ICICI Direct's research report on Varun Beverages
Varun Beverage (VBL) reported a strong set of results with 33.7% revenue growth led by 33% volume growth. However, consolidated organic volume growth was 24.7% in Q1CY21. The strong growth was led by low base quarter as well as a sharp recovery in out of home activity. Carbonated drinks, juices & water have been consumed largely ‘on the go’. VBL sold 151 million cases during the quarter. Realisation per case improved slightly by 0.6% to 148 per case mainly on account of a change in product mix. Out of total volumes, 70% comprise carbonated drinks CSD, 7% juices & 23% water. Gross margins contracted 294 bps mainly due to change in product mix & sharp increase in PET resin prices. Operating profit increased 41% to Rs 381 crore. With the 300 bps saving in employee spends & 77 bps savings in overhead spends, the company was able to improve its operating margins by 86 bps to 17%. PAT increased 127.7% to Rs 136.8 crore. Adjusting for one-off spend in base quarter, PAT growth was 25.1%
Outlook
We value the stock at 20x CY22 EV/EBITDA with a target price of Rs 1200/share (earlier target price Rs 965) and revise our recommendation from HOLD to BUY.
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