Buy Varun Beverages; target of Rs 657: KR Choksey

KR Choksey's research report on Varun Beverages

For Q4CY24,VBL’s total revenue increased 39.8% YoY (-22.6% QoQ) to INR 38,176 Mn, beating our estimates. The consolidated sales volume grew by 38.1% to 215 Mn cases from 155 Mn cases on YoY basis. This includes 43.0 Mn cases from South Africa and 7.8 Mn cases from DRC during the current quarter. Net realization remained flat to INR 172 for the quarter compared to Q4CY23. EBITDA increased 38.7% YoY (-49.6% QoQ) to INR 5,800 Mn, outperformed our estimate mainly due to better operating leverage. Net profit increased 40.3% YoY (-70.1% QoQ) to INR 1,851 Mn, outperformed our estimate due to lower-than-expected income tax expenses and higher than expected other income. We lower our CY25/26E Adj. EPS estimate by ~5% for both years, due to moderating India volumes and slower recovery in Zimbabwe, Ghanian market to also be impacted by sugar tax transition and initial challenges. However, we expect the company has good growth potential, driven by deeper penetration in newly acquired African territories and steady expansion in the domestic market. The company's share price is currently trading at 48.4x/41.3x on its CY25E/CY26E EPS, respectively.

Outlook

We lower our P/E multiple to 52.0x (previously 57.0x) due to increased competition. Based on a CY26E EPS of INR 12.6, we arrive at a target price of INR 657 per share (earlier INR 770 per share), representing a 26.3% upside from the CMP. Subsequently, we maintain our ‘BUY’ rating on Varun Beverages Ltd.