Varun Beverages Earns Brokerages' Nod On Strong Earnings, Optimistic Outlook

Most brokerages remain bullish on Varun Beverages Ltd. following the company's strong first-quarter earnings and management's optimism about the near-term demand outlook. According to Morgan Stanley, reasons for this optimism include a strong summer season, a weak base last year, and a shift in the seasonal calendar.

Varun Beverages' earnings in the first quarter of the calendar year 2024 were 13% ahead of Morgan Stanley's estimate and 11% above consensus, with improved margins. The company has commissioned new capacity additions ahead of the season, and its plants are operating at full capacity utilization, as noted in their report on May 13.

Although India's volume growth was slightly soft due to a seasonal shift, Varun Beverages managed to surpass estimates, driven by improved margins and strong international performance, according to Jefferies. "The management outlook remains positive, guiding towards a robust summer season with all plants now running at full capacity."

Varun Beverages' profit rose in the first quarter of 2024, meeting analysts' expectations. The company's net profit increased by 25% year-on-year to Rs 548 crore in the January–March period.

Domestic territory grew by 4.4%, and international markets grew by 21.9% during the quarter. Net realization per case increased by 3.5% in Q1 CY24 to Rs 179.7, driven by an improving product mix in India and higher contributions from international markets.

Morgan Stanley maintains 'overweight' ratings on the company with a target price of Rs 1,701 per share, implying an upside of 16% from the previous close. Jefferies has a "buy" rating with a target price of Rs 1,690 per share.

• The brokerage maintains 'overweight' ratings on the company with a target price of Rs 1,701 per share, implying an upside of 16% from the previous close.

• Q1 CY24 earnings were 13% ahead of brokerage estimates.

• Management is optimistic about near-term Indian demand trends and growth drivers in the international market.

• Net realisation per case is up 3.5% YoY, driven by improving the product mix.

• All plants are operating at 100% capacity utilisation.

• Management reiterates margin guidance of 21-22%.

• The brokerage maintains 'buy' with a target price of Rs 1,720 apiece, implying an upside of 16% from the previous close.

• Cost optimisation and better realisation drive earnings.

• Expects strong sales growth in 2QCY24, led by heat waves and elections.

• Has commissioned three greenfield facilities in CY24 YTD.

• Out of the planned capex of 3600 crore, 3400 crore is done, and 200 crore over the next quarter.

• Expect to maintain momentum due to increased penetration into new territories.

• Higher acceptance of newly launched products, capacity and distribution expansion.

• Expect a CAGR of 21%/22%/29% in revenue/Ebitda/profit after tax over CY23-26.

• The brokerage maintains 'buy' with a target price of Rs 1,690 per share, implying an upside of 14% from the previous close.

• The net realization per case rose 3.5% to Rs 179.

• Increasing CY24/25 earnings per share by 9% and 9%, respectively.

• Target price/equity to 60 times from 55 times, factoring in improving rural demand in CY24.

• Market expansion following the South Africa acquisition, higher realisation and improved operating leverage.

• The brokerage maintains 'buy' with a target price of Rs 1,650 per share, implying an upside of 11% from the previous close.

• Ebitda was 8–13% ahead of estimates.

• 100% utilisation of enhanced capacity in Apr-24, which is up ~40% versus CY22.

• Acquired South African businesses improve their medium-term growth profiles.

• Expanding engagement in Pepsico’s food business remains a potential upside.