Varun Beverages - Q3CY20 First Cut - ICICI Securities

(CMP - Rs. 673, MCap - Rs. 19,444 crore)

Varun beverages reported strong set of numbers with 3.6% sales growth (positive growth was a surprise given restaurants, cafes were largely remained shut for most of the quarters). Cost rationalisation measures & significant decline in interest cost led to the robust earnings growth

Q3CY20 Earnings Summary

- Revenue witnessed increase of 3.6% to Rs. 1802.6 crore with 4% volume de-growth & 8% realisation growth largely led by rationalisation of trade promotions & higher volume of Carbonated soft drinks (CSD). India volumes were down by 6.7% whereas International business reported 5.8% volume growth. In India, September month witnessed a strong recovery with 12.9% growth showing a complete recovery despite restaurants & cafes were not functioning at 100% capacity

- Gross margins contracted by 149 bps mainly due to increase in the sales of consumer promotional packs. However, 50 bps saving in employee spends to sales & 343 bps savings in overhead spends to sales resulted in operating profit increase of 16.9% to Rs. 380.8 crore. Operating margins expanded by 241 bps to 21.1%

- Interest cost declined by 33.2% to Rs. 58 crore mainly due to repayment of debt with QIP proceeds in September 2019 & reduction in cost of debt to 7%. This resulted in robust jump in net profit by 99% to Rs. 161.5 crore

Despite out of home consumption not resumed fully, the company was able to restrict volume decline to 6.7%. Moreover, it has been able to see 8% realisation growth by cutting down trade promotional offers. With ~13% growth in September, we believe CY21 would see a normalised volumes. The company's balance sheet is relatively stronger given it has been able to de-leverage its balance sheet by reducing debt with the proceeds of QIP & reduction in interest rates. We will review our recommendation after the conference call.

We will be coming out with the detailed update soon

Shares of Varun Beverages Ltd was last trading in BSE at Rs.672.6 as compared to the previous close of Rs. 672.75. The total number of shares traded during the day was 15830 in over 1566 trades.

The stock hit an intraday high of Rs. 682.2 and intraday low of 663.45. The net turnover during the day was Rs. 10680981.

Source : Equity Bulls

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