This Beverage Stock Has Potential To Grow 22%: Emkay Global Gives Buy Rating

Reputed brokerage firm Emkay Global recommended investors buying the stocks of Varun Beverages for a 21.60% upside. VBL continued on its strong growth trajectory, with a 2 years volume CAGR of ~17% in Q4CY21, compared to pre-Covid levels.

Target Price

The Current Market Price (CMP) of Varun Beverages is Rs. 946. Emkay Global has estimated a Target Price for the stock at Rs. 1150. The company is expected to offer a 21.60% upside, in 1 year.

Stock Outlook
Current Market Price (CMP)	Rs. 946
Target Price	Rs. 1150
1 year return	21.60%

Company performance

VBL's Q4CY21 revenue performance was robust and 7-9% ahead of our/street estimates. Revenues saw a ~19% CAGR over pre-Covid levels, led by a 17% volume CAGR. The spike in PET prices led to lower EBITDA margins of 12% (vs. 13% expectations). VBL's net sales were Rs. 88,232 mn in CY 21, which is expected to grow to Rs. 1,08,765 mn in CY 22. operations led to a ~2% CAGR improvement, leading to a revenue CAGR of ~19%. VBL expects debt to decline by ~40% in CY22E, helped by strong FCF generation on lower CAPEX.

Comments by Emkay Global

Maintaining buy status, Emkay Global stated, "Sustained growth momentum during CY21 strengthens estimates of ~40% EBITDA growth in CY22 and a ~22% EBITDA CAGR over CY21-CY24. Potential market share gains, best-in-class operational efficiencies and continued improvement in the RoIC profile keep us positive on VBL. We largely maintain our ahead-of-consensus estimates and see scope for consensus upgrades with consistent strong execution by VBL. Net debt remained flat at Rs. 30bn due to the stocking up of PET resin in anticipation of supply-chain disruptions (Rs. 2bn) and CWIP of Rs. 5bn for Bihar/J&K projects."

About the company

Varun Beverages Limited (VBL or Company) is a key player in beverage industry and one of the largest franchisee of PepsiCo in the world (outside USA). The Company produces and distributes a wide range of carbonated soft drinks (CSDs), as well as a large selection of non-carbonated beverages (NCBs), including packaged drinking water sold under trademarks owned by PepsiCo. PepsiCo CSD brands produced and sold by VBL include Pepsi, Diet Pepsi, Seven-Up, Mirinda Orange, Mirinda Lemon, Mountain Dew, Mountain Dew Ice, Seven-Up Nimbooz Masala Soda, Evervess, Sting, Gatorade and Slice Fizzy Drinks.

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Disclaimer

The above stock was picked from the brokerage report of Emkay Global. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.