Q4CY2020 Result Update - Varun Beverages - ICICI Direct

Varun Beverages reported healthy results with 9.1% revenue growth & 48.8% growth in operating profit. The strong revenue growth was aided by 5.7% organic volume growth & 3.2% realisation growth. The company sold 87 million cases in Q4CY20, which constitutes 63% carbonated soft drinks (CSD), 5% juices & 32% water. With substantial improvement in out of home activity & opening up of HORECA segment, the company saw strong recovery in volumes in H2CY20. Operating profit increased 48.8% to Rs. 172.2 crore led by 472 bps improvement in gross margins & 91 bps saving in employee spends. The lower PET chips prices & stable sugar prices aided gross margins. Other overhead increased 218 bps as percentage of sales. Operating margins improved 345 bps to 12.9%. The company reported net loss of Rs. 7.2 crore during the quarter vs. loss of Rs. 53.9 crore in the corresponding quarter. We believe consolidation of south & west geographies has helped the company to reduce losses in non-peak season. The reduction in losses was also aided by lower interest cost & tax reversals.

Valuation & Outlook

Given beverages is largely a discretionary category and a large part of demand is contributed by 'On-the-go' activity, the category was impacted heavily in last 10 months. We believe VBL would be able to substantially reduce its debt in next two years. We expect 45.2% CAGR earnings growth during CY20-22E aided by low base, margin improvement and reduction in interest cost. The stock is fairly valued at current valuation multiples. We value the stock at 18x CY22 EV/EBITDA with a revised target price of Rs. 965/share (earlier Rs. 730). We maintain our HOLD rating.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_VarunBeverages_Q4CY20.pdf

Shares of Varun Beverages Ltd was last trading in BSE at Rs.950.9 as compared to the previous close of Rs. 944.95. The total number of shares traded during the day was 11442 in over 586 trades.

The stock hit an intraday high of Rs. 965 and intraday low of 937.3. The net turnover during the day was Rs. 10823985.

Source : Equity Bulls

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