Pick Of the Week – Varun Beverages
We hereby present you our investment idea for Equity Investment i.e “Pick of the Week”. A thorough analysis of company, industry and economy goes behind our stock ideas for you. With the “Pick of the Week”, you may earn superior returns in stock market over a time horizon of 6 – 9 months.
• Q3CY18 performance – growth momentum sustained: VBL posted another robust quarter as consolidated
revenue grew 21% YoY led by 17% YoY jump in overall volumes at 77.5 mn cases (8.5% organic, domestic
organic volume growth higher at 9.3% – marginally dragged by festive timing mismatch) and 3.8% price/mix-led
growth (aided by price hike in select SKUs, reclassification of freight cost vs. netting from revenues earlier and
contribution from higher realization products like Tropicana, Sting etc.). EBITDA grew 14% YoY with EBITDA
margin of 18.1% and management remains confident of improving them going forward.
• Volume growth (+9.3% organic domestic volume growth, despite festive timing mismatch, overall up 17% YoY) and margin trend remained fairly healthy.
• Gains from consolidation of new territories (both margin/topline), Tropicana juices distribution (higher gains once manufacturing plant commences), recent NPDs and international expansion (Nepal/Zimbabwe) are likely to aid healthy growth over CY18-20E even as we expect reported growth to taper as base catches up (margin kicker from new territories/Tropicana manufacturing notwithstanding).
• Outlook: underlying demand conditions in core India market remain robust (October tracking well on account of festive season) and it remains confident of better margin recovery in CY19 as it grows acquired territories through distribution expansion/market share gains driving better leverage and incremental delta from own production for Tropicana juices (likely to commence by Q1CY19-end).
• We maintain a BUY with a target of Rs 839.