Varun Beverages Q1 Results: Should you buy this PepsiCo bottler stock?

The company on Tuesday said its consolidated profit after tax for the three months ended March 31, 2023 grew 69 per cent year-on-year (YoY). 429 crores.

In the same quarter, the company’s revenue from operations grew by 38 percent YoY 3,952.5 crores to 2,867.4 crores in March 2022.

In a filing with the exchange, the company said that strong demand across regions across India was the primary factor for the 24.7 per cent increase in sales volume. 22.4 crore cases in Q1 calendar year 2023 17.97 crore cases in Q1 calendar year 2022. Domestic volume increased by 28 percent.

However, the stock closed down by 1.86 per cent. 1,417 on Tuesday.

Read More: Varun Beverages Q1CY23 Results: Net profit up 69%; stock split announced

Varun Beverages (VBL) produces, bottles and distributes carbonated soft drinks and non-carbonated beverages for PepsiCo.

According to the Indian Beverage Association, VBL is the second largest franchisee in the world (outside the US) of carbonated soft drinks and non-carbonated beverages sold under trademarks owned by PepsiCo.

It follows the January-December financial year model.

Brokerages Are Upbeat

Most brokerages are positive about the firm’s prospects Varun Beverages‘ stock as he believes that strong capex (capital expenditure), strong market presence and healthy demand outlook will be good for the stock.

brokerage firm Motilal Oswal Financial Services has a buy recommendation on the stock with a target price of 1,690.

Motilal lauded VBL’s strong revenue growth of 38 per cent in the first quarter of calendar year 2023 (Q1CY23), which the brokerage firm underlined, was led by strong growth in volumes (24.7 per cent YoY) with realizations touching Rs. 174 per unit (up nearly 11 percent YoY).

The brokerage firm highlighted that gross margin improved by 90 bps due to savings in raw material costs and improved product mix. Gross Margin/Units grew 12% YoY 91.1, while EBITDA/Unit terms improved by 21 percent YoY 35.6, supported by favorable operating leverage.

“We expect revenue, EBITDA and PAT CAGR of 20 per cent, 23 per cent and 31 per cent respectively over CY22-24, driven by better-than-expected realizations and margins,” said Motilal Oswal.

“We expect VBL to maintain its earnings momentum, which is supported by: (1) increased penetration in newly acquired territories of South and West India, (2) higher acceptance of newly launched products, (3) ) continuously adding new capacities and expanding distribution reach, and (4) increasing refrigeration in rural and semi-rural areas,” said Motilal Oswal.

brokerage firm Kotak Institutional Equities, has also called for a buy on the stock. The brokerage firm projects CY2023-25 ​​volume/revenue growth of 1-3 per cent, moderates EBITDA margin by 20-50 bps and maintains EPS. It has also revised the fair value (target price) from 1,590 1,500, modeling 40 times June 2025E Price-to-Earnings Ratio.

Highlighting the management’s commentary, Kotak said that VBL saw strong demand across regions in India in Q1CY23, with rural markets currently performing slightly better. In addition, management downplayed weather-related risks, saying it could only impact growth by a few percentage points.

Kotak said VBL has retained its capex guidance for CY2023 1500 crores (cash outlay), a major part of which has already been spent. VBL expects net debt to fall in line with normal seasonality in Q2CY23, but year-end target is not yet firm.

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MK Global Financial Services Has also given a buy recommendation on the stock with a target price of 1,700 as it underlines that the company’s Q1 EBITDA was 10-15 per cent ahead of Street and brokerage estimates, owing to stronger traction in India operations and better mix.

“While star performer Sting continues to gain traction, VBL is capitalizing on future growth drivers (value-added dairy, juices and sports drinks). With improved affordability, VBL is confident of demand for new products and will benefit from plans to improve supply by picking up two new manufacturing capacities in calendar year 24 and its existing distribution/visi-cooler network.”

“Our EPS estimates grew by 1-2 per cent in the first quarter, but we see a higher upside of 5-7 per cent in Street estimates. Sting is expected to be a huge success in the calendar year 2019-19 with an incremental contribution of around 500 bps. 22 CAGR of around 23 per cent, in our view. Similar traction in new products could surprise positively,” said MK.

Disclaimer: The views and recommendations expressed in this article are those of the brokerage firms. These do not represent the views of Mint. We advise investors to do due diligence with certified experts before making any investment decision.