Varun Beverages is expanding boundaries, elevating innovation, strengthening tomorrow. Buy for target price of ₹680 (28% upside): Motilal Oswal

Expanding boundaries, elevating innovation, strengthening tomorrow

CY24 was a transformative year for Varun Beverages Limited (VBL), marked by strong growth, global expansion, and unwavering sustainability commitments. The company continued its upward trajectory, strengthening its market leadership in India and internationally, all while maintaining operational excellence and a futureready approach. Let us dive into the key highlights from the past year.

 Despite facing short-term headwinds from unfavorable weather and weakened consumption trends, VBL achieved ~12%/23% YoY volume growth in the domestic market/consolidated basis, driven by deeper market penetration. Revenue/EBITDA increased 28%/31%, with EBITDA margins expanding 100bp to 23.5% in CY24.

 VBL expanded its manufacturing footprint with a total capex of INR26b, commissioning three new greenfield facilities in Supa (Maharashtra), Gorakhpur (Uttar Pradesh), and Khordha (Odisha) in India. Additionally, the company invested INR6b in a new greenfield facility in the Democratic Republic of Congo (DRC).

 VBL’s aggressive international expansion, particularly in Africa, was a key highlight, further strengthening its presence in high-growth markets. The company entered into share purchase agreements to acquire PepsiCo’s businesses in Tanzania and Ghana, further reinforcing its footprint in East and West Africa.

 A key milestone for VBL in CY24 was its strategic entry into the food snacking segment, driving long-term growth. The company secured exclusive agreements to manufacture and distribute Cheetos in Morocco and Simba Munchiez in Zimbabwe and Zambia, with operations set to begin between 2025 and 2026. This expansion is expected to strengthen VBL’s portfolio while maximizing synergies with its existing infrastructure.

 Factoring in strong fundamentals and potential for future growth, we expect 18%/16%/27% revenue/EBITDA/PAT CAGR over CY24-26. We reiterate our BUY rating for the stock.

Valuation and view

 We expect VBL to maintain its growth momentum, aided by: 1) strengthening its foothold in Africa, 2) expanding into snacks to diversify its revenue stream, 3) investing in new greenfield facilities, and 4) focusing on new product launches.

 Factoring in strong fundamentals and potential for future growth, we build in 18%16%/27% revenue/EBITDA/PAT CAGR over CY24-26 and reiterate our BUY rating for the stock. We value the stock at 55x Mar’27E EPS to arrive at a TP of INR680.

Varun Beverages Motilal Oswal