Buy Varun Beverages; target of Rs 588: Deven Choksey

Deven Choksey's research report on Varun Beverages

In Q2CY25, consolidated revenue stood at INR 70,174 Mn., down 2.5% YoY (+26.1% QoQ), sharply below our estimates, as the overall volumes were impacted by early onset of monsoons and erratic rain patterns in India. EBITDA stood flat YoY (+58.1% QoQ) at INR 19,988 Mn., below our estimates (-3.1%), led by subdued volume offtake in domestic business. EBITDA margin expanded by 82bps YoY (+578bps QoQ) to 28.5%, driven by improved forex realization and lower other expenses on account of operational efficiencies. Net profit stood at INR 13,170 Mn (+5.1% QoQ/+81.3% YoY), in line with our estimates, driven by operational efficiencies, higher other income (+75.3% YoY), and lower interest cost (-71.7% YoY).

Outlook

We have rolled forward our valuation basis to Jun’27 estimates. We value VBL at 49.0x June-27 EPS (~ -1SD to 1-year avg. NTM P/E), implying a target price of INR 588. The stock is currently trading at 56.5x/48.0x based on CY25E/CY26E EPS estimates.

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