Emkay Global Financial has given Buy recommendation for Varun Beverages with a target price of Rs. 1150 in its research report issued on Mar 20, 2022

Emkay Global Financial’s report on Varun Beverages

Our channel checks suggest double-digit volume growth for VBL in Q1CY22, in line with trends in recent quarters. Further, a strong marketing push (refreshed Pepsi – more fizz), portfolio expansion into lemon-based drinks (40% of industry) and continued traction in ‘Sting’ should boost growth; we expect revenue/EBITDA growth of 26/35% in CY22. VBL is better placed to combat inflation through light-weighting of PET bottles by 6-15%, PET stocking ahead of the crude spike and price hike in select SKUs. We trim CY22E EBITDA by ~3% on crude surge but expect ~130bps margin gains on operating leverage. Our analysis of VBL’s CY21 annual report indicates: 1) rising overseas share – Zimbabwe contributed ~30% of PAT; 2) turnaround in Morocco/SL/Zambia; 3) flat debt level despite Rs5.7bn/Rs4.0bn increase in CWIP/RM inventory. VBL aims to cut debt by 40% in CY22.


Retain CY23-24 estimates with a positive view, based on VBL’s distribution strength, focus on innovation and overseas margin gains. Retain Buy; TP is Rs1,150 (34x Mar’24E EPS).

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