Motilal Oswal reiterates buy on Varun Beverages, raises target price to Rs 550

varun beverages

• Motilal Oswal raises Varun Beverages target price to Rs 550.
• Long-term growth seen despite muted CY25 due to heavy rainfall.
• International business volume rose to 31 percent in CY25.

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Brokerage firm Motilal Oswal Securities has reiterated its buy rating on Varun Beverages Ltd and raised its target price by 35 percent to Rs 550 per share from the current market price, citing strong long-term growth prospects despite a subdued performance in CY25.

The brokerage said CY25 remained a muted year for the company as unusually heavy rainfall impacted beverage consumption, resulting in modest volume growth of 8 percent in the consolidated business and 2 percent in India, with realisations largely flat. However, it noted that the long-term growth trajectory remains intact, supported by structural drivers such as retail expansion, improved electrification, portfolio diversification, expansion into adjacent consumer categories and strengthening cold chain infrastructure.

Varun Beverages is transitioning from a pure-play beverage bottler to a broader consumer distribution platform, leveraging its network to scale across multiple product segments. The partnership with Carlsberg signals a potential entry into beer in select African markets, while manufacturing of visi-coolers reflects increasing vertical integration in its cold chain capabilities.

The company is also expanding its portfolio through new product launches and health-focused offerings, alongside commissioning four new manufacturing plants. Rising El Niño probabilities, which could lead to hotter weather conditions, are expected to support beverage consumption, while continued distribution expansion and backward integration position the company to capture future demand.

Motilal Oswal highlighted that the company has strengthened its international presence in CY25 through acquisitions, partnerships and capacity additions. The international business is growing faster than the domestic segment, with volume contribution rising to around 31 percent in CY25 from 21 percent in CY20. Revenue share from subsidiaries increased to 38 percent, with revenue growing at a 35 percent CAGR over CY20 to CY25.

Despite the muted growth in CY25, Varun Beverages maintained stable margins and strong cash generation, with cash flow from operations rising to Rs 39.4 billion from Rs 34.4 billion in CY24. While return ratios moderated and working capital increased during the year, the brokerage said strong execution, portfolio diversification and capacity expansion continue to support long-term growth.

The company also advanced its sustainability initiatives, improving its water usage ratio to around 1.50 times from 1.56 times in CY24 through process improvements, advanced technologies and water reuse measures. It collected nearly 100 percent of the PET it consumed and remains committed to achieving net-zero emissions by CY50, along with increasing renewable energy usage to 30 percent by CY30.

Motilal Oswal expects revenue, EBITDA and profit after tax to grow at a compound annual growth rate of 13 percent, 13 percent and 16 percent, respectively, over CY25 to CY27, and reiterated its buy rating on the stock with a target price of Rs 550, based on 45 times CY27 estimated earnings per share.