With such a rise, price has to come down, sooner or later. I cannot value beyond a basic level, and as the business is growing in new geographies, with new product launches, perhaps analysts’ estimation can be useful, just for having some sense of valuation, and not for their target prices estimates.
I intend to hold for long term, as I boarded in the middle of the ride, and price has appreciated much, so I can afford to stay put, along with the fact that there is visible growth in the business in the near future.
Depending upon your view about the company w.r.t time, your current P/L in the stock, you can look at adding/waiting/selling.
4 Likes
The stock is not cheap. At 1700, it was at 90 PE the correction has got it down to 76 PE. Bevco and African business is around 10% of the revenue. Even explosive growth there won’t matter much. It’s India business that is important and it’s slowing down. Volume growth has come down to 20-22% from 35+. It will go down further below 15-20 as business matures this and next year. The margin expansion was a lot due to pet coke prices. Given the growth slowdown, it’s natural to have valuations compressed.
Disc - Invested since 500 levels. It’s 3X for me and was 15% of folio till last week. I have reduced and it’s now 7% of folio. Planning to hold this position and positive on business.
5 Likes
Its a consumer business company like Dabur, Titan, Nestle etc with double digits volume growth and management aggressively focusing on increasing TAM. One can clearly see revenue growth opportunities in the medium and long term. PE ratio can keep fluctuating in the short term ( check Titan, nestle etc). I am holding 20% allocation and it is 2x …with no plans to offload as long as growth is sustaining.
14 Likes
Q1FY25 results indicate that high growth rates from domestic markets have topped out and at max they would do mid to high teens sales growth from here in domestic markets.
The Incremental high double digit growth would be coming from African markets where Mr. Market may not assign it a multiple of more than 60x on FY26e as it does for domestic focused consumer companies like trent,nestle,etc. since their per capita income would not be growing in the similar pace as of india though their population is growing by 3%.
3 Likes
As per last updates PPT for VBL, seems Indian market is expanding.
7 Likes
Analysis of Varun Beverages Limited (VBL) – Focus on the Indian Market
Industry Overview:
The Indian non-alcoholic beverage industry is projected to experience varying growth rates across different segments in the medium term:
Carbonated Soft Drinks (CSD): Mid single-digit growth
Packaged Drinking Water: High single-digit growth
Juices: Low double-digit growth
Sports Drinks/Energy Drinks: Mid-double-digit growth
Major Players: Coca-Cola and PepsiCo dominate the market.
Growth Drivers:
- Climate: Increased temperatures boost demand for beverages.
- Demographics: A youthful population drives consumption.
- Urbanization/Rising Income/Household Spending: Higher disposable incomes and increased urbanization fuel beverage consumption.
- Rural Advancement/Rural Electrification: Improved infrastructure and access in rural areas enhance market reach.
Varun Beverages Limited (VBL) Overview:
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Relationship with PepsiCo: VBL has a symbiotic relationship with PepsiCo, accounting for 90% of its sales volume from PepsiCo India. The bottling and trademark license agreement extends until April 30, 2039, covering manufacturing, supply chain, and end-user distribution. VBL operates across 27 states and 7 Union Territories in India.
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Revenue Contribution: The Indian subcontinent (India, Sri Lanka, Nepal) contributes 83% to VBL’s revenue.
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Financial Performance:
Revenue Growth: 25% CAGR over the last 5 years.
Profit After Tax (PAT) Growth: 47% CAGR over the last 5 years.
Sales Volume Growth: 17% CAGR over the last 4 years.
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Debt Metrics:
Net Debt (as of June 30, 2024): Rs. 5,808 crore
Debt-to-Equity Ratio (as of June 30, 2024): 0.67x
Debt-to-EBITDA Ratio (TTM, as of June 30, 2024): 1.37x
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Cost Structure:
Raw Materials: Concentrate, sugar, PET chips, packaging.
Franchise Fee: Payment to PepsiCo.
Logistics: Distribution and supply chain costs.
Advertising: Shared and company-specific marketing expenses.
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Profitability:
EBITDA Margin (H1 2024): 25.9%
PAT Margin (H1 2024):15.7%
- Free Cash Flow (FCF): Given significant capital investments and acquisitions (both debt-funded and cash-based), FCF is not currently a primary focus. Conversion of net profit to operating cash flow is more relevant at this time.
Risks:
- Branding/Marketing/Pricing: Limited control over branding and pricing due to reliance on PepsiCo.
- Health Concerns: Growing consumer shift towards low-sugar/no-sugar beverages, with 46% of VBL’s sales volume in these categories.
- Seasonality: Demand fluctuations due to seasonal variations.
- Raw Material Pricing: Volatility in costs for PET chips, sugar, and packaging materials.
- Supply Chain Disruptions: Potential disruptions affecting production and distribution.
- Foreign Currency Risk: Exposure to currency fluctuations in international markets.
- International Exposure: Risks associated with operations in Africa and other international markets.
- Taxation: Potential impacts from changes in tax policies and regulations.
- New Entrants & Competition from CoCo Cola - PepsiCo will take care
Valuation: The stock is currently trading at a PE ratio above 80. Given this high valuation, the market appears to be pricing in most of the known factors and long-term double-digit growth.
Thoughts are welcome.
4 Likes
