Target: ₹1,175
CMP: ₹902.25
Varun Beverages has a diversified growth strategy, with multiple levers in place to drive its long-term growth. We expect volume growth momentum to continue, with: a gradual gain in market share on increasing penetration in underpenetrated markets; higher acceptance of recently launched products; and ramp-up of operations in new regions (South and West India).
We expect the out-of-home consumption mix for VBL to return to normal levels (about 65 per cent) after the lifting of Covid-related restrictions, with increasing intensity in domestic and international travel.
Apart from increasing out-of-home consumption in existing territories, the pick-up in volumes in the newly acquired territories of South and West India will drive overall sales volumes as these markets have not seen normal sales after their acquisition due to the Covid-19 pandemic.
The international business, which contributed 20 per cent of overall volume and 25 per cent of consolidated sales in CY21, has shown buoyant revenue growth (20 per cent CAGR over CY16-21). EBITDA grew at 38 per cent CAGR over CY16-21.
VBL announced its plans to set up new manufacturing facilities in Bihar (for carbonated soft drinks, juices, and packaged drinking water) and Jammu & Kashmir (for plastic preforms and plastic closures) in CY21.
With a ramp-up in operations due to increased demand and impact of the Covid-19 pandemic gradually subsiding, we expect operating leverage to kick-in and complement margin expansion.