ICICI Securities Upgrades Varun Beverages to Buy, Targets Rs 500

Varun Beverages Sees Strong Q1CY26 Results, but Competitive Pressures Remain a Concern

Varun Beverages (VBL) reported a robust Q1CY26 performance, driven by volume-led growth of 16.3% year-over-year (YoY). This improvement was attributed to healthy traction across both Indian and international markets. However, the India realisation declined by 1.5%, indicating limited pricing power and a reliance on penetration-led initiatives, such as pack upsizing and price-point interventions, amidst rising competitive intensity.

The company's margins improved, largely due to expansion in gross margin (GM) and operating leverage, although partially supported by raw material (RM) tailwinds. This suggests that the margin expansion may not be fully structural. The international business of VBL continues to scale, supported by the growth of Twizza, but growth remains largely volume-driven with limited realisation support.

Key Takeaways from ICICI Securities' Research Report

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ICICI Securities has increased its earnings estimates by approximately 2% for CY26E. The research firm maintains a HOLD recommendation for VBL, citing a balanced risk-reward profile and growth quality as key monitorables. The target price has been revised to INR 500 (vs INR 450 previously), based on a Dec'27E DCF valuation. This implies an implied P/E of 43x CY27E for VBL.

Key Risks and Concerns

The research report highlights two key risks: a steep rise in competitive pressures and a faster-than-expected recovery in urban and rural economies. These factors may impact VBL's growth trajectory and profitability in the future.

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