Buy Varun Beverages; target of Rs 550: Motilal Oswal

Buy

Motilal Oswal's research report on Varun Beverages

CY25 was a subdued year for Varun Beverages Limited (VBL), as unusually heavy rainfall led to weak beverage consumption, resulting in modest volume growth of 8% in the consolidated business and 2% in India, with realizations remaining largely flat. However, the long-term growth story remains intact, supported by structural drivers such as retail expansion, improved electrification, portfolio diversification, expansion into adjacent consumer products, and stronger coldchain infrastructure. VBL is shifting from a pure-play beverage bottler to a broader consumer distribution platform, leveraging its network to scale across multiple product categories. The Carlsberg partnership signals a potential entry into beer in select African markets. Additionally, by manufacturing visi-coolers, VBL is vertically integrating its cold-chain capabilities to support long-term growth. VBL is expanding its portfolio through new launches and health-focused offerings, while also adding significant manufacturing capacity with the commissioning of four new plants. Rising El Niño probabilities could lead to hotter conditions, supporting beverage consumption. Alongside this, distribution expansion and backward integration position the company well to capture future demand.

Outlook

We expect 13%/13%/16% growth in revenue/EBITDA/PAT CAGR over CY25-27. We reiterate our BUY rating for the stock with a TP of INR550 (45x CY27E EPS).

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Varun Beverages - 1803026 - icici