Varun Beverages

In-home beverage consumption up 25%; sales at pre-COVID levels- Varun Beverages

Update on the Indian Equity Market:
On Tuesday, Bulls continued to dominate as NIFTY ended up 159 pts (+1.4%) at 11,603.
Among the sectoral indices, METAL (-0.7%), FMCG (-0.19%), and PHARMA (-0.1%) were the losers and FINANCIAL SERVICES (+3.15%), REALTY (+ 2.6%) AND PVT BANK (+2.3 %) were the gainers.
Among the stocks, TATAMOTORS (+7.7%), HDFC (+7.6%), and ADANIPORTS (+3.5%) were the top gainers. BRITANNIA (-1.5%), COALINDIA (-1.3%), and WIPRO (-1.3%) were the top losers.

In-home beverage consumption up 25%; sales at pre-COVID levels- Varun Beverages

Edited excerpts of an interview with Mr. Ravi Kant Jaipuria, Chairman, Varun Beverages with CNBC TV18 dated 5th October 2020:

Varun Beverages (VBL) is the second-largest franchisee (outside US) of carbonated soft drinks and non-carbonated beverages sold under trademarks owned by PepsiCo. It produces and distributes brands such as Pepsi, Diet Pepsi, Seven-Up, Mirinda Orange, Mirinda Lemon, Mountain Dew, Seven-Up Nimbooz Masala Soda, Evervess Soda, Duke’s Soda, Sting, Tropicana, Seven-Up Nimbooz, Gatorade and Quaker Oat Milk as well as packaged drinking water under the brand Aquafina.

• Comments on Hotels, Food courts, Restaurants and Bars to operate in Maharashtra from 5th Oct, 2020 at 50% capacity: Maharashtra is an important state but not the biggest state sales wise for Varun Beverages. He further added that UP is the largest contributing state for Varun Beverages. Unlock in any area or region will be helpful for the company to increase the sales and he is happy to know that restaurants, movie theatres are opening up.
• The overall volume sales have reached pre-COVID levels since August, and the numbers for August and September are very close to the numbers logged during the same periods last year.
• When asked about the prospects for the month of October as the restaurants are opening up he stated that September has been better and he is happy with the performance and things are looking good going forward. Opening up of restaurants will definitely help increase the sales but in-home consumption is quite large and on the go consumption has started and they will be back to normal levels soon.
• The supply started in July-20, so July-20 was reasonably good although weaker than July-19 but since August Varun Beverages is doing well and going forward, he doesn’t see any reason why sales should fall or decline unless any major incidence or lockdown happens.
• Whatever fixed cost they could cut down during the lockdown, they have kept it down since then so fundamentally they will be in a good shape as the cost have gone down and volumes are back to normal. So, going forward things are looking pretty good and in shape.
• Unfortunately, they have lost the peak season i.e. April-May-Jun this year but as the go to market keeps on improving and unlock keeps happening things will be back to normal.
• In home beverage consumption has gone up by 25-30% after COVID and on the go consumption is also seeing recovery. If it reaches the normal level he sees huge growth coming in.
• When asked about the revenue contribution, he informed that restaurants and bars contribute less than 5%, in home consumption and on the go consumption are the main business for Varun Beverages.
• When asked whether they are facing any issues at the supply side he replied that they did not had any issue at the supply side and were able to maintain the supply. Production and Supply side was never a challenge for Varun Beverages.

Consensus Estimate: (Source: market screener website)

• The closing price of VBL was ₹ 689/- as of 06-Oct-2020. It traded at 76x/29x/21x the consensus EPS estimate of ₹ 9.2/24.3/33.1 per share for CY20E/CY21E/ CY22E respectively.
• The consensus target price of ₹ 804/- implies a PE multiple of 24x on CY22E EPS of ₹ 33.1/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Varun Beverages raise Rs 9,000 mn via Qualified Institutional Placement (QIP)/Tech M expanding its collaboration with telecommunication giant AT&T

Update on Indian market: On Monday, Nifty ended above 11,000 mark led by a rally in the heavyweight financial stocks. Yes Bank, Maruti Suzuki, L&T were among the biggest gainers in Sensex, surging up to 4.2%. HCL Tech, Infosys, Tech Mahindra emerged among the biggest losers, shedding up to 1.5%

Varun Beverages raise Rs 9,000 mn via Qualified Institutional Placement (QIP)

VBL completed its QIP of Rs 9,000 mn on 4th Sept 2019. VBL approved the allotment of 1,47,05,882 equity shares of Face Value Rs 10/- each to the eligible qualified institutional buyers at issue price of Rs 612 per equity share aggregating to ~ Rs 9,000 mn pursuant to the Issue. Total Borrowings as on Jun-19 was Rs 32,533 mn and after this issuance, the debt will reduce to Rs 23,533 mn. VBL plans to use the QIP proceeds to repay the debts, this will reduce the interest cost and may help PAT margins to expand.

Tech M expanding its collaboration with telecommunication giant AT&T

Tech Mahindra Ltd., a leadingprovider of digital transformation, consulting and business reengineering services and solutions, announced expansion of its strategic collaboration with AT&T to accelerate AT&T’s IT network application, shared systems modernization and movement to the cloud. Tech Mahindra will assume management of many of the applications which support AT&T’s network and shared systems.

Tech M’s deal with AT&T is a multi-year agreement which will enable AT&T to focus on core objectives, including having the most advanced software-defined 5G network, and migrate the majority of its non-network workloads to the public cloud by 2024. This comprehensive program will help drive sustainable operational improvement across the network and software development domains.

When asked about the deal Mr. Jon Summers, CIO of AT&T Communications stated that their agreement with Tech Mahindra is another step forward in delivering greater flexibility across their IT operations. This includes optimizing core operations and modernizing internal network applications to accelerate innovation as AT&T march forward to their goal of a nationwide 5G network by the first half of 2020. He also mentioned that this collaboration with Tech Mahindra will ultimately help accelerate its network operations and overall technology leadership.

MD & CEO of Tech M, Mr. C P Gurnani mentioned that this deal is a step towards elevating Tech Mahindra’s long-standing strategic relationship with AT&T to help make the vision of a 5G-enabled future, a reality. As part of TechMNxt charter, Tech Mahindra is betting big on 5G — the network of the future and is focused on technology-led innovation to enable digital transformation for their customers globally.

According to the management, Tech M and AT&T aim to improve the agility in rolling out and supporting networks of the future, while improving returns on investment through technology-led transformation AT&T and Tech Mahindra will integrate several world-class technologies and platforms in areas like artificial intelligence, DevOps, data analytics and 5G.

Consensus Estimate (Source: marketscreener website)

The closing price of VBL was Rs 623/- as of 09-September-19. It traded at 43x/33x/25x the consensus EPS for CY 19E/CY 20E /CY 21E EPS of Rs 14.7/19.0/25.7 respectively· Consensus target price of Rs 720/- implies a PE of 28x on CY21E EPS of Rs 25.7 

The closing price of Tech M was Rs 720/- as of 09-September-19. It traded 15.2x/13.6x/12.3x the consensus EPS for FY20E/FY21E/FY22E EPS of Rs 47.5/53.1/58.7 respectively. Consensus target price of Rs 754/- implies a PE of 14.1x on FY21E EPS of Rs 53.1