Varun Beverages Q1 Results Review: Resilient Show; ICICI Securities Maintains 'Hold' On Stretched Valuations

Varun Beverages reported revenue/Ebitda/PAT growth of 29%/28%/33% YoY. Gross/Ebitda margins contracted by 171bps/20bps YoY largely to inferior product mix. Net realisation per case declined 0.9% YoY, largely due to lower realisation in own brands in South Africa. Notably, realisation per case grew 1.8% in India and remained flat in International (ex. South Africa). Depreciation increased by 45% YoY on account of commissioning of new plants of last year (Supa, Gorakhpur and Khordha) and consolidation of SA & DRC. This was offset by lower finance cost (down 56% YoY) and higher other income, leading to PAT growth of 33% YoY.

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ICICI Securities Report

Varun Beverages Ltd.'s Q1 CY25 performance was marginally ahead of our estimates with revenue/ Ebitda/ PAT growing by 29%/ 28%/ 33% driven by 30% volume growth. Despite increase in competitive intensity, India business performance was resilient with revenue growth of 18% driven by 15.5% volume growth.

We note that, the pricing action in CSD to fight competition and unseasonal rain in select geographies could marginally impact the performance in Q2 CY25. However, over the long term, the performance would be driven by strong execution and new product launches.

In international business, South Africa is scaling up well with 13% volume growth over the last four quarters and margin improvement (14% from 10.5% at the time of acquisition) driven by scaling down of non-profitable products.

We remain positive on Varun Beverages’ strong business outlook but its current valuations seem stretched. Maintain Hold.

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