Friday 3 May 2019

Varun Beverages Ltd - Value Pick

CMP: 900 (ACE Equities clients at 840)
Market Cap: 16100 crores
Book Value: 110
52 Week High/Low: 954/654
FY18: Sales 5105 crores, Net Profit 293 Crores, EPS 16.03.
Mcap/Sales: 3.16, P/E 56.
Promoter Holding: 73.56%.

VBL is India's bottling partner (contract manufacturer) for PepsiCo.
With recent development in Feb 2019, States of Gujarat, Maharashtra, Karnataka, Kerala, Tamil Nadu, AP, Telangana too are now in Varun's fold as the leading Pepsi bottler.
Apart from India, Varun is also Pepsi's partner for countries like: Nepal, Sri Lanka, Zambia, Zimbabwe and Morocco.
Almost 80% of Varun's revenue come from India, Nepal & Sri Lanka.

Brand products of VBL are: Pepsi and all its varieties, 7up, Mountain Dew, Mirinda, Everess, Tropicana, Nimbooz, Aquafina, Gatorade.

As per data:-
The carbonated beverages segment is around 80% of Varun's revenue pie.
The remaining 12-13% is from Packaged water and another 6-7% is from non carbonated beverages such as Tropicana fruit juice.

- The company with recent re-franchising by Pepsi now stands to gain a major foothold in west India and south India market of beverages.
- Consumption of Soft-Drinks stood at 44 bottles per capita in India in 2016, in USA it was 1496 bottles, Mexico was at 1489 bottles and developing economy like Brazil was at 537 bottles.
- Large section of Rural India did not have access to electricity, If electricity is pushed to all villages, A village can have atleast one public fridge, and cold drinks are popular because they are consumed cold.
- The per capita consumption of Cold Drinks would increase significantly with electrification and access to fridge and cold storage.

Key Risk: Health awareness, Competition, Swadeshi Awareness etc.

At 3 times Mcap/Sales being the largest cold beverage maker in India, VBL does not look expensive, the valuation can easily stretch to 5 times market cap to sales.

Which leaves a price target of close to 1500 with current set of numbers.

However, With the recent addition of states a HUGE percentage of market gets captured by VBL which means revenue would grow very sharply in forthcoming fiscals.

A price of north of 2000 is what we expect in the Long-Term from Varun and give it a space in our portfolio.

Note: The above is not a research report but information as available on public domain and it should not be treated as a research report.

Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”

Disclosure: It is safe to assume that i might have Varun Beverages Ltd in my portfolio and hence my point of view can be biased. Readers should consult their financial advisory before any investments.

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