Motilal Oswal's research report on Varun Beverages
Varun Beverages (VBL) experienced a sustained period (CY19-23) of robust revenue growth momentum (with a revenue/sales volume CAGR of ~22%/17%), aided by the company’s expansion into new geographical markets, the diversification of product portfolio, strengthening of the distribution network, efficient manufacturing capabilities, and a favorable demand environment. To sustain the growth momentum, VBL has adopted a multi-pronged strategy for CY24, wherein it will focus on enhancing its manufacturing capability (to rise ~45% over CY22 capacity; and the capacity for dairy and juices set to triple), bolstering its distribution network (~3.8m retail outlets in CY23 vs. ~3m in CY22), and improving its geographical reach (domestically as well as internationally). Considering this incremental capacity, improved network, and newer geographies (include acquisition of BevCo), we expect VBL to sustain its strong revenue growth momentum over CY24-CY26 (est. ~21% CAGR over the period). Within the international market, VBL has signed an exclusive agreement to manufacture and package Cheetos in Morocco. We believe that going ahead, VBL will tap into the snack food market by targeting regions where PepsiCo lacks manufacturing facilities and relies on imports. Factoring the strong fundamentals and potential for future growth (expect 21%/22%/28% revenue/EBITDA/PAT CAGR over CY23-26), we retain our BUY rating for the stock.
Outlook
Factoring the strong fundamentals and potential for future growth (expect 21%/22%/28% revenue/EBITDA/PAT CAGR over CY23-26), we retain our BUY rating for the stock. We value the stock at 57x Mar’26E EPS to arrive at a TP of INR1,600.
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