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Last Updated : Jan 10, 2020 08:58 AM IST | Source: Moneycontrol.com

Buy Varun Beverages with target of Rs 862: AnandRathi

As part of growth strategy, the company remains focused of product mix diversification, distribution expansion particularly in rural and semi-urban areas, cost reduction and technology leverage to improve overall efficiency.

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AnandRathi

Varun Beverages is a key player in the beverage industry. It is Pepsi Co’s second largest carbonated soft drinks (CSDs) and non-carbonated beverages(NCBs) global franchisee(outside US) possessing rights to manufacture, distribute and sell CSDs, fruit juice based drinks, packaged drinking water, sports drinks and energy drinks. The company accounts for more than 80 percent of Pepsi Co’s beverage sales volume in India.

In association with Pepsi Co for over 27 years, it has expanded its footprint gradually with presence across 6 countries

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In February last year, company completed acquisition of Pepsi Co India’s franchised sub-territories of parts of Maharashtra, Karnataka and Madhya Pradesh

In its latest quarterly results, company recorded solid top line growth of 49 percent YoY to Rs 17,397 million, EBITDA growth of 54 percent to Rs 33,257 million and PAT growth of 91 percent to Rs 807million. Results were driven by strong volume growth of 60 percent driven by healthy contributions from both domestic market and international operations.

India business reported organic volume growth of 17.5 percent while international territories registered 27 percent organic growth with key markets like Morocco, Zimbabwe, Nepal and Sri Lanka reporting double-digit growth during the quarter.

As part of growth strategy, the company remains focused of product mix diversification, distribution expansion particularly in rural and semi-urban areas, cost reduction and technology leverage to improve overall efficiency.

Regarding macro scenario, the domestic soft drinks industry has significant upside. Per capita consumption of soft drinks in India is much lower, compared to matured markets like US, Mexico and Germany, which provides room for substantial growth. Further, several factors including growing middle class, rising affordability and urbanization is likely to drive demand for beverages in India.

Positioned for continued growth and initiate our coverage on Varun Beverages with a buy rating and a target price of Rs 862 per share.

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First Published on Jan 6, 2020 08:57 am
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