Varun Beverages Share Price Target Q1CY24 Results: Buy, Sell or Hold?- KRChoksey Broker
KRChoksey Brokerage recently released stock research reports on Varun Beverages, focusing on share price targets, along with Result Update Q1CY24, featuring buy, hold, and sell recommendations and potential upside. Let’s delve deeper into their recommendations for Varun Beverages Share Price Target.
Varun Beverages Share Price
VBL’s performance in Q1CY24 was a mix of positive and negative outcomes. The company’s net revenue, excluding excise duty, stood at INR 43,173 million. This represents an 11.3% year-on-year (YoY) growth and a significant 61.0% quarter-on-quarter (QoQ) increase.
However, these figures missed our revenue and net profit estimates by 7% and 10%, respectively. The lower-than-expected volume growth of 7.1% YoY was due to a delayed seasonality cycle, although higher-than-expected realizations partially offset this.
Profit and Costs
Despite a 25.2% YoY rise in Profit After Tax (PAT) to INR 5,373 million, the results were below expectations. This shortfall was primarily due to higher finance costs and lower other income. Nevertheless, the company has raised its EPS estimate for CY25 to INR 27.6, reflecting an improvement in margin profile due to a better revenue mix and cost-cutting measures.
However, the P/E multiple has been lowered to 62.7x, reflecting the slight disappointment in Q1CY24 results. The target price remains INR 1,732 per share, and the “BUY” rating is retained, thanks to VBL’s strong market position and growth potential.
Volume and Segment Performance
In Q1CY24, VBL’s volume growth was 7.1% YoY, totaling 240 million cases. The delayed Holi festival impacted this growth, but higher realizations of INR 179.7 per case (+3.5% YoY) helped. Segment-wise, Carbonated Soft Drinks (CSD) grew by 5.6%, Juices by 12.5%, and Water by 10.4% YoY. India saw a 4.4% growth, while international markets grew by 21.9% YoY.
Future Growth and Investments
VBL expects robust volume growth in Q2CY25 due to factors like the low base effect, seasonality shift, heat waves, and increased capacity. Gross margins improved by 385 basis points (bps) to 56.3%, driven by lower PET prices and initiatives like reducing sugar content and using lighter packaging. EBITDA margins also grew by 240 bps YoY.
Capital Expenditure and Expansion
VBL has outlined a capital expenditure of INR 4 billion for a plant in the Democratic Republic of Congo (DRC), expected to be operational by the quarter’s end with a capacity of 35-40 million cases. The company plans to start snack food production in Morocco by May 2025. In Q1CY24, VBL commissioned three greenfield facilities in Supa, Uttar Pradesh, and Odisha.
Strategic Acquisitions
In Q1CY23, VBL completed the acquisition of The Beverage Company Ltd. (BevCo) in South Africa. This move has strengthened VBL’s presence in African markets like South Africa, Lesotho, Eswatini, Namibia, Botswana, Mozambique, and Madagascar. Full integration of this acquisition is expected by 2025.
Focus on Low Sugar Products
VBL’s low sugar portfolio now makes up 46% of its total sales volumes, with South Africa at 89%. The company plans to launch low sugar variants of popular drinks like Mirinda, 7UP, Pepsi Max, and Sting, along with Zero-Calories Gatorade.
Valuation and Conclusion
VBL’s performance in Q1CY24 was modest, affected by the delayed Holi festival and higher fixed costs. Despite this, the company remains optimistic about future growth, driven by improved realizations, cost efficiencies, and strong market positioning.
We expect VBL’s net revenue, EBITDA, and adjusted PAT to grow at a CAGR of 25.7%, 27.9%, and 32.1%, respectively, over CY23-CY25. The share price target of INR 1,732 represents a 15.5% upside from current levels, reaffirming our “BUY” rating on Varun Beverages Limited.
Varun Beverages Share Price Target
| Date | 15th May 2024 |
| Company | NSE: VBL |
| CMP (Rs) | Rs. 1,499 |
| Target Price | Rs. 1,732 |
| Potential Upside | 15.5% |
| Recommendation | BUY |
| Market Cap (INR Mn) | 19,42,868 |
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