Emkay Global Financial's research report on Varun Beverages
VBL reported a strong and largely in-line quarter. India revenue growth was better at ~18% (vs expectation of ~15%), helped by ~16%/2% growth in volume/realization. However, International realization declined ~12% on consolidation of a lower-realization South Africa region, leading to in-line consol revenue growth of ~30%. While organic growth trends were healthy in Q1, persistent unseasonal rains in the peak season and scrapping of the Tanzania/Ghana acquisition (7-8% topline contribution) compel a 10-12% cut to our EPS estimate. Notably, VBL expects the high competitive intensity to drive faster expansion of the beverage category, with heightened ATL/BTL investments in an under-penetrated market. While rising competitive intensity poses a margin risk, we maintain India margin estimates with ongoing backward integration at plants, rising low-calorie mix, and PET light-weighting. Despite the earnings cut, we remain confident of VBL delivering double-digit volume growth and considerably outperforming the FMCG pack.
Outlook
We expect VBL to deliver a strong 15%/20% revenue/EPS CAGR over CY24-27E. We maintain BUY while cutting our TP by ~11% to Rs 625 (50x Mar-27E EPS).
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