Buy Varun Beverages; target of Rs 1690: Motilal Oswal

Motilal Oswal's research report on Varun Beverages

Varun Beverages (VBL) reported strong revenue growth of 38% YoY in 1QCY23, led by robust growth in volumes (up 24.7% YoY) with realization touching INR174/unit (up ~11% YoY). Savings in raw material prices and an improved product mix led to a YoY improvement of 90bp in gross margins. Gross margin/unit case grew 12% YoY to INR91.1, while EBITDA/unit case improved 21% YoY to INR35.6, supported by favorable operating leverage.

Outlook

Factoring in 1QCY23 performance, we raise our CY23/CY24 earnings estimates by 6%/3% on the back of better-than-expected realization and margins. We reiterate our Buy rating on the stock with a TP of INR1,690.

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