Varun Beverages reported a strong quarter with a top-line growth of 21.8%YoY (8.5% above Analysts of IIFL Capital Services estimate) largely driven by volume growth of 15.4% and improvement in net realization by 5.6%. Volume growth of 14.8% in India makes VBL a clear outlier in an otherwise sluggish growth environment. Distribution expansion efforts ensured that the company did not face impact of rural slowdown. Analysts of IIFL Capital Services upgrade their EPS estimates by 5.5% for CY23/CY24/CY25 and maintain Buy with a TP of Rs1100.
Beat on estimates:
The sales reported a 21.8% YoY growth as against Analysts of IIFL Capital Services estimate of 13%, whereas the volume growth reported was around 15.4%. The Indian business reported a sales growth of 15.8% driven by volume growth of 14.8% whereas the International business reported a value growth of ~45% (volume growth of 17.5%). The gross margin (GM) expanded by 163bps YoY on account of softening of PET chips prices and as a result Ebitda margin expanded by ~79bps. PAT grew by 30% led by top-line growth and improvement in margins.
Expansion in juices, energy drink and value added dairy to fuel next leg of growth:
In order to sustain its strong growth performance, VBL is focussing on avenues of juices (Tropicana), sports drink (Gatorade) & value-added dairy products. Gatorade delivered a YoY sales growth of ~70-80% along with Nimbooz delivering a robust quarter as well. Sting had another strong quarter further fuelled by the launch of “Sting Blue”. The margins for dairy and juice portfolio are similar to that of the carbonated soft drinks.
EPS upgrade by ~5.5%:
Analysts of IIFL Capital Services upgrade their sales estimate for CY23/CY24/CY25 by ~2% on account of a strong sales growth of 22% registered in 9MCY23 despite the subdued demand environment. Analysts of IIFL Capital Services expect an upgrade in the Ebitda for CY23/CY24/CY25 by ~2.5% with Ebitda margin of ~22.2% (100bps YoY expansion for CY23).w
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