Emkay Global Financial's report on Varun Beverages
Our TP is backed by a two-stage growth model. Annual per capita consumption (PCC) of soft-drinks in India was 18-19L in CY19 vs. 79L/152L for China/Brazil. India's PCC may reach 100L by CY35E (11% CAGR), in line with consumption in economies having similar GDP/capita. This yields a volume CAGR potential of 11-12% for the Soft-drinks category. We model 14% revenue CAGR for VBL over next 15 years, based on 12.5% volume CAGR (market share gain in South/West) and a modest 1.5% CAGR in realization. S&W regions account for 55% share of category revenues, but merely ~30% share of VBL's Visi-coolers. Our CY21E-23E EPS is ahead of consensus by 5-10%, as we build-in stronger post-Covid recovery and strong traction in Energy drink 'Sting'. We see scope for consensus upgrades.
Outlook
We raise VBL's Sep'22 target price to Rs1,120 (from Rs915 earlier) based on a higher target P/E of 35x (28x previously). Multiple-upgrade is driven by improved long-term growth outlook-now about mid-teen revenue/EPS CAGR vs. low-teen growth previously.
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