Varun Beverages Ltd. share price target

Initiating Coverage Report

VBL has once again posted a tremendous volume growth (24% YoY) in Q3CY22, way ahead than our estimate on the back of strong demand especially for Sting (fastest growing beverages market), Tropicana and Dairy products.

Varun reported robust revenue growth of 32.5% YoY, driven by strong volume growth across segments.

We factored in Revenue/EBITDA/PAT CAGR of 27%/35%/52% over CY21-24E and arrive at a revised TP of Rs 1,300/share vs. Rs 1150/share earlier, valuing it at 36x Sep-24E EPS. Maintain BUY

VBL’s strategy towards expanding the distribution network (3 Mn outlets, out of which, 0.4 Mn are exclusive for “Sting”), into new territories where it has very small market share indicates huge scope to grow. VBL is also benefitting from demand recovery after two consecutive years of pandemic related disruptions.

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.