Pepsi Updates: Investing Billions in China and India for Growth

Emerging markets like India and China are the key drivers behind PepsiCo’s (NYSE:PEP) ongoing growth, especially in the absence of similar growth potential in the developed countries. Much of the growth in the snacks volume in Q3 2011 was driven by India and China, with each witnessing 31% and 26% qoq increase. The beverage volume in the emerging markets posted a strong growth as well. PepsiCo competes with companies like Coca-Cola (NYSE: KO) and Dr. Pepper Snapple Group (NYSE:DPS).

Our price estimate for PepsiCo is $71, implying roughly 15% upside to the current market price.

See our full analysis for PEP

Investments in Asia are at the Forefront

In 2010, PepsiCo announced plans to invest $2.5 billion in China over the next three years. This is in addition to $1 billion that it has already directed towards building its Chinese brand since 2008 in addition to the $1 billion in has invested in India. It operates approximately 27 beverage and food plants and five farms throughout China and employs more than 20,000 people in the country. Among its initiatives, PepsiCo intends to invest in China:

• Plans to open 10-12 new plants in China to manufacture soft drinks, non-carbonated beverages and snacks. It also intends to install additional production lines in its existing facilities.
• Plans to open five new farms for potatoes and oats by introducing advanced irrigation technology.

PepsiCo’s initiatives and investment plans in China surely show its confidence in the country. We believe it is equipping itself for the long run by having control over the raw material supply and control over manufacturing plants.

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