Varun Beverages - Q2FY21 Result Update - ICICI Securities

Varun Beverages reported strong Q3CY20 results with 3.6% revenue growth given beverage remains largely an out of home consumption category. Volume were down 4% to 119 million (mn) cases with India business volume down 6.7% and international business seeing volume growth of 5.8%. Realisation increased 8%, mainly on the back of a cut in trade promotions and mix change in favour of carbonated soft drinks (CSD) Despite hotel, restaurants & cafes remaining closed, the company was able to restrict volume de-growth to single digits. India business growth of 12.9% in September month is also a sign of normalised growth. Gross margins contracted 149 bps mainly due to increase in sales of consumer promotional packs. However, a 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 241 bps to 21.1%. Interest cost declined 33.2% to Rs. 58 crore mainly due to repayment of debt with QIP proceeds in September 2019 and reduction in cost of debt to 7%. This resulted in a robust jump in net profit by 99% to Rs. 161.5 crore.

Valuation & Outlook

Carbonated drinks, juices & water businesses are discretionary in nature with ~70% of sales contributed by 'on the go' consumptions with a single serve pack selling the most. With a significant reduction in 'out of home' category, the company has been able to recoup its volume by focusing on increasing 'at-home' consumption. We expect the full recovery to happen only in CY21 with sales surpassing CY19 levels. We value the stock at 14x CY22 EV/EBITDA with a revised target price of Rs. 730/share and HOLD rating.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_VarunBeverages_Q3CY20.pdf

Shares of Varun Beverages Ltd was last trading in BSE at Rs.674.4 as compared to the previous close of Rs. 671.8. The total number of shares traded during the day was 118141 in over 621 trades.

The stock hit an intraday high of Rs. 681.3 and intraday low of 656.4. The net turnover during the day was Rs. 79470722.

Source : Equity Bulls

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