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Target: ₹1,220
CMP: ₹1,033.45
Varun Beverages has posted nearly 19 per cent revenue CAGR in CY12-21, led by revenue CAGR of 18 per cent in India and 23 per cent in international geographies.
The robust global growth was driven by strong ramp-up in three-country Africa operations and a sustained growth in Nepal. In our view, Africa is a large soft-drinks market (Emkay Est: over $25 billion industry size as of CY19) and its attractive macro growth + demographics offer a low-teen revenue CAGR opportunity over the medium-to-long term.
We estimate that PepsiCo currently addresses 40-45 per cent of the Africa market (value terms) via presence in 13 countries vs. about 100 per cent for The Coca-Cola Company (TCCC) via presence in over 50 countries.
Hence, potential distribution expansion by PepsiCo should help it to grow faster than the industry. Moreover, VBL's proven execution capability in Zimbabwe/Nepal (nearly 50 per cent of market share now vs. marginal share at the time of acquisition of distribution rights) and PepsiCo's focus on growing franchise-owned bottling operations should help VBL to foray into more markets in Africa. Its procuring distribution rights in the Democratic Republic of Congo (DRC) recently is a testament to this.
We maintain Buy with revised TP of ₹1,220 (vs. ₹1,060 earlier).
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