Buy Varun Beverages, target price Rs 1120: Emkay Global

Emkay Global has buy call on Varun Beverages Ltd. with a target price of Rs 1120. The current market price of Varun Beverages Ltd. is Rs 928.75.

Time period given by analyst is one year when Varun Beverages Ltd. price can reach defined target.

Varun Beverages Ltd., incorporated in the year 1995, is a Large Cap company (having a market cap of Rs 40105.36 Crore) operating in FMCG sector.

Varun Beverages Ltd. key Products/Revenue Segments include Beverages, Other Operating Revenue, Other Services for the year ending 31-Dec-2020.

Financials
For the quarter ended 30-06-2021, the company reported a Consolidated Total Income of Rs 2507.45 Crore, up 11.61 % from last quarter Total Income of Rs 2246.62 Crore and up 52.63 % from last year same quarter Total Income of Rs 1642.84 Crore. Company reported net profit after tax of Rs 318.80 Crore in latest quarter.

Investment Rationale
Front-loading of growth expectations and improvement in long-term growth outlook to a mid-teen CAGR vs. low-teen earlier has led to an upgrade in the P/E multiple to 35x from implied 28x earlier. Potential market share gains led by VBL’s operational excellence and lower per-capita spends on hydration in India improve long-term growth confidence in VBL. It reiterates Buy with a revised TP of Rs1,120 (based on a higher 35x Sep’23E EPS vs. implied 28x earlier). Its TP is also backed by a 2-stage DDM (see Exhibit 11). Higher seasonality and volatility in international operations remain key downside risks to estimates.

Promoter/FII Holdings
Promoters held 65.8 per cent stake in the company as of June 30, 2021, while FIIs held 20.7 per cent, DIIs 5.8 per cent and public and others 7.6 per cent.