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.
Outlook
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.
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