Varun Beverages Ltd. share price target

Highlights: (1) Continued buoyant margin performance led by lower input prices, higher realisation and benefits of strategic cost-saving initiatives undertaken, (2) international business strengthened further, following the acquisition of BevCo (South Africa and surrounding region) and agreement signed for manufacturing of snacks from May’25 in Morocco market,

With a 18% upside potential from the CMP, we maintain our BUY rating on the stock.

Varun Beverages (VBL) reported a revenue growth of 11% YoY in 1QCY24,
led by volume growth (up 7% YoY) and high realization (up 4% YoY to
INR180/case).

Quarterly Update Q4FY24

We maintain a Buy rating for VBL, with a target price of Rs 1550 per share, representing a potential upside of 11% from the current market price

We believe VBL is expected to continue its strong growth momentum and we maintain our BUY recommendation on the stock.

Quarterly Update Q3FY24

We maintain our BUY rating on the stock with the revised TP of Rs 1,450/share (47x CY25EPS) vs. the earlier TP of Rs 1,200/share (45x CY25 EPS), implying an upside of 24% from the CMP.

Quarterly Update Q2FY24

With a 13% upside potential from the CMP, we maintain our BUY rating on the stock.

Varun Beverages maintains its growth trajectory and shows strong signs of sustained profitability. VBL delivered a robust performance with growth in Revenue by 13.3% and EBITDA by 23.2% YoY. The softening in key raw material prices further catalysed the Gross margin expansion by 196bps to 52.5% (primarily due to softening of PET chips prices) and EBITDA margins expansion by 210bps to 26.9% (driven by higher gross margins and operational efficiencies) in Q2CY23.

With a 13% upside potential from the CMP, we maintain our BUY rating on the stock

Quarterly Update Q2 CY23

While unseasonal rains in North India impacted the off-take in Q2CY23, we note three highlights as (1) the company has reported 5% volume growth, (2) EBITDA margin expanded due to correction in input prices and we believe there is further scope for margin expansion with operating leverage and (3) the company has floated a new subsidiary to evaluate growth opportunities in South Africa.

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.

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.