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Double-digit growth to continue; all eyes now on summer

Our channel checks suggest double-digit volume growth for VBL in Q1CY22, in line with trends in recent quarters. Further, a strong marketing push (refreshed Pepsi - more fizz), portfolio expansion into lemon-based drinks (40% of industry) and continued traction in ‘Sting’ should boost growth; we expect revenue/EBITDA growth of 26/35% in CY22.

VBL is better placed to combat inflation through light-weighting of PET bottles by 6-15%, PET stocking ahead of the crude spike and price hike in select SKUs. We trim CY22E EBITDA by ~3% on crude surge but expect ~130bps margin gains on operating leverage.

Our analysis of VBL’s CY21 annual report indicates: 1) rising overseas share - Zimbabwe contributed ~30% of PAT; 2) turnaround in Morocco/SL/Zambia; 3) flat debt level despite Rs5.7bn/Rs4.0bn increase in CWIP/RM inventory. VBL aims to cut debt by 40% in CY22.

Retain CY23-24 estimates with a positive view, based on VBL’s distribution strength, focus on innovation and overseas margin gains. Retain Buy; TP is Rs1,150 (34x Mar’24E EPS)

Marketing push/product innovation to boost growth: Despite Covid-led challenges, VBL placed ~25,000/40,000 visi-coolers in CY20/CY21. Alongside, VBL has refreshed Pepsi with more fizz, expanded its portfolio in the large lemon-based carbonate segment (~40% of carbonate industry) through Mountain Dew Ice and entered the dairy segment through Creambell shakes. New innovations are well supported by a strong marketing push ahead of the CY22 season, which we believe should lead to strong 26% revenue growth in CY22.

Prepared to combat inflation with PET light-weighting/stocking: By reducing plastic usage, VBL has achieved light-weighting of pre-forms and closures of PET bottles by 6-15% across SKUs, compared to CY15-19 period (exhibit 2). PET resins/others form 25-30% of overall RM costs, while concentrate and sugar make up the rest, in our view. In addition, prebuying of PET chips in Q4CY21 (inventory days at 60 vs. 45-50 historically) and price hikes in select SKUs, place VBL in a better position to combat crude price inflation.

Intl. geos seeing a strong turnaround: Intl. geos contributed ~25%/30% to revenue/PAT in CY21 vs. 21%/0% contribution in CY19. The strong performance was led by Zimbabwe (30% PAT contribution), while Morocco/SL/Zambia saw a PAT turnaround in CY21. Nepal saw a PAT loss of Rs0.3bn in CY21 due to a tax penalty. However, rev. growth was healthy at 26%

Expects 40% reduction in debt; RPTs in line with past trends: An increase in CWIP due to new facilities in Bihar/J&K and stocking of PET helped VBL keep net debt flat at Rs30bn in CY21. However, VBL expects to pare down debt by ~40% in CY22. Organic capex stood at Rs3.5bn, primarily toward brownfield expansion in India, Morocco and Zimbabwe. Relatedparty transactions were mainly with SMV group, which will decline post the consolidation of the acquired plant. Other transactions were in line with past trends

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