Varun Beverages Ltd. share price target

While VBL is covered on key RMs (PET resin and manageable inflation in Sugar) we do tweak our estimates a shade to factor in lower margins in CY21/22 and revise our TP to Rs. 1,200/share (earlier Rs. 1,230) given near term growth challenges. Retain BUY.

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Aggressive volumes push in summer to drive recovery, growth VBL suffered 13.7% volume decline in CY20 due to pandemic induced lockdown at the peak summer season. With the considerable increase in out of home activity & fully operational HORECA channel, VBL looks to push volumes aggressively in CY21 summer season. It has launched convenient SKUs & new products in last two quarters to propel demand for CSD. The company launched lemon fruit juice based drink under Mountain Dew' brand in February 2021. We expect 14.4% CAGR revenue growth during...

At CMP, stock trades at 12.6x EV/EBITDA which is attractive in our view and we value stock at 15x to arrive at our target price. Retain BUY and TP of Rs. 1085/share.

Varun Beverages (VBL) reported 9% revenue growth, driven by revival in Carbonated Soft Drink (CSD) volumes and an uptick in international volumes leading to 6% YoY volume growth. Blended realizations improved 2.8% YoY to INR153/unit case, led by a favorable product mix and improved realizations in the international market. 4QCY20 revenue/EBITDA was better than our estimates. We raise our earnings estimate for CY21 by 21% primarily owing to an increase in EBITDA (on the back of higher margins) and a lower tax rate and maintain...

Near monopoly in PepsiCos India business ............................................................ 7 Improving mix in line with long-term strategy ...................................................... 12 More room for growth in soft-drink segment ....................................................... 15 Newly acquired territories to drive growth .......................................................... 19 Beverage Industry ................................................................................................ 21 SWOT analysis ..................................................................................................... 25 Expect EBITDA CAGR of 15% to ~INR22b over CY19-22E ....................................... 25 Valuation and view .............................................................................................. 29...

Varun Beverages Ltd (VBL) is the 2nd largest franchisee for PepsiCo in the world (outside USA). It manufactures Carbonated Soft Drinks - Pepsi, Mountain Dew, Seven Up, Mirinda; Non Carbonated Beverages - Tropicana Slice, Tropicana Frutz; and Bottled water Aquafina.

Realization and Cost Savings Helped Drive Growth: Volumes continue to be robust in rural and semi urban India, which helped sustain overall volume dip to only 4percent despite significantly lower on the go consumption.

With a sharp fall in PET resin prices & stable sugar price, we expect gross margin expansion of 72 bps in CY21. Moreover, cost rationalisation measure would lead to operating margin expansion of 124 bps in CY21. VBL expects these cost cutting measure to remain permanent. The management has guided 21% operating margin for CY21. Further, we believe juices & CSD contribution would increase, going forward, as the company would be able to generate more margin considering its new Juice plant has already been commissioned. VBL would be re-launching milk based beverages in CY21...

With encouraging revival on MoM basis and healthy growth in International business with season on the anvil, and sustenance of cost optimization benefits we raise our EPS estimates by 4-14% over CY20-22E. At CMP, stock trades at 9.3x EV/EBITDA which is attractive in our view