KR Choksey's research report on Varun Beverages
Varun Beverages Limited (VBL) delivered a robust performance in CY24, driven by organic volume expansion, an improved product mix, and contributions from recent acquisitions. Consolidated sales volume grew by 23.2% YoY, while net realization per case increased by 1.3% YoY, leading to a 24.7% YoY rise in revenue and a 25.3% YoY growth in PAT. Net revenue from operations reached INR 200,077 Mn in CY24, surpassing INR 160,426 Mn recorded in CY23. Total sales volumes for CY24 stood at 1,123 Mn cases, up from 913 Mn cases in the previous year. The company registered double-digit growth across both Indian and international operations, with India growing by 11.4% and consolidated volumes rising by 23.2%. However, organic volume growth in international markets stood at 6.3% YoY, impacted by the transition to a zero-sugar portfolio following the implementation of a sugar tax in Zimbabwe. In CY24, CSD (Carbonated Soft Drinks) accounted for 74.2% of total sales volumes, JBD (Juice-Based Drinks) for 6.2%, and Packaged Drinking Water for 19.6%. Realization per case increased by 1.3% YoY to INR 177.9 for the year. During the year, gross margins improved by 165 bps to 55.5%, compared to 53.8% in the previous year. This expansion was primarily driven by strategic procurement and storage of PET ((Polyethylene Terephthalate) chips to avail price benefits, along with efforts to reduce sugar content and increase backward integration. Consequently, EBITDA grew by 30.5% to INR 47,110.7 Mn, with EBITDA margins improving by 105 bps to 23.5% in CY24. However, this was partially offset by the consolidation of the South African market and fixed costs associated with new capital expenditures, which are yet to be fully utilized.
Outlook
We expect Revenue/EBITDA/Adj. PAT to grow by 22.1%/23.2%/27.9% CAGR over CY24-26E. The company's share price is currently trading at 46.5x/39.5x on its CY25E/CY26E EPS, respectively. We maintain our P/E multiple of 52.0x based on a CY26E EPS of INR 12.6, arriving at a target price of INR 657 per share (earlier INR 770 per share), implying a 34.6% upside from CMP. Subsequently, we maintain our ‘BUY’ rating on Varun Beverages Ltd.
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