Buy Varun Beverage; target of Rs 840: ICICI Direct

ICICI Direct's research report on Varun Beverage

Revenues witnessed growth of 6.8% (24.5% growth on a comparable basis) to  Rs 1122.3 crore (I-direct estimate  Rs 1244.8 crore) led by 19.7% volume growth on the back of territory acquisition in Madhya Pradesh and Odisha last year. The company reported organic volume growth of 12% in the quarter Operating profit grew 25.8% to  Rs 172.7 crore vs.  Rs 137.2 crore in the corresponding quarter. Operating margins improved 20 bps to 15.8%. Q1 is a seasonally lean quarter for the company. Net profit during the quarter was at  Rs 19.7 crore (I-direct estimate:  Rs 34.5 crore) against  Rs 6.9 crore net profit in the corresponding quarter.

Outlook

We remain positive on Varun Beverages as the company is continuously looking for newer territories to expand its base in untapped geographies and remains a proxy play on the soft drink industry in India. We expect revenue, PAT to grow at a CAGR of 17.8%, 38.2%, respectively, in CY17-19E with an operating margin of 21.6% in CY19E. With the comfort of earnings visibility and expected improvement in return ratios, we maintain our target price at  Rs 840/share.