Motilal Oswal has given Buy recommendation for Varun Beverages recommended buy rating on the stock with a target price of Rs 1140 in its research with a target price of Rs. 1140 in its research report issued on Apr 15, 2021

Motilal Oswal’s research report on Varun Beverages

Over CY13-20, volume mix of carbonated soft drinks (CSD) has fallen by ~10pp to 73% in CY20 (309m units). However, corresponding volume has grown at 13% CAGR over the same period. The drop in volume mix is due to increased focus of the management towards diversifying its product portfolio through the introduction of newer products in NCBs (non-carbonated Beverages). – Volume mix of Water increased by 11.6pp to 21% over CY13-20 (90m units), with corresponding volumes growing at 30% CAGR over the same period. Robust growth in Water volumes was due to higher mix of Water in the acquired territories by VBL in India and launch of Water in Sri Lanka and Morocco. Its international volume share saw a significant jump (700bp) to 21% over CY13-20 (88m units in CY20), with volumes growing at 23% CAGR over the same period. – The mix of NCBs has marginally contracted by 120bp over CY13-20 (26m units in CY20). With the commencement of operations at the new Pathankot facility and higher focus towards NCBs, volume mix of NCBs is expected to improve. – We expect overall volumes to grow at 28% CAGR over CY20-22E on the back of increased penetration in the newly acquired territories of South and West India, ramp-up of operations at its new facility (at Pathankot), and new product launches.


We expect a CY20-22E revenue/EBITDA CAGR of 27%/35%. Based on future growth potential (namely acquisition of new territories in South and West India) and the return ration profile, we value the stock at 31x (in-line with its three-year average P/E of 32x) CY22E EPS of INR36.7 to arrive at our target price of INR1,140, implying an upside of 15%. Maintain Buy.