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VBL’s Q4CY23 EBITDA was broadly in-line with our est., albeit 10% above street’s est. Revenue growth was robust at 20%, led by broad-based volume growth of 17-18% and realization gain of 3%. India has seen strong recovery with high-teens growth in H2, post muted summer due to unseasonal rains. The beverage category is outperforming other FMCG categories on underpenetration, improved road/electricity infra, and scale-up of the energy-drink category. VBL has identified these tailwinds and should benefit from its capacity expansion (>45% vs. CY21), distribution expansion (>50% vs. CY21), and launch of new products at affordable price-points (Juice/Sports/Dairy). These 360-degree investments should help VBL to deliver an EBITDA/EPS CAGR of 25- 30% over CY23-26E. We upgrade VBL to ADD (from Reduce) and markup the TP by 20% to Rs1,400, led by 4% rise in EPS, 10% in multiple to 50x on strong visibility/outperformance vs. peers and ~5% incremental value addition from the South Africa acquisition

Robust trends continue with 21%/77% revenue/PAT growth for VBL

VBL posted revenue growth of 21% in Q4, led by 17%/3% growth in volume/realization. Among geographies, India reported 20% growth, while the intl. business grew slightly higher at 22%. India/Intl. volumes were up 17/18%. Realization increased 2%/5% for India/Intl. business, led by a higher mix of carbonates (vs. water) and small SKUs. Among categories, carbonates/juices saw healthy volume growth at 25%/14% volume growth, while low realization water grew slower at 5%. EBITDA margin improved by 180bps to ~16%, largely led by operating leverage and one-offs in the base, while gross margin was stable at 56.6% (>30bps). Among geographies, India’s EBITDA margin (standalone) improved by 450bps, while subsidiary margin (consol-standalone) dipped 460bps due to FX losses. VBL has capitalized Rs21bn in CY23, with Rs8.5bn into greenfield capacities (Rajasthan/MP), Rs8bn in brownfield expansion, Rs1.5bn for land acquisition, and the balance for intl. expansion. With capex/CWIP of ~Rs35bn over the last 12-15 months, VBL’s peak capacity has increased by 45% over CY22’s base. Net debt increased to Rs47bn from Rs34bn, led by a Rs12bn increase in CWIP. Out of Rs12bn CWIP, Rs9bn has already been capitalized for Maharashtra Supa plant in Jan-24.

Earnings call KTAs:

1) VBL aims for Rs17-18bn cash capex (incl. CWIP) for India as well as intl. expansion in CY24. 2) Debt–Equity ratio is expected to remain near current levels of 0.7x, even post the South Africa consolidation, given VBL’s expectation of new capex servicing the associated debt itself. 3) Realization growth shall moderate in CY24 vs. CY23 growth of 7%; however, a better mix with higher sales of juice/dairy/energy and a higher mix of smaller SKUs shall continue to boost realizations. 4) With unseasonal rains in CY23 season and capacity constraints, sales for juice, dairy, and sports categories were impacted in CY23. However, VBL has now expanded its CY24 capacity for these categories by 200%, with new plants in Supa (MH)/Gorakhpur (UP). 5) VBL is growing faster vs. peers with a robust GTM strategy on the back of 0.4-0.5mn outlet additions per year (~15% annually). VBL has massive headroom with 11-12mn retail outlets in India vs. its current reach of ~3.5mn outlets. 6) Africa’s acquisition process is expected to close by Feb-24 end. 7) VBL has entered into a JV with Indorama to meet its target of using 25-30% recycled PET by 2025. 8) Sting has grown strongly and contributed ~15% to VBL’s India volumes in CY23; however, the overall energy drink industry’s share in India remains in the 6-7% range and PepsiCo’s energy drink mix is 25-30% volume mix in Pakistan/Vietnam. 9) Despite a 22.5% EBITDA margin in CY23, VBL continued to conservatively guide for an EBITDA margin band of 21-22%. 10) Working capital rose to 29 days at CY23 end (vs. 22 days YoY), largely due to a reduction in payable days.

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