Varun Beverages has acquired a 100% stake in Twizza, a South African company that manufactures and distributes its own branded non-alcoholic, ready-to-drink (NARTD) beverages. This acquisition is set to increase Varun Beverages' volume market share in South Africa to around 20% by 2027, up from 10% currently.
The NARTD market in South Africa is significant, being about 40% of the size of India's market, although it is growing at a slower pace of around 3% per year. Despite the market being mature, Varun Beverages is confident of achieving double-digit volume growth driven by market share gains, backed by its strong track record of turnarounds in Zimbabwe and Nepal.
The acquisition of Twizza is valued at Rs11.2 billion, which is approximately 1.2 times the company's trailing sales, compared to Varun Beverages' valuation of around 7.5 times. This acquisition provides a significant value creation opportunity of around 5-6 times, which is about 3-4% of Varun Beverages' market capitalization.
Given Varun Beverages' solid balance sheet, which is net debt-free, the company is well-positioned to pursue growth opportunities. The acquisition of Twizza is expected to aid profitability gains for Varun Beverages' existing operations in South Africa, driven by cost synergies and portfolio-led pricing gains.
Based on these developments, the target price for Varun Beverages has been revised upwards by 7% to Rs615, driven by the company's consistent outperformance versus FMCG peers and value creation in international geographies.
Remember, this is a perspective based on current information and should not be considered as investment advice. It's always important to do your own research and consult with financial experts before making any investment decisions.
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