Varun Beverages Ltd. share price target

Varun Beverages has given an outstanding performance yet again, led by robust Volume and Revenue growth of 24.7% / 37.7% respectively driven by improved product mix (Higher contribution by Sting and Milk based beverages) and strong demand across regions despite the weather disruptions in March, supporting overall revenue growth.

Considering the market growth, we believe Varun has likely gained market shares across segments in Q1CY23. The company has added multiple growth engines such as (1) launch of Sting (~10% of net sales), (2) launch of dairy products (higher realizations and similar margins).

We incorporate CY25 estimates and based on the above thesis, we expect the company to post Revenue/EBITDA/PAT growth of 18%/21%/25% CAGR over CY22-25E. We maintain our BUY rating on the stock with the revised TP of Rs 1,600/share (vs. TP of Rs 1,500/share) earlier.

Quarterly Update Q1CY23

We analyse the potential risk to Varun Beverages post the relaunch of Campa Cola and believe (1) Campa is an old brand but it has limited connect with youth consumers of less than 40 years of age, (2) it needs to invest in multiple manufacturing units pan India (as beverages are ‘low value high volume’ products), distribution network and visicoolers. These investments may require multiple years.

We maintain our BUY rating on the stock with the revised TP of Rs 1,500/share (40x CY24EPS) vs earlier TP of Rs 1,450/share (38x CY24 EPS) implying an upside of 15% from CMP.

VBL has once again reported incredible value/volume growth (28%/18% YoY) in Q4CY22, way ahead than our estimate on the back of strong demand especially for Sting (fastest growing beverages market) and share gain in untapped market, Tropicana and Dairy products. EBITDA increased by 48.1% to Rs 3,075mn YoY.