Varun Beverages Q3 Review: Yes Securities Maintains ‘Buy’ On Multiple Growth Triggers
Varun Beverages Ltd.’s Q3 CY25 operating performance was below brokerage’s as well as street estimates, with subdued India performance and International business providing some support. However, Yes Securities has maintained its ‘Buy’ rating on the stock, citing multiple growth triggers that are expected to drive the company’s revenue and profitability in the coming years.
Q3 Performance: A Mixed Bag
Varun Beverages’ India business volumes were largely flat YoY due to extended rainfall across India, which impacted the company’s sales. However, the International business was up by ~9% led by strong growth in South Africa. Despite the subdued Q3 performance, Yes Securities has maintained its positive outlook on the stock, citing the company’s strong brand portfolio, expanding distribution network, and improving operational efficiencies.
Growth Triggers: Scale, Efficiencies, and Backward Integration
According to Yes Securities, Varun Beverages’ revenue is expected to grow at ~11% CAGR over CY24-27E, driven by scale, efficiencies, channel mix improvement, and backward integration. The brokerage firm expects the company’s Ebitda margin to improve by ~60bps, largely driven by the aforementioned factors. The improvement in operational efficiencies and the benefits of backward integration are expected to contribute significantly to the company’s profitability.
Target Price Revision: Rs 625
Yes Securities has revised its target price for Varun Beverages to Rs 625, up from Rs 600 earlier. The brokerage firm has assigned a target multiple of ~49x on Sept’27E EPS, reflecting the company’s strong growth prospects and improving profitability. The revised target price suggests a significant upside potential for the stock, making it an attractive investment opportunity for Indian investors.
Investment Rationale: Strong Brand Portfolio and Expanding Distribution Network
Varun Beverages has a strong brand portfolio, with popular brands such as Pepsi, Mountain Dew, and 7 Up. The company’s expanding distribution network and improving operational efficiencies are expected to drive its growth in the coming years. Additionally, the company’s focus on backward integration is expected to reduce its costs and improve its profitability. With a strong brand portfolio, expanding distribution network, and improving operational efficiencies, Varun Beverages is well-positioned to capitalize on the growing demand for beverages in India and other emerging markets.
Conclusion: A Compelling Investment Opportunity
In conclusion, Varun Beverages’ Q3 performance was below estimates, but the company’s strong growth prospects, improving profitability, and attractive valuation make it a compelling investment opportunity for Indian investors. With a revised target price of Rs 625, Yes Securities’ ‘Buy’ rating on the stock is a testament to the company’s potential for long-term growth and profitability. Indian stock market investors looking for a strong and stable investment opportunity may consider adding Varun Beverages to their portfolio.