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Aims double-digit volumes despite competition

Varun Beverages Ltd (VBL’s) 4QCY24 operating performance was in-line with our estimates. In CY24, India business organic volume growth (up 11.4%) as well as commentary for CY25 remains healthy along with strong margin profile, which is likely to sustain. Management has already seen healthy growth in last ~40 days and is not worried of competition, but we believe it will remain a key monitorable for the coming season. New territory addition in International business has led to strong topline performance in CY24 and capacity additions will further aid in CY25. Margin profile in international will only improve over the next few years led by GT mix and backward integration. We maintain our BUY rating with revised target price (TP) of Rs675 (Rs705 earlier), as we assign a target multiple of ~54x on March’27E EPS.

4QCY24 Result Highlights

* Headline performance: Consolidated net sales grew 38.3% YoY to Rs36.9bn (vs est. Rs35.8bn). EBITDA grew by 38.7% YoY to Rs5.8bn (vs est. Rs5.9bn). Adjusted PAT (APAT) grew by 40.3% to Rs1.9bn (vs est. Rs1.6bn).

* Volumes: 4QCY24 overall volumes grew by 37.8% YoY to 215mn cases (including BevCo’s. 43mn cases and 7.8mn cases from DRC) vs 207mn est. CSD (Carbonated Soft Drink; constituted 73%) volumes grew by ~49.1% YoY to 158mn cases vs 150mn est.

* Margins: Overall gross margin down ~60bps to 56.1% (up ~50bps QoQ) in 4QCY24. EBITDA margins was flat YoY to 15.7% in 4QCY24.

* Per case: Net revenue per case was up 0.3%YoY at Rs172 in 4QCY24 (vs est. Rs175) (it was Rs180 in 3QCY24). EBITDA per case stood at Rs27 in 4QCY24 vs Rs27 in 4QCY23.

* CY24 Consolidated revenue, EBITDA & APAT grew by 24.7%, 30.5% & 26.2% YoY respectively. EBITDA margin up 100bps YoY at 23.5%.

Key Conference Call Highlights

(1) Company has seen healthy growth in the ongoing quarter (1QCY25) till date. Management is confident of maintaining India business double-digit volume growth.

(2) Management sees no reason to not sustain margin going forward in India business while for international business, the margin will only improve driven by improving GT mix and backward integration.

(3) In 4Q, VBL has become net debt free through prepayment of debts by using the proceeds from the QIP issue.

View & Valuation

There is no major revision in our CY25E/CY26E APAT. We now expect VBL’s revenue to grow at ~17% CAGR over CY24-CY26E led by (1) Capacity & distribution expansion in India business. (2) New territory addition for the International business. We expect gross margins to improve by ~100bps over CY24-CY26E leading to EBITDA margin improvement of ~70bps largely driven by scale, efficiencies, channel mix improvement and backward integration. Pro-active capacity additions in domestic as well as international businesses along with long runway for distribution expansion, gives us good visibility on medium-tolong term growth. VBL is currently trading at ~56x/46x CY25E/CY26E EPS as we build 24% earnings CAGR. We have not yet baked-in Africa’s snacking business in our earnings. We maintain our BUY rating with revised TP of Rs675 (Rs705 earlier), as we assign a target multiple of ~54x on March’27E EPS. Things to monitor: Competitive intensity.

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