Varun Beverages Ltd. share price target

We maintain our BUY rating on the stock with the revised TP of Rs 1,450/share (47x CY25EPS) vs. the earlier TP of Rs 1,200/share (45x CY25 EPS), implying an upside of 24% from the CMP.

PepsiCo and the market leader Coca-Cola form 80.0%+ of the carbonated drinks market in India. VBL, as the ~90% contributor to PepsiCo’s India beverage sales, will benefit from the industry tailwinds such as rising income and discretionary spending levels, a large youth population, growing urbanization, and availability of reliable electricity and cooling equipment in rural India.

Quarterly Update Q2FY24

With a 13% upside potential from the CMP, we maintain our BUY rating on the stock.

Varun Beverages maintains its growth trajectory and shows strong signs of sustained profitability. VBL delivered a robust performance with growth in Revenue by 13.3% and EBITDA by 23.2% YoY. The softening in key raw material prices further catalysed the Gross margin expansion by 196bps to 52.5% (primarily due to softening of PET chips prices) and EBITDA margins expansion by 210bps to 26.9% (driven by higher gross margins and operational efficiencies) in Q2CY23.

With a 13% upside potential from the CMP, we maintain our BUY rating on the stock

While unseasonal rains in North India impacted the off-take in Q2CY23, we note three highlights as (1) the company has reported 5% volume growth, (2) EBITDA margin expanded due to correction in input prices and we believe there is further scope for margin expansion with operating leverage and (3) the company has floated a new subsidiary to evaluate growth opportunities in South Africa.

Quarterly Update Q2 CY23