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Buy Varun Beverages; target of Rs 1220: Emkay Global Financial

Emkay Global Financial is bullish on Varun Beverages has recommended buy rating on the stock with a target price of Rs 1220 in its research report dated October 25, 2022.

October 27, 2022 / 11:05 AM IST
 
 
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Emkay Global Financial's research report on Varun Beverages

VBL posted ~19% revenue CAGR in CY12-21, led by revenue CAGR of 18% in India and 23% in international geographies. The robust global growth was driven by strong ramp up in three-country Africa operations and a sustained growth in Nepal. In our view, Africa is a large soft-drinks market (Emkay Est: >USD25bn industry size as of CY19) and its attractive macro growth + demographics offer a low-teen revenue CAGR opportunity over the medium-to-long term. We estimate that PepsiCo currently addresses 40-45% of the Africa market (value terms) via presence in 13 countries vs. ~100% for The Coca-Cola Company (TCCC) via presence in >50 countries. Hence, potential distribution expansion by PepsiCo should help it to grow faster than the industry. Moreover, VBL’s proven execution capability in Zimbabwe/Nepal (~50% of market share now vs. marginal share at the time of acquisition of distribution rights) and PepsiCo’s focus on growing franchise-owned bottling operations should help VBL to foray into more markets in Africa; its procuring distribution rights in the Democratic Republic of Congo (DRC) recently is a testament to this. Factoring-in conservatively the potential Africa opportunity, we increase our CY25-35E growth by 300bps to 18%, effecting a higher multiple, at 40x Sep-24 EPS (vs. 34x earlier). RoIC for international geographies has also improved, to ~20% in CY21, led by margin gains and better sweating of assets.

Outlook

We maintain BUY with revised TP of Rs1,220 (vs. Rs1,060 earlier).

For all recommendations report, click here

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Varun Beverages - 261022 - emkay

Broker Research
first published: Oct 27, 2022 11:05 am

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