Buy Varun Beverages; target of Rs 800: Emkay Global Financial

BUY

Emkay Global Financial's research report on Varun Beverages

VBL’s Q4 EBITDA was largely in-line. Revenue grew 38% in Q4, helped by 9-10% organic growth in the India/International business, with the rest aided by consolidation of the DRC/South Africa business. Despite the rising competition in India, VBL is confident of delivering double-digit volume growth in the near term, backed by its investments for enhancing capacity/distribution (45-70% expansion vs the CY22 season), new product innovations (Sting Gold/Jeera), and strong start to CY25TD. Initial ramp-up of the acquired South-Africa region is also on track, with 12.5% volume growth in CY24 (Year-1), helped by focus on the more profitable GT channel and aggressive visi-cooler placements. The commentary did not hint at margin pressure in India, while margin for Intl should inch up with planned backward integration and better channel mix. Given QIP proceeds of Rs75bn, VBL is now net debt-free and capex outlook does not suggest any need for external capital for pursuing organic growth or ramping-up acquired regions.

Outlook

We stay constructive, baking in the strong execution, on-the-ground strengths, and capital investments; retain BUY with unchanged TP of Rs800 (60x Dec-26E EPS). Key risk: aggressive price wars.

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