Buy Varun Beverages; target of Rs 805: ICICI Direct

ICICI Direct's research report on Varun Beverages

Varun Beverages (VBL) reported 49.2% YoY growth in revenues to Rs 1739.7 led by 60.4% overall volume growth on the back of acquisition of south and west sub-territories from PepsiCo. India organic volume growth of 17.5% was led by good performance in underpenetrated territories acquired in the last two years. International volume growth of 27% was on account of double digit growth in Morocco, Zimbabwe, Nepal and Sri Lanka. EBITDA increased 54.2% to Rs 325.7 crore with 60 bps improvement in operating margins to 18.7% on account of benign raw material cost & operating leverage in the business. Led by strong operating profit growth, net profit increased 83.4% to Rs 81.1 crore.

Outlook

As volume growth picks up in new territories and the company participates in the manufacturing segment of Tropicana, we expect revenue & earnings CAGR of 20.2% & 28.9% in CY18-21E, respectively. We value VBL at 35x CY21E earnings. We upgrade our recommendation to BUY with a revised target price of Rs 805/share.

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