Varun Beverages, a prominent player in the beverage bottling industry and the largest PepsiCo bottler outside the United States, has recently unveiled its impressive fourth-quarter results. With an optimistic outlook for the upcoming summer season, the company is geared up to enhance its profitability and margins. Notably, Nuvama Institutional Equities has reaffirmed a ‘Buy’ rating on Varun Beverages, setting a target price of Rs 659 per share, reflecting confidence in the company’s growth trajectory.

Strong Volume Growth and Positive EBITDA Margin

Nuvama highlights that Varun Beverages experienced a 15.5% year-on-year growth in volumes within India, marking a significant achievement for the company. The EBITDA margin for the Indian segment has risen to 25%, which is an increase of 111 basis points compared to the previous year. Furthermore, the consolidated volume surged by 30.1%, totaling 312 million cases, bolstered by growth in markets like South Africa and the Democratic Republic of Congo.

• Key Highlights:
  • India volumes increased by 15.5% YoY.
  • EBITDA margin improved by 111 basis points YoY.
  • Consolidated volume reached 312 million cases, up 30.1% YoY.

Expansion Plans and Backward Integration

Another favorable aspect noted by Nuvama is Varun Beverages’ strategic expansion. The company is set to begin commercial production at two new greenfield facilities located in Bihar and Meghalaya. Additionally, backward integration initiatives are underway at existing sites in Prayagraj and the Democratic Republic of Congo, which are expected to enhance operational efficiency and reduce costs.

Competitive Landscape and Market Dynamics

On the competitive front, Tata Consumer Products has adjusted retailer margins in its NourishCo segment to stay competitive. Meanwhile, Coca-Cola reported a double-digit volume surge in Q1CY25, driven by strong sales of its flagship brands, including Coca-Cola and Thumbs Up. However, it faced challenges in the non-alcoholic ready-to-drink segment. Notably, Coca-Cola capitalized on the Maha Kumbh Mela festival, selling over 180 million servings, which positively impacted the overall market growth. In response, Reliance Consumer has announced new plants in Bihar and Assam to enhance its production capabilities.

Encouraging Margin Outlook for Varun Beverages

Varun Beverages has signaled expectations of double-digit revenue growth, with a projected minimum EBITDA margin of 21% in India. Thanks to its backward integration strategy, the company anticipates maintaining robust margins despite competitive pressures and inflationary trends.

In Q1CY25, the company’s gross margin slightly dipped to 54.6%, down by 171 basis points YoY due to a less favorable product mix and increased contributions from the South African market. The EBITDA margin also experienced a slight decline, falling to 22.7%.

Robust Performance and Case Realisation

The company showcased strong performance in Q1CY25, with revenue climbing by 29% YoY and EBITDA rising 28% YoY, both aligning with broker forecasts. The consolidated volume growth of 30.1% YoY was driven by a particularly hot summer, with Indian volumes increasing by 15.5%.

• Realisation Insights:
  • Realisation per case in India rose by 1.8% YoY.
  • Consolidated net realisation per case saw a slight decline of 0.9% YoY.

Varun Beverages is positioned well for sustained growth, and as summer approaches, its strategies and expansion initiatives are likely to yield favorable results.