MOSL: VARUN BEVERAGES (Buy)-Sharp volume growth on strong recovery and lower base
VARUN BEVERAGES: Sharp volume growth on strong recovery and lower base
(VBL IN, Mkt Cap USD4.6b, CMP INR789, TP INR920, 17% Upside, Buy)
Earnings above estimates
- Varun Beverages (VBL) reported strong volume/revenue growth on the back of demand recovery across product segments and a lower base. It reported a stable operating performance, albeit gross margin contraction, owing to sustainable cost optimization measures implemented last year.
- 2QCY21 revenue/EBITDA/PAT came in above our estimates. We increase our earnings estimates for CY21/CY22 by 29%/8%, on the back of (a) better realization on an improving product mix, (b) an increase in volumes on strong demand recovery, and (c) increasing traction in newly launched products. We maintain our Buy rating, with TP of INR920.
Sharp volume recovery, marginally offset by second wave
- Revenue increased 49% YoY to INR24.5b (est.: INR21.3b), primarily led by (a) robust volume growth across segments, coupled with the lower base of the previous year, and (b) a 3.2% YoY increase in realization per case. Overall volumes increased 45% YoY to 152m cases. Gross margins contracted 130bp to 53.5% (est.: 52.5%) on a change in the product mix and a marginal increase in raw material prices.
- EBITDA/unit-case rose 4% YoY to INR37.6/unit-case on a better product mix v/s the same period last year. The EBITDA margin expanded 30bp YoY to 23.3% (est.: 21.5%), and EBITDA stood at INR5.7b (up 51% YoY). Adj. PAT increased 2.2x YoY to INR3b (est.: INR1.9b).
- Subsidiary (consolidated less standalone) sales/EBITDA grew 2x/70% YoY to INR4.9b/INR1b in 2QCY21. Adj. PAT surged 3.7x YoY to INR701m.
Varun Beverages Limited is engaged in manufacturing, selling, bottling and distribution of beverages of Pepsi brand. The Company produces and distributes a range of carbonated soft drinks (CSDs), as well as a selection of non-carbonated beverages (NCBs), including packaged drinking water. PepsiCo CSD brands produced and sold by the Company include Pepsi, Diet Pepsi, Seven-Up, Mirinda Orange, Mirinda Lemon, Mountain Dew, Seven-Up Nimbooz Masala Soda, Seven-Up Revive and Evervess Soda. PepsiCo NCB brands produced and sold by the Company include Tropicana Slice, Tropicana Frutz, Seven-Up Nimbooz, as well as packaged drinking water under Aquafina brand. In addition, it also franchises for Ole brand of PepsiCo products in Sri Lanka. It operates in over 20 production facilities across India and over five production facilities in its international licensed territories. It franchises for various PepsiCo products spread across approximately 20 States and over two Union Territories in India.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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