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ICICI Securities Report
With opening up of general trade and hotel restaurant cafe, Varun Beverages Ltd. volumes are expected to be approximately 100% of pre-Covid-19 levels by end of Q3 CY20.
That's the insight we got post interacting with management and channel checks. Other highlights:
- Packaged beverages are gaining market shares from road-side juices / coconut water
- There is better recovery in North and East compared to West and South India
- Packaged water segment volumes are approximately 90% of pre-Covid levels whereas there is low single digit growth in off-take of carbonated soft drinks and juices.
With deflation in input prices (sugar and packaging material), there is likely gross margin expansion in H2 CY20.
We model Varun Beverages to report profit after tax compound annual growth rate of 7.7% over CY19-21 with improving return on equity.
However, we need more comfort on valuations to turn bullish.
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