Varun Beverages - Expanding Its Footing In The African Market: Axis Securities

Axis Securities Report

We believe Varun Beverages Ltd.'s acquisition of BevCo provides a much-needed thrust to expand its geographical footprint in Africa coupled with the expansion of other businesses – energy business, dairy and Juice would be key growth drivers for the company in the coming years.

Moreover, Varun Beverages is a strong candidate in the entire fmcg space on account of-

1. Normalcy of operations and market share gains in newly acquired territories (post Covid-19 disruptions),

2. the management’s continued focus on the efficient go-to-market execution in acquired and underpenetrated territories especially in rural markets,

3. expansion of its distribution reach to 3.5 million outlets in CY23 from three million currently,

4. focus on expanding high-margin Sting energy drink across outlets coupled with increased focus on expansion of value-added Dairy, Sports drink (Gatorade), and Juice segment.

Varun Beverages has been in our top picks portfolio since long and we continue to remain positive on the stock on a mid to long-term basis.

We estimate revenue/Ebitda/profit after tax compound annual growth rate of 23%/30%/35% over CY22-25E as we revised our CY24-25 PAT estimates upwards by 5%/12% based on the abovementioned rationales.

We maintain our 'Buy' rating on the stock with the revised target price of Rs 1,450/share (47 times CY25 earnings per share) versus the earlier target price of Rs 1,200/share (45 times CY25 EPS), implying an upside of 24% from the current market price.

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