Varun Beverages Ltd. share price target

Varun Beverages Ltd. (VBL) a near monopoly of PepsiCo, is a solid play on the emerging beverage market in India. VBL’s focus towards PAN India expansion [reached 85% of Indian PepsiCo volume (26% in CY11) after acquiring South and West region], CAPEX for its backward integrated facilities (Pathankot and Jammu & Kashmir), improving product mix, huge scope to capture Indian soft drinks market (44 bottles per capita consumption in India v/s 1,496 bottles in USA) and debt reduction will promote further growth.

Maintain BUY with an upward revision in TP to Rs 1,200 (earlier Rs 1,080) as we value the stock at 36x Mar-24E EPS.

VBL has a diversified growth strategy, with multiple levers in place to drive its long-term growth. We expect volume growth momentum to continue, with: a) a gradual gain in market share on increasing penetration in underpenetrated markets, b) higher acceptance of recently launched products, and c) ramp-up of...

Varun will start contract manufacturing for Pepsi’s snack brand Kurkure Puffcorn and we believe it is a step in right direction. Depending on the Varun’s progress in Kurkure Puffcorn business, we expect Pepsi to offer more products and regions to Varun. As of now Varun will set up a plant in Uttar Pradesh for Rs200-250mn and will produce Kurkure Puffcorn.

About the stock: Varun Beverages is one of the largest franchisee of PepsiCo in the The company has operations in India (except Andhra Pradesh, J&K & Ladakh), Sri-Lanka, Nepal, Morocco, Zambia & Zimbabwe...

Based on our channel checks, we believe Varun Beverages is likely to maintain strong double-digit volume growth, in line with earlier quarters. It has not yet raised prices of its products in spite of inflation in key raw materials such as sugar and PET (packaging material). It plans to focus on Eastern states and is on track to set up a new plant in Bihar. We also believe lockdown (if any) would likely have a negligible impact on the company’s sales as the lockdown is likely to be in Q1CY22 (non-season).

VBL posted robust volume growth, supported by growing out-of-home' consumption. The company reported a stable operating performance, despite rising input cost, due to an improvement in realization, benefitting from operating leverage and passing-on of RM prices. We maintain our earnings estimate for CY22E/CY23E, as the growth trajectory is expected to continue with the opening of business operations and traveling activities, coupled with strong support from newly launched products. We maintain our Buy rating with a TP of INR1,210 per share....

globally. The company produces & distributes carbonated drinks, juices & packaged drinking water in six countries including India. Some of the PepsiCo brands produced by VBL include Pepsi, Diet Pepsi, Seven-Up, Mirinda, Mountain Dew, Nimbooz, String, Slice, Tropicana, Aquafina among others. The company has operations in India (except Andhra Pradesh, J&K; and Ladakh), Sri Lanka, Nepal, Morocco, Zambia and Zimbabwe...