Preserve ‘add’ on Varun Drinks, TP Rs 1,100


We mannequin Varun to report income and PAT CAGRs of 25.5% and 55.9% respectively, over CY20-CY22E.

Varun Drinks (VARUN) is best ready to deal with the impression of second wave of Covid in CY21 than it was in CY20. Firm has aggressively invested in driving in-home consumption over the previous 12 months and has additionally launched 1.25 Ltr SKUs.

It’s also comparatively higher ready now when it comes to logistics and distribution. Within the occasion of one other strict lockdown, quantity off take will probably be materially impacted. Nonetheless, if lockdowns are solely on weekends, impression on volumes will probably be a lot much less, and it will likely be negligible in case of evening lockdown.

Varun can be doubtless togain market share from smaller/ unorganised gamers as customers want packaged drinks over juices from avenue stalls attributable to security perceptions. We consider, there will probably be some impression on HoReCa consumption which accounts for 6-7% of Varun’s general volumes. Preserve ‘add’ with a goal worth of Rs 1,100, implying 35x CY22E.

Main impression in Maharashtra and HoReCa section: Maharashtra is likely one of the most affected states by Covid and accounts for 6-7% of Varun’s revenues. HoReCa (accommodations, multiplex, theatres, and many others.) section too accounts for 6-7% of revenues. If Covid continues to surge, it could have some impression on the corporate’s revenues in Maharashtra and HoReCa section.

Give attention to in-home consumption continues. Firm has been investing aggressively in driving in-home consumption over the previous 12 months.

Affect on offtake in case oflockdown (if any): Now we have seen three forms of lockdown in India: 1) whether it is ‘strict’, Varun’s volumes will probably be materially impacted; 2) if lockdown is barely on weekends, some volumes will probably be misplaced; 3) whether it is evening lockdown solely, quantity decline will probably be insignificant.

Market share good points from smaller gamers: Many customers want packaged drinks over fruit drinks and juices offered by avenue outlets. This enables Varun to achieve market share from smaller/ unorganised gamers. Market share could be gained in packaged water section too as customers don’t want faucet water out-of-home.

We mannequin Varun to report income and PAT CAGRs of 25.5% and 55.9% respectively, over CY20-CY22E.

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