Emkay Global Financial's research report on Varun Beverages
VBL’s Q2 EBITDA grew 3-4% ahead of estimates, led by better International performance. On expected lines, India performance was impacted by unseasonal rains (North). VBL has commissioned 3 greenfield plants and additional lines in 6 existing plants in the last 6 months; also, 3 plants are under CWIP, which should commence during CY24. VBL has indicated a combined capex of Rs28bn for these facilities which, in our view, should help to expand VBL’s production capacity by ~40% (at 2x asset turns). Additional capex should also remove supply-constraints in new growth drivers (Dairy, Juices, Gatorade) and offers potential for 20-25% revenue/EBITDA CAGR over CY22-25E.
Outlook
We remain optimistic on demand, given under-penetration in core categories, strong acceptability for energy drink Sting and entry into new categories. TP increases by 5%, led by 2% estimate increase and 3M rollover. We maintain BUY. Better realization in new categories remains a potential upside.
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