Varun Beverages Ltd. share price target

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.

Quarterly Update Q3FY23

Varun reported 8th straight quarter of 25%+ revenue growth. Considering the market growth, we believe the company has likely gained market shares. As Varun has been able to maintain EBITDA margin ~20%, we believe it is commendable performance to gain market shares as well as maintain margins.

Recommendation With a 19% upside potential from the CMP, we maintain our BUY rating on the stock.