Buy Varun Beverages; target of Rs 580: Motilal Oswal

Motilal Oswal's research report on Varun Beverages

3QCY25 was a muted quarter for Varun Beverages (VBL) as its revenue grew only ~2% YoY due to prolonged monsoon across India. Consolidated volumes grew ~2.4% YoY (while Indian volumes remained flat; growth was led by international operations, which grew 9% YoY). EBITDA margins also contracted ~50bp YoY to 23.4%. VBL is strategically entering the alcoholic beverage segment through a partnership with Carlsberg Breweries A/S to pilot beer sales in the African market. The company aims to leverage its strong distribution network and shared retail channels across the South African regions to efficiently expand its presence in this category. We largely maintain our CY25/CY26/CY27 earnings estimates and reiterate our BUY rating on the stock with a TP of INR580 (54x CY26E EPS).

Outlook

We largely maintain our CY25/CY26/CY27 earnings estimates. We expect a CAGR of 15%/15%/19% in revenue/EBITDA/PAT over CY25E-27. We value the stock at 54x CY26E EPS to arrive at a TP of INR580. We reiterate our BUY rating on the stock.