Buy Varun Beverages; target of Rs 545: Axis Direct

Axis Direct's research report onVarun Beverages

Consolidated net sales grew 1% YoY, aided by 2% volume growth. Volume in CSD declined 4% YoY, was flat in juices and grew 36% in water. EBITDA margin expanded 198 bps YoY to 15.2% as gross margin expanded 313 bps YoY to 54.3%. Aided by reduced interest costs, the company has achieved an adj. PAT of Rs 45mn, compared to PAT loss of Rs 518mn in Q1CY16.

Outlook

Higher growth potential (low per capita) and strong margin profile (OPM to sustain at 20% in the medium term) are the key factors which will make it command a premium to global peers. VBL trades at CY18 EV/E of 11.3x and P/E of 32x. Maintain BUY with revised TP of Rs 545, based on fwd. EV/E of 11.5x (vs. Rs 510 earlier).

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