Buy Varun Beverages; target of Rs 770: KR Choksey

KR Choksey's research report on Varun Beverages

Varun Beverages Limited (VBL), one of PepsiCo's largest franchisees, has announced the acquisition of full ownership in two African beverage companies: SBC Tanzania and SBC Beverages Ghana. VBL has acquired 100% control of SBC Tanzania for INR 13,040 Mn and SBC Ghana for INR 1,270 Mn. These strategic acquisitions align with VBL's objective to expand its operational footprint in Africa, a region identified as key for future growth. SBC Tanzania: Operating five manufacturing facilities, SBC Tanzania generated a revenue of INR 15,050 Mn in FY24. The acquisition will significantly strengthen VBL's market position in East Africa, particularly enhancing its manufacturing and distribution capabilities for PepsiCo products and other beverages.

Outlook

Following these acquisitions, we have raised our CY26E EPS estimate by ~4.0% to INR 13.4 (from INR 12.9) and maintain our PE multiple of 57x. We expect these strategic expansions will contribute ~5.0% incremental growth to EBITDA and 4.0% incremental growth to EPS in CY26E. As a result, we have upgraded our target price to INR 770 (previously INR 738) and maintain our “BUY” rating on Varun Beverages Ltd.

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