Buy Varun Beverages; target of Rs 940: Motilal Oswal - Moneycontrol

Motilal Oswal's research report on Varun Beverages
Varun Beverages (VBL), being one of the prominent players in the carbonated soft drink (CSD) segment, is targeting adjacent categories to maintain its robust growth trajectory. As per IMARC report, Indian flavored milk market is set to register a CAGR of ~25% to INR158.6b by CY28. VBL, after receiving positive feedback for products in this category, is increasing its capacity in the segment. It aims to triple its capacity in CY23, and follow it with a national rollout of its products in CY24. VBL has already established its presence in the juice-based beverage market through its brand ‘Tropicana’. Recognizing the potential in the sports drink segment (expect to register 14% CAGR up to CY28), the company has also entered this market with its product ‘Gatorade’. To expand its international presence, VBL has recently incorporated a wholly owned subsidiary in South Africa (CSD market size is USD3.8b in CY21 and expects ~2.9% CAGR over CY21-26). The volume growth is expected to be muted on a YoY basis for 2QCY23, due to unseasonal rainfall. However, the increasing share of energy drinks, juices, and value-added dairy products is expected to drive the overall revenue.

Outlook
We expect a revenue/EBITDA/PAT CAGR of 17%/19%/26% over CY22-25. We value the stock at 45x Jun’25E EPS to arrive at a TP of INR940. We reiterate our BUY rating on the stock.
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Varun Beverages - 11 -07 - 2023 - moti

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