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Q1CY21 Result Update - Varun Beverages - ICICI Direct

Posted On: 2021-05-05 04:52:44 (Time Zone: UTC)

Varun Beverage (VBL) reported a strong set of results with 33.7% revenue growth led by 33% volume growth. However, consolidated organic volume growth was 24.7% in Q1CY21. The strong growth was led by low base quarter as well as a sharp recovery in out of home activity. Carbonated drinks, juices & water have been consumed largely 'on the go'. VBL sold 151 million cases during the quarter. Realisation per case improved slightly by 0.6% to 148 per case mainly on account of a change in product mix. Out of total volumes, 70% comprise carbonated drinks CSD, 7% juices & 23% water. Gross margins contracted 294 bps mainly due to change in product mix & sharp increase in PET resin prices. Operating profit increased 41% to Rs. 381 crore. With the 300 bps saving in employee spends & 77 bps savings in overhead spends, the company was able to improve its operating margins by 86 bps to 17%. PAT increased 127.7% to Rs. 136.8 crore. Adjusting for one-off spend in base quarter, PAT growth was 25.1%

Valuation & Outlook

Despite beverage being a discretionary category, the company has been able curtain the impact of pandemic and lockdown in CY20. Further, we believe increase at-home consumption would result in swift recovery in volumes in CY21E and we expect a full recovery in CY22E. With strong volume growth, robust operating margins & declining interest cost (with debt reduction), we expect net profit CAGR of 57.4% in CY20-22E. We value the stock at 20x CY22 EV/EBITDA with a target price of Rs. 1200/share (earlier target price Rs. 965) and revise our recommendation from HOLD to BUY.

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Shares of Varun Beverages Ltd was last trading in BSE at Rs.1003 as compared to the previous close of Rs. 1003.7. The total number of shares traded during the day was 47789 in over 2937 trades.

The stock hit an intraday high of Rs. 1055.4 and intraday low of 990. The net turnover during the day was Rs. 48650264.

Source: Equity Bulls

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