Buy Varun Beverages; target of Rs 570: Axis Direct

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26 Aug, 2025 12:21

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Consolidated net sales declined 2% as volumes declined 6%, while EBITDA and PAT grew 3% and 21%. In the peak summer quarter, India volumes declined 6% despite a low base due to GST-led disruptions and a weak summer. OPM up 137 bps YoY at 29.4% as other expenses declined 300 bps YoY. Adj. PAT grew 21% YoY on lower finance costs (debt repayment post IPO). In Q3, it intends to acquire territories in Odisha and Madhya Pradesh which will add 6% to India volumes. Given the weak peak quarter, we lower CY17 EBITDA by 5%.

While organic volume growth is weak, growth will come from acquisition of new territories. New manufacturing plant is not required for next two years and hence capex will be lower than depreciation which will aid RoE increase (from 10.4% in CY17 to 14.1% in CY19). Maintain BUY with revised TP of Rs 570 based on forward EV/E of 12x.

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