Hold Varun Beverages; target of Rs 606: ICICI Securities

ICICI Securities research report on Varun Beverages

Takeaways: (1) Varun (VBL) has aggressively ramped up production (operating at maximum utilisation) at its recentlycommissioned DRC facility, due to strong demand. It plans to scale up production capacity at DRC in a phased manner (2x by Aug’25). (2) Unfavourable weather hurt domestic volumes (+5.7% YoY). (3) VBL is streamlining operations in its Africa business – better operational efficiency potential. BevCo is registering better volumes amid a seasonally weak period; upcoming peak season may register higher volume growth. (4) VBL sees potential to register sales of INR 8– 8.5bn from the three plants proposed for its snack business. (5) Proposed fund raise could be utilised for: (i) debt reduction, (ii) expansion into newer territories, and (iii) inorganic acquisitions. We remain positive on VBL’s strong business outlook, but its current valuations seem stretched.

Outlook

Maintain HOLD with a DCF-based unchanged TP of INR 606 (adjusted for the 2:5 stock split; implied P/E of 62/49x CY25/26E).

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