This opens up new window of beverage consumption; (ii) Varun has initiated a number of cost-saving programmes and a number of the financial savings are more likely to be structural in nature; and (iii) the corporate has launched Mountain Dew ICE, lemon fruit juice based mostly drink in Feb’21. It competes in giant market of lime and lemon based mostly drinks (~600 mn instances p.a.). We mannequin Varun to report PAT CAGR of 53.9% over CY20-22 with enhancing RoE. Preserve Add with TP of Rs 1,015 (33x CY22e).
Q4CY20 outcomes: Varun reported income and Ebitda progress of 9.1% and 48.8%, respectively. Nevertheless, adjusted PAT declined 86.6%. Quantity progress was 5.7%. The corporate has managed to report quantity decline of 9.5% (natural 20.8%) in CY20 even after its peak quarter Q2CY20 was impacted by Covid-led lockdown. Gross margins expanded 470bps on account of change in income combine and decrease enter prices. Ebitda margin was up 350bps on account of cost-saving initiatives.
Increased in-home consumption to drive progress: Whereas out-of-home consumption remains to be decrease, there may be enhance in in-home consumption of CSD. With re-opening of markets and transit factors comparable to railway stations, bus stations, there may be revival in out-of-home consumption. With higher out-of-home consumption, rising in-home consumption will present one other progress alternative in CY21-22.
Launch of Mountain Dew ICE: Varun has launched a brand new variant as Mountain Dew Ice in Feb’21. It’s lemon fruit juice based mostly drink and is launched in 250ml PET and 650ml PET SKUs. Lime and Lemon based mostly drink is a big market with annual gross sales of ~600 mn instances. Mountain Dew ICE may have GST charge of 12% in comparison with 40% for carbonated smooth drinks.
Rising share of PET bottles to avoid wasting prices: Shoppers are preferring to purchase PET bottles as an alternative of glass bottles as it’s comparatively safer. Therefore, the share of PET bottles is rising. As firm has already contracted the provides of PET bottles for CY21, it doesn’t anticipate materials inflation even when crude oil costs enhance. We anticipate firm’s prices to be decrease with greater share of PET bottles.
Preserve ADD: We mannequin Varun to report income and PAT CAGRs of 25.4% and 53.9%, respectively, over CY20-CY22e. Varun continues to learn from its relationship with PepsiCo, pan-India distribution, backward integration, and elevated in-home consumption. Preserve Add with DCF-based unchanged TP of Rs 1,015 (33x CY22e). Key draw back dangers are sharp enhance in aggressive stress and enhance in uncooked materials costs.
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