Varun Beverages declared its Q4 numbers and has received a favourable recommendation from key brokerages. The biggest bottler for PepsiCo outside the US is hopeful that the scorching summer will add to its margins and bottom line. The brokerage house Nuvama Institutional Equities maintains a ‘Buy’ recommendation on Varun Beverages with a target price of Rs 659 per equity share.
Nuvama on Varun Beverages: Inorganic growth aids volume
According to Nuvama, Varun Beverages India volumes rose 15.5% year-on-year, which was one of the company’s key positives. Its Indian business’s EBITDA margin stood at 25%, an increase of 111 basis points YoY and 889 bp sequentially. While the company’s consolidated volume rose 30.1% to 312 million cases, including inorganic growth from South Africa and the Democratic Republic of Congo.
The other aspect that Nuvama considers as a positive is that the bottling company will soon start commercial production in two greenfield production facilities in Bihar and Meghalaya. Also, the company has set up backwards-integration facilities at Prayagraj and DRC.
Nuvama on Varun Beverages: Strong demand hopes
On the competition front, Tata Consumer Products has re-indexed retailer margins in its NourishCo business to match the competition. Plus, Coca-Cola highlighted double-digit volume growth in Q1CY25, led by strong growth in Coca-Cola and Thumbs Up. However, it suffered a decline in non-alcoholic ready-to-drink beverages. Coca-Cola saw over 180 million servings during the Maha Kumbh Mela festival, which would have helped the industry’s growth rate. Not just that, Reliance Consumer has announced Bihar and Assam plants over the past couple of months to ramp up its manufacturing and distribution capabilities.
Nuvama on Varun Beverages: Margin outlook encouraging
Coming back to the margins, the company has guided for a double-digit revenue growth with India EBITDA margin at a minimum of 21%. As Varun Beverages is doing backwards integration, it expects better margins and no major dip despite competition and inflation.
In Q1CY25, its gross margin of 54.6% decreased by 171 basis points YoY owing to an adverse mix in India and increased salience of the South Africa business. EBITDA margin of 22.7% edged down 20 bps YoY.
Varun Beverages volume and reslisation in Q1CY25
The company reported a strong Q1CY25 with revenue up 29% YoY and EBITDA up 28% YoY, which were in line with the broker’s estimates. The consolidated volume was up 30.1% YoY. India volume grew 15.5% YoY, ahead of expectations, spurred by a strong heatwave.
Varun Beverages’ realisation per case in India grew marginally by 1.8% YoY, while consolidated net realisation per case declined a bit by 0.9% YoY.