Varun Beverages: Emkay Global Maintains Buy Rating, Targets Rs 620

Varun Beverages Sees Strong Growth Trends

Varun Beverages (VBL) has seen a robust start to the year, according to a recent research report by Emkay Global Financial. The company's consolidated EBITDA grew by a strong 21%, driven by a 16% increase in India and a 40% growth in the International business. This performance is particularly impressive given the high base achieved in the previous period.

Key Drivers of Growth

The report highlights several key drivers of growth for VBL. The company's strategic stocking of PET and lower discounting in a strong demand environment have resulted in a reduction of the volume-value gap to 150 basis points (bps), down from 400bps in the previous quarter. This, combined with a gain of 60bps in EBITDA margin in Q1, reflects VBL's competitive edge in terms of margin compared to its peers.

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Outlook and Recommendations

Emkay Global Financial maintains a BUY recommendation on VBL, with a target price (TP) of Rs620, an increase of 15% from the previous TP of Rs540. This recommendation is based on a 5-6% increase in earnings per share (EPS) led by a 11% PAT beat and the addition of Twizza.

Key Competitive Edge

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VBL's ahead-of-the-curve investment in distribution and capacity expansion, which has seen a 50% increase, is a key competitive edge for the company. As the global supply chain encounters disruptions, VBL's investment in this area is likely to yield significant benefits in the coming quarters.

FCF Generation

The report expects FCF generation to significantly improve in CY26, driven by a reduction in organic capex to Rs5bn. This, combined with the company's strong growth trends and competitive edge, makes VBL an attractive investment opportunity.