Varun Beverages Q3 Results Review - Strong 14% Volume Growth In A Difficult CY23: Systematix

Systematix Report

Varun Beverages Ltd.'s delivered another strong quarter beating consensus estimates with volume/revenue/Ebitda/profit after tax growth of 18%/21%/36%/77% respectively. Both India and international markets witnessed strong distribution-led traction, superior mix driving realizations and lower input costs driving better profitability.

A 14% volume growth in year where volumes were impacted by unseasonal rains in the peak season raises hopes of an even stronger growth performance in CY24, especially as new capacities are getting commissioned for the upcoming season with ~45% increase. Juices and value-added dairy are also set for strong growth in CY24 with the capacities being tripled, with one plant in West and one in East India getting completed.

There is enough room for further distribution expansion to drive growth in India, especially in energy drinks while the international addressable market is getting expanded with the South African acquisition and upcoming entry into the congo market. While the management has retained its 21-22% margin guidance, we see a high probability of the company outperforming that given the current margin levels of 23% and further premiumization potential.

We do not see the increase in debt levels due to aggressive capacity expansion and the South African acquisition as a concern as the rising scale of operations should help manage that.

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