Pepsi Bottler Gains Ground as Coca-Cola Battles Tax Woes

Nepal’s cola market is entering a new phase of competition as Pepsi’s bottler, Varun Beverages (Nepal) Private Limited, gains momentum, while Bottlers Nepal Limited (BNL), the Coca-Cola bottler, grapples with deepening tax disputes, declining revenues and a shrinking market share.

The latest credit updates from ICRA Nepal highlight the diverging fortunes of these two dominant players.

Pepsi Bottler Gains Market Share, Financial Strength

Varun Beverages (Nepal), the exclusive bottler of PepsiCo in Nepal, has significantly boosted its market presence. According to ICRA Nepal, the company now holds approximately 45–46% of the market by value, up from 39% in 2023/2024. This gain comes as Bottlers Nepal’s market share slipped to 54% in the first nine months of 2024/2025, from 61% in 2023/24.

ICRA Nepal reaffirmed Varun's ratings, citing its strong operational profile, rising profitability, low leverage and healthy cash flows. The company’s operating profit margin improved to 28.4% in the first 8.5 months of 2024/2025, up from 22.2% in 2023/24. With a gearing ratio of just 0.2 times and an interest coverage ratio (ICR) of 38x, Varun’s financials remain resilient—even after provisioning for a disputed Rs 3.2 billion tax liability, partly secured by deposits with the tax authority.

Backed by its Indian parent company, Varun Beverages Limited, the Nepali subsidiary fully financed a recent capacity expansion at its Nawalparasi plant through equity in 2022/22, further strengthening its fundamentals.

However, ICRA has flagged rising raw material cost risks, especially sugar and concentrates, which together account for 42–44% of total operating costs. A recent reduction in sugar import duties from 30% to 15% for 2025/2026 is expected to offer short-term margin relief.

Coca-Cola’s Bottler Faces Pressure from Tax Troubles, Falling Sales

In contrast, Bottlers Nepal Limited is facing mounting challenges. ICRA Nepal has placed the company under ‘Rating Watch with Negative Implications’, due to unresolved tax liabilities totaling Rs 15.6 billion at the group level. A large portion of this stems from a 2014 offshore ownership transfer, affecting both BNL and its majority-owned subsidiary, Bottlers Nepal (Terai) Limited.

Despite strong backing from Coca-Cola Southwest Asia Holdings (76%) and Gorkha Brewery under the Carlsberg Group (22%), BNL’s operational metrics are weakening. Revenues declined by around 10% in 2023/2024, driven by declining exports and pricing pressure. OPM declined to 17%, further weakening during the first nine months of 2024/2025 due to seasonal and cost pressures.

Working capital intensity surged to 38% in over the first nine months of 2024/2025, driven by inventory buildup, delayed receivables and shrinking sales. While BNL still holds a liquidity buffer, with Rs 922 million in cash and Rs 1.6 billion in undrawn lines as of mid-April 2025, ICRA Nepal warns that any attempt to fund the tax liabilities via debt could erode financial health. As of mid-July 2024, gearing stood at 0.5 times, with total debt to OPBDITA rising to 1.7 times.

Market Dynamics Shift as Cola Wars Heat Up

These developments suggest a potential reshaping of the long-standing cola duopoly in Nepal. While Coca-Cola has historically led the market through BNL, Pepsi’s steady rise under Varun Beverages signals a power shift in consumer preference and market power.

Both companies remain exposed to external risks, including regulatory uncertainty, tax pressures, foreign exchange volatility and changing consumer tastes. But for now, Varun’s strong liquidity position, operational momentum, and lean balance sheet give it a clear competitive edge.

As legal disputes continue and competitive pressures mount, the coming quarters could determine whether Coca-Cola retains its leadership—or whether Pepsi’s accelerating ascent will usher in a new era in Nepal’s soft drinks industry.

(This report was originally publihsed in August 2025 issue of New Business Age Magazine.)