Weaker-than-expected 3QCY17 performance and GST-led disruption in 2Q led to a relatively muted 9MCY17 (broadly representative of CY2017 as 4Q is a seasonally weak quarter). Low base, a robust NPD pipeline, recent acquisition of Odisha/MP territories and macro pickup is likely to drive stronger growth in CY2018; our estimates remain broadly unchanged. Retain ‘buy’ and revise TP to Rs 600/share as we roll-over to September 2019. We note VBL’s reported financials (under Ind-AS) aren’t strictly comparable to our quarterly/full- year estimates (under IGAAP) below EBITDA-line; the company didn’t share comparable IGAAP financials this time. That said, consolidated earning print for 3QCY17 was a tad weaker-than-expected – net revenues grew 7 % y-o-y to Rs 9.63 billion (5% below estimates), EBITDA grew 6% y-o-y to Rs 1.85 billion and recurring PAT grew 219 % y-o-y to Rs 329 million. Revenue growth was aided by 5.4% volume growth led by 4% volume growth in India business and 9.4% growth in international business. EBITDA margin contracted 20 bps y-o-y to 19.2% as sharp GM contraction of 460 bps y-o-y (due to inflation in sugar prices and phasing of promotional spends by PepsiCo — this gets discounted from VBL’s concentrate pricing) was negated by a similar quantum of savings in other expenditure (led by GST-led savings and lower logistics costs due to realignment of operations). Recurring PAT growth was largely aided by a sharp 54 % y-o-y drop in interest costs. For 9MCY17, VBL reported 1%, 4% and 75% growth in revenue, EBITDA and PAT. EBITDA margin expanded 60 bps y-o-y to 23.1% and recurring EPS stood at Rs 15.5/share. Volumes for the period declined 1% y-o-y to 245 million cases.
Management highlighted – (1) after destocking impact in 2QCY17, it has witnessed partial recovery in 3QCY17 in India business, (2) its international operations continue to register robust growth – for 9MCY17 Nepal, Sri Lanka and Morocco registered 20%, 11.4% and 15% growth respectively, (3) it has completed acquisition of Odisha/MP territories from PepsiCo along with two facilities for Rs 1.3 billion and (4) it has rolled out energy drink Sting at competitive pricing.