Varun Beverages Q3 Results Review - Strong Volume-Led Growth Continues; Maintain Buy : Axis Securities

Axis Securities Report

Varun Beverages Ltd.’s robust all-around performance was led by volume growth of 18% YoY (~14% in CY23), driven by strong double-digit volume growth in the Indian and international markets. The realization in CY23 grew by 7% at Rs 176/case, led by an improved product mix of smaller stock keeping units. (205 ml-smaller stock keeping units have higher realization), increased salience of the sting portfolio in the domestic market, and improved realisation in international markets.

Gross and Ebitda margin expanded by 34 basis points/179 basis point YoY to 56.6%/15.7% on account of lower polyethylene terephthalate prices, higher realization, and operational efficiencies. It continues to maintain its growth momentum guidance for CY24, supported by scaling up the dairy/juices portfolio, increasing distribution reach, robust on-ground execution, expanding manufacturing capacities, and ramping up Africa (BevCo) business post completion of final approvals by Feb-24

We believe Varun Beverages is expected to continue its strong growth momentum, which will be led by

1. Normalised operations along with 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,

3. Expansion in its distribution reach mainly in rural with total outlets at 3.5 million outlets in CY23, adding 4-5 lakhs outlets per year,

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, and,

5. Robust growth in the International geographies, led by focused execution and scaling up BevCo in CY24.

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