Maintain an ‘add’ position on Varun Beverages, with a target price of Rs 1,100


Most dealers were unable to attain turnover targets, in our read, there’s an increase in web assets days thanks to lower sales however assets in rupee terms has conjointly multiplied by Rs 0.5 billion YoY. In CY20, however, there is a healthy FCF period of Rs 3.1 billion.

Top 5 highlights, — management remains assured on higher growth light-emitting diode by multiple tailwinds like low per capita consumption, rising penetration in rural and semi-urban markets and rising in-home consumption, Varun has accrued investments in trade with the installation of 25,000+ visi-coolers in CY20, there’s the reduction in trade discounts mostly thanks to lower turnover. However, there is a healthy FCF generation of Rs 3.1 billion in CY20. Maintain the ‘add’ option with a goal of Rs 1,100. (35x CY22E).

Increase in trade investments: Despite Covid and imprisonment, the corporate has redoubled its investments in trade. The quantity of visi-coolers stands at 800,000+ in CY20 compared to 775,000 in CY19. Total reach additionally stands at 2mn stores with 1,500 primary distributors in CY20

Management assured on higher growth: the corporate beliefs the drinkable consumption to stay on a steady-growth mechanical phenomenon. Tailwinds like rising young population, low per capita consumption, rising retail penetration across semi-urban and rural markets, higher age economics and rising trend of in-home consumption build soft drinks a gorgeous growth market.

Increase in assets and days: Varun’s web assets days enlarged to twenty-three in CY20 compared to eighteen in CY19. The key reason was lower sales. However, we tend to note the assets in rupee terms have enlarged from Rs 3.6 billion in CY19 to Rs 4.1 billion in CY20. EVA creation remains negative.

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