ICICI Securities's research report on Varun Beverages
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, (3) moderate volume growth (+4.4% YoY) in domestic business despite delayed Holi, and (4) timely commissioning of three greenfield production facilities ahead of favourable (summer) season. The company is prudently expanding its domestic as well as international businesses which may maintain high growth rates. Backward integration, capacity expansion and operating leverage provide margin tailwinds. We remain positive on Varun’s strong business outlook but current valuations seem stretched.
Outlook
We maintain HOLD rating on the stock with a revised DCF-based TP of INR 1,420 (earlier: INR 1,335).
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