Varun Beverages stock has rallied nearly 250 per cent in the last two years and if a few analysts were to be believed, this rally has more legs, thanks to strong earnings momentum, higher acceptance of newly launched products and increased penetration in the newly acquired territories of South and West India.
Brokerages have price targets that suggest up to 18 per cent potential upside for the counter.
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Varun Beverages is the second largest franchisee of PepsiCo in the world, outside the USA. It manufactures carbonated soft drinks CSD such as Pepsi, Mirinda and Mountain Dew; non-carbonated beverages such as Tropicana Slice and bottled water Aquafina.
The company operates in India and is also the exclusive bottler for PepsiCo in Nepal, Sri Lanka, Morocco, Zambia, and Zimbabwe. It has also been expanding offering in energy drink, dairy beverages and juices of late, analysts noted.
Motilal Oswal said the company entered into the energy drink segment in 2017 with the launch of Sting in India, thereby competing with global players. The contribution from this segment to overall portfolio has been moving up since the launch, Motilal Oswal said in an October 11 note, adding that the energy drink ‘Sting’ has registered 2.9 times YoY volume growth and contributed 7.2 per cent of Varun Beverages’ total domestic sales volumes in H1CY22.
“With the entry into the expanding energy drinks market in India, VBL –through Sting – has positioned itself at a favorable price point thus attracting masses. We believe this segment would aid the company in driving up sales and margins going forward,” it said.
Varun Beverages has been among Axis Securities’ top October picks, as the brokerage believes near-term challenges such as raw material inflation and top line growth are behind the company.
Varun Beverages is expected to perform well going ahead on account of newly acquired territories that will see normalcy of operations and market share gains post Covid 19 disruptions, Axis Securities said.
It cited the management’s continued focus on the efficient go-to-market execution in acquired and underpenetrated territories, as can been seen from its recently commissioned Bihar plant operations.
This brokerage expects Varun Beverages to clock a revenue growth of 25 per cent, Ebitda growth of 30 per cent and profit after tax growth of 45 per cent compounded annually over 2001-2024.
Varun Beverages follows calendar as financial year. In the first half of 2022, January-June, it reported a 105 per cent YoY jump in profit to Rs 107.31 crore compared with Rs 455.60 crore in the comparable period of last year. Sales for the first half of 2022 jumped 65.9 per cent YoY to Rs 7,782.30 crore compared with Rs 4,690.70 crore.
For September quarter, Kotak Institutional Equities expects Varun Beverages expects to report a 17.6 per cent YoY rise in net profit at Rs 282.50 crore on a 22.2 per cent rise in net sales at Rs 2,931.30 crore. It sees gross margin at 51 per cent, down 180 basis points YoY and Ebitda margin of 20 per cent, down 70 bps YoY.
On Wednesday, the stock stood at Rs 1,030.15 a piece on BSE.
Axis Securities sees the stock at Rs 1,150. Motilal Oswal Securities finds the stock worth Rs 1,230 while Batlivala & Karani Securities has a target of Rs 1143 on the scrip. The targets suggest double digit potential returns ahead.
Meanwhile, Kotak finds the stock Rs 1,025 worthy and JM Financial sees it at Rs 1,045 suggesting no potential upside ahead.
