Emkay Global Financial's research report on Varun Beverages
VBL’s Q3CY23 EBITDA was 3-4% above estimates, led by 8% better EBITDA in India and 14% lower Intl. EBITDA due to FX fluctuation. Revenue growth was robust at 22%, led by broad-based volume growth of 16% and realization gain of 5%. India has seen a strong recovery post a weak summer (unseasonal rains). Gross margin was better with improved mix, RM moderation and curtailed discounts. The beverage category is outperforming other FMCG categories on under-penetration and improved road/electricity infra. VBL has identified these tailwinds and has invested ~Rs30bn for capacity expansion (+45% vs. CY22). Further, VBL is benefiting from new products at affordable price-points (Energy/Sports/Dairy), which should together drive EBITDA/EPS CAGR of 25-30% over CY22-25E.
Outlook
We markup TP by 14%, led by 7% rise each in the EPS and multiple. The multiple increase is on reducing seasonality and outperformance vs. FMCG peers; retain BUY with Rs1,150 TP (45x CY25E EPS).
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