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Axis Securities
Varun Beverages (Buy)
Target: ₹1,005
CMP: ₹903.90
Varun Beverages Ltd (VBL) is the second largest franchisee for PepsiCo in the world (outside US). It manufactures carbonated soft drinks - Pepsi, Mountain Dew, Seven Up, Mirinda; Non carbonated beverages - Tropicana Slice, Tropicana Frutz; and Bottled water – Aquafina.
It operates in India and is also the exclusive bottler for PepsiCo in Nepal, Sri Lanka, Morocco, Zambia and Zimbabwe.
Business has recovered to flat levels y-o-y. VBL expects growth to pick-up on scale up of dairy portfolio coupled with new launches and sustainable growth within existing products. In-home consumption which saw a spurt in H1-FY21 has now settled down to last year levels.
Overall management expects to clock festive sales (Oct-Dec) similar to previous year levels. In terms of dairy portfolio, management expects to roll it out across locations with wider presence across schools to capitalise on the health trend.
We expect VBL to register Revenues/Earnings CAGR of 11 per cent/31 percent resp. over CY19-22E. This growth will be driven by consolidation in newly acquired territories; distribution led market share gains; and margin tailwinds from cost efficiencies.
Given the healthy outlook for the upcoming season and tie-ups with leading and fast growing QSR players in India could propel VBLs growth into a new orbit.
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