Varun Beverages- Strong Financial Position, Expansion To Drive Growth: KRChoksey Initiates Coverage With A Buy

KRChoksey Research Report

We believe that Varun Beverages Ltd. has multiple tailwinds in the form of macro factors, distribution expansion, capacity expansion, entry into new territories and products, and a strong financial position. Operationally, Varun Beverages is in a strong position to expand its distribution footprint and use its expertise in logistics and distribution to tap into the growth potential of the juice/ dairy/ sports drinks portfolio.

Once the large capex plan undertaken in CY23 and CY24E is complete, we expect an acceleration in free cash flow generation due to higher cash flow from operations and lower capex and expect it to aid in debt reduction.

We expect further improvement in return on capital employed (excluding-cash) from CY25E. We expect net revenue/ Ebitda/ adjusted profit after tax to grow at a compound annual growth rate of 17.3%/ 20.2%/ 26.2% over CY22-CY25E.

The stock price of Varun Beverages is currently trading at 68.8 times/ 57.2 times/ 46.4 times its CY23E/ CY24E/ CY25E earnings per share.

We assign a price/earning multiple of 55.0 times to CY25E EPS of Rs 23.2. We Initiate coverage on Varun Beverages) with a 'Buy' rating and target price of Rs 1,273 per share, with a 18.3% upside from current levels.

Peer Comparison:

There is no listed player which is a head-to-head competitor for Varun Beverages. We have looked at companies which are in the food processing and dairy processing industry.

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