Varun Beverages (VBL), one of PepsiCo’s largest bottlers globally, has received an upgrade to ‘High Conviction Outperform’ from CLSA, while the brokerage has trimmed its target price to ₹770 from ₹802.
CLSA believes the risk-reward remains compelling, even factoring in potential competition in the soft drinks market. The brokerage’s bear case scenario estimates only a 5.0%/6.2% downside in EBITDA/EPS for CY25, suggesting resilience in the company’s earnings trajectory.
Key takeaways from CLSA’s report:
- Capex intensity expected to ease: The company’s capital expenditure as a percentage of sales peaked in CY23 and is now expected to moderate.
- Soft drink consumption has massive growth potential: VBL operates in a large and expanding total addressable market (TAM), creating significant opportunities for volume and revenue expansion.
- Earnings estimates slightly revised: CLSA has cut CY25-27 earnings estimates by 4-5% to reflect the heightened competitive environment, but remains bullish on the company’s long-term growth.
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Varun Beverages