Emkay Global Financial has given Buy recommendation for Varun Beverages with a target price of Rs. 1030 in its research report issued on Feb 16, 2021

Emkay Global Financial’s report on Varun Beverages

VBL’s Q4CY20 operating performance was largely in line with our expectations but better than consensus estimates (39% beat), driven by better margin performance. EBITDA margins improved 350bps to ~13% (vs. our/Street expectations of 13.4%/9.6%). EBITDA margins continued to improve with 350bps YoY expansion in Q4, aided by benign RM costs, unprofitable plant closures and strong improvement in profitability of global operations (refer exhibit-2). VBL expects to retain partial cost savings in CY21E. VBL maintained its CY21E capex guidance (at <50% of depreciation) and indicated focus on debt reduction in CY21E. With strong cash generation in the business (refer exhibit-7), we expect VBL to reduce its debt by Rs7.5bn/Rs7.5bn/Rs8.5bn in CY21/22/23E.


We maintain our CY21/22E estimates, forecasting 14%/28% EBITDA/EPS CAGR over CY19-22E. We raise the TP to Rs1,030, rolling over to Mar’23E EBITDA and raising multiple to its mean 1-Yr forward multiple (14.5x vs. 13.0x earlier). Multiple revision is on faster-than-expected recovery and improved earnings growth visibility. Retain Buy.