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Research
Varun Beverages - Q4 CY20 Result and Concall Update - YES Securities
Posted On : 2021-02-17 15:09:59( TIMEZONE : IST )
Strong margin performance and decent demand recovery; FCF generation set to improve from CY21
Our View - We like the stock given a decent recovery in demand, opportunities for further penetration-led growth especially in West and South markets, strong ramp-up in international territories, potential in non-cola categories and juices and a solid balance sheet and margin profile. The stock is trading at 14x CY22 EV/EBITDA and 28x P/E for expected ROE of 20% and we believe it can slowly move towards a P/E of 35x, indicating more than 20% upside from current levels.
Result highlights - Revenue growth of 9% and organic volume growth of 6% yoy led by a fast recovery across geographies; for CY20, volume decline of 14% (organic decline of 21%) coupled with a 5% increase in realizations due to better mix led to a 10% decline in revenue; gross margins up 470bps given higher mix of CSD and 13% decline in PET chips prices; EBITDA margins up 350bps given cost optimization measures; 22% decline in interest costs reduced losses to Rs 72mn from Rs 540mn.
Segment growth differential - CSD and water impacted more given majority consumption on-the-go, but has now recovered fully except the institutional channel, juices saw a weak quarter after the recovery but picking up in current quarter; North India goods movement also impacted growth; On-the-go share decreased in CY20 from 56% to 40% and in-home consumption increased from 40% to 56%.
Margin outlook - Should sustain around current levels as while PET chip prices have gone up sharply, will not be impacted as have fully covered for CY21 purchases; should see margins better than CY19 levels.
Shares of Varun Beverages Ltd was last trading in BSE at Rs.903.9 as compared to the previous close of Rs. 943.6. The total number of shares traded during the day was 42566 in over 2486 trades.
The stock hit an intraday high of Rs. 964 and intraday low of 894. The net turnover during the day was Rs. 39053728.