Buy Varun Beverages; target of Rs 750: Emkay Global Financial

Emkay Global Financial's research report on Varun Beverages

VBL has approved SPA to acquire 100% stake in SBCT/SBCG, which own manufacturing/distribution rights for NARTD beverages in Tanzania and Ghana. The acquisitions will help VBL make progress in East and West Africa, after gaining rights for most of southern Africa. The Tanzanian acquisition comes at an attractive trailing multiple of 1.2x (EV/sales), given dominant share (RMS) of Pepsico (56%) and attractive growth profile (15% CAGR in FY21-23). The Ghana market is also large, but per-cap CSD consumption is likely lower (at 3ltr vs 6-7ltr for Tanzania and India). Neither Pepsi nor Coca-Cola command leadership share in Ghana currently. Tanzania has low currency volatility, while Ghana has relatively higher currency volatility. All in all, VBL has acquired 6 facilities in Africa with total capacity of ~100mn cases (~75% utilization). With historical precedents of margin improvement and scale leverage in Africa, the acquisitions should be earnings accretive and increase VBL’s revenue scale by 9-10%, in our view.

Outlook

We retain BUY and TP of Rs750 (60x Sep-26E EPS).

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