Hold Varun Beverages: target of Rs 750: ICICI Securities

ICICI Securities research report on Varun Beverages

With opening up of general trade and HoReCa, Varun’s volumes are expected to be ~100% of pre-Covid levels by end of Q3CY20. That’s the insight we got post interacting with management and channel checks. Other highlights: (1) packaged beverages are gaining market shares from road-side juices / coconut water, (2) there is better recovery in North and East compared to West and South India, (3) Packaged water segment volumes are ~90% of pre-Covid levels whereas there is low single digit growth in off-take of carbonated soft drinks and juices. With deflation in input prices (sugar and packaging material), there is likely gross margin expansion in H2CY20. We model Varun to report PAT CAGR of 7.7% over CY19-21 with improving RoE.

Outlook

However, we need more comfort on valuations to turn bullish. Retain HOLD with target price of Rs750 (40x CY21E).