Buy Varun Beverages; target of Rs 1285: Motilal Oswal

Motilal Oswal's research report on Varun Beverages

Varun Beverage Ltd. (VBL) has acquired 100% equity stake in a South African beverage company, ‘The Beverage Company (Proprietary) Ltd.’ (BevCo), for a cash consideration of ~INR13.2b. Key highlights are as follows: BevCo revenue for FY23 stood at ~INR16b with estimated EBITDA of INR1.9b (which accounts for ~10%/5% of the incremental revenue/EBITDA). The acquisition is priced at an attractive valuation of EV/sales of ~0.8x/0.7x on FY23/FY24E and EV/EBITDA of 6x on FY24E (as per the acquisition guidelines of VBL). BevCo clocked sales volume of ~117m unit cases in FY23, with ~85% of sales coming from the company’s own brands (including ~15% from energy drink) and the rest from PepsiCo products.

Outlook

For VBL, we expect a CAGR of 17%/20%/26% in revenue/EBITDA/PAT over CY22- 25. We value the stock at 55x CY25E EPS to arrive at a TP of INR1,285. We reiterate our BUY rating on the stock.

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