores the resilience of its business model and the strength of its distribution network built over decades. With recently commissioned greenfield plants and backward integration facilities progressively stabilising, VBL is expected to benefit from improved operating leverage over the coming years.

International operations continue to offer meaningful long- term growth opportunities, particularly across African markets. The proposed acquisition of Twizza through our subsidiary Bevco in South Africa represents an important strategic step in strengthening VBLs manufacturing footprint and route-to-market capabilities in Africas largest soft drinks market, while offering synergies with existing operations. In parallel, the Company continues to broaden its presence across adjacent beverage categories and snacks in select international markets, leveraging its established

manufacturing, distribution, and execution capabilities to build scale and efficiency over time. Ongoing investments in backward integration, capacity enhancement, cold- chain infrastructure, and portfolio expansion are expected to support sustainable growth and profitability over the medium term.

In India, VBL remains well placed to benefit from favourable demographic trends and evolving consumption patterns of the countrys large and expanding middle-class population. Continued investments in manufacturing capacity, distribution infrastructure, and visi-coolers, particularly in under-penetrated regions, strengthen the Companys ability to reach a wider consumer base and ensure consistent product availability and quality. Supported by a strong balance sheet, disciplined capital allocation, and a continued focus on portfolio expansion and sustainability initiatives, VBL is well positioned to capitalise on growth opportunities and deliver long-term value to stakeholders.

Threats, Risks, and Concerns

The risks and opportunities inherent to all corporations are inseparable elements. The Directors and management of the Company take considered decisions to safeguard the interests of stakeholders. The Company has implemented a Risk Management Policy, which is continuously monitored and reviewed under the oversight of the Audit, Risk Management and Ethics Committee. The Committee convenes periodically to identify processes exposed to risks, determine risk mitigation strategies, and oversee their implementation.

Risk	Description	Mitigation
1. Demand Risk	A cyclical downturn can result in a slowdown in the Companys target markets, affecting its sales velocity.	Over the years, the Company has demonstrated its ability to drive meaningful growth in sales volumes by focusing on delivering the right brand, the right price, the right product and the right channel. Additionally, the business operates in relatively under- penetrated markets with favourable demographics, climatic conditions and a growing population, indicating sustained demand growth. Further, its wide product portfolio enables it to cater to a broad range of consumer segments.
2. Business Agreement Risk	The Company relies on strategic relationships and agreements with PepsiCo. Termination of agreements or less favorable renewal terms could adversely affect profitability.	Over the past three decades, the Company has nurtured a strong partnership with PepsiCo, expanding market ties by venturing into new territories and sub-territories. This partnership involves expanded production and distribution of a wider array of PepsiCo beverages, integrating multiple SKUs into the portfolio, and broadening the distribution network. The business has demonstrated its effectiveness in significantly boosting PepsiCos market share, establishing itself as a reliable partner. The collaborative relationship is symbiotic, with both entities actively engaged as development partners. Together, they invest in joint projects and business planning, with a primary focus on strategic issues. Notably, the bottling appointment and trademark license agreement for India with PepsiCo India, is valid until April 30, 2039, further strengthening this enduring partnership.
3. Regulatory Risk	Regulations regarding consumer health and the risk of the Companys products being signed out for discriminatory tax and packaging waste recovery may adversely impact business.	The Company proactively works with PepsiCo, the Government and the regulatory authorities to ensure that the facts are clearly understood and that its products are not unfairly targeted. VBL adheres to sustainable manufacturing practices and places strong emphasis on environmental issues related to packaging waste recovery / recycling, water management and greenhouse gas emissions. It consistently engages with stakeholders to develop sustainability solutions that prioritize environmental protection, including partnerships with NGOs and the communities in which it operates. PepsiCos strategy of introducing healthier and zero sugar variant products also bodes well for the Companys future. The Company has initiated various sustainability initiatives such as the engagement of GEM Enviro Management Pvt. Ltd. for phased implementation of 100% recycling of used PET bottles and partnering with Deutsch Quality Systems (India) Private Limited for water footprint assurance and, for measurement and improvement of the Companys carbon footprint.

Risk	Description	Mitigation
4. Business Integration Risk	The inability to integrate the operations or leverage potential operating and cost efficiencies from the newly acquired territories and sub- territories may adversely affect the Companys business and future financial performance.	VBLs transparent strategy and financial planning framework ensure that any future acquisitions or collaborations are not only valuable but also align with the Boards acquisition guidelines. The Company devotes significant management time and financial resources to secure the success of newly acquired endeavors. This includes developing local market strategies, addressing potential cultural and language barriers, and integrating business practices to ensure the overall viability of the business.
5. Consumer Preference Risk	Failure to adapt to changing consumer health trends and address misconceptions about the health effects of soft drink consumption may adversely affect demand.	To stay relevant, VBLs sales team works closely with PepsiCo to evaluate evolving consumer habits and consistently focuses on product innovation and portfolio expansion. Furthermore, PepsiCos new product plan places greater emphasis on healthier products with zero / limited calorie and sugar content.
6. Raw Material Risk	An interruption in the supply or significant increase in the price of raw materials or packaging materials may adversely affect the Companys business prospects, results of operations and financial condition.	An integral part of VBLs strategy is to maximize cost efficiencies, the active reduction of cost of goods sold, optimisation of operating expenses and increasing cash flows. To achieve these objectives, the business has undertaken significant programs, including backward integration and consolidated sourcing of key materials. Leveraging its scale of operations, VBL negotiates with suppliers to enhance bargaining power, resulting in improved working capital management. The Company is dedicated to optimizing its assets to achieve higher operating efficiency and to amortize overhead costs across a wider volume base. Additionally, VBL continues to invest in innovative solutions to enhance operational efficiencies and streamline work processes. These efforts include ensuring consolidated operational data from production, scheduled sourcing, and enhanced monitoring of the supply of goods from manufacturers to the retail point of sale.

Human Resources

As of December 31, 2025, VBL employed over 16,300 full-time team members worldwide, with approximately 10,700 based in India and approximately 5,600 across its international subsidiaries. Aligned with its overarching business strategy, the Company places a strong emphasis on nurturing talent as a key driver of future growth and success. VBL prioritizes employee development through structured training programs, skill enhancement initiatives, and opportunities for career progression across all levels and functions. The Company also collaborates with PepsiCo on management and staff development programs, ensuring key employees benefit from global best practices while engaging in skill-building initiatives aligned with Indias leading training frameworks.

Risk Management, Audit and Internal Control System

The Company has established robust and effective internal control systems tailored to the scale of its operations and the complexity of the market it serves. These stringent and comprehensive controls ensure optimal utilization of resources, safeguarding the Companys assets and interests. They also ensure that transactions are properly authorized, recorded and reported, with appropriate checks and balances to maintain the consistency and accuracy of accounting data. The Audit, Risk Management and Ethics Committee oversees a thorough system of internal audits and periodic assessments to ensure adherence to best practices. The Company has appointed M/s J.C. Bhalla & Co., Chartered Accountants, and M/s O.P. Bagla & Co. LLP, Chartered Accountants, as Joint Statutory Auditors to oversee and report on the financial controls of the Company.