Varun Beverages shares at Rs 1,150? What analysts say after healthy Q3 results
Varun Beverages: Motilal Oswal Securities expects Varun Beverages to maintain its earnings momentum, led by increased penetration in newly acquired territories in South and West India
- Nov 7, 2023,
- Updated Nov 7, 2023 9:47 AM IST
Varun Beverages Ltd reported a healthy set of September quarter results, with volume growth and higher realisation driving sales and low raw material prices aiding margin expansion. The PepsiCo bottler logged a 30 per cent YoY rise in profit after tax at Rs 514.10 crore in the third quarter on 21.80 per cent YoY sales at Rs 3,870.50 crore. Analysts are largely positive on Varun Beverages, which follows calendar as financial year, post its quarterly results. They said Varun Beverages is doing exceeding well in the FMCG category led by expanding the go-to-market, unlike peers, and penetration in rural areas.
Motilal Oswal Securities expects Varun Beverages to maintain its earnings momentum, led by increased penetration in newly acquired territories in South and West India, higher acceptance of newly launched products, continued expansion in capacity and distribution reach and growing refrigeration in rural and semi-rural areas. It also expects a scale-up in Varun beverages' international operations.
The domestic brokerage values Varun Beverages at 47 times 2025 EPS and suggested a target of Rs 1,090 on the stock.
Emkay Global said Varun Beverages' Ebitda was 3-4 per cent above its estimates, led by 8 per cent better Ebitda in India and 14 per cent lower international Ebitda due to foreign exchange fluctuations. Revenue growth, it said, was robust at 22 per cent, led by broad-based volume growth of 16 per cent and realisation gain of 5 per cent.
"India has seen a strong recovery post a weak summer (unseasonal rains). Gross margin was better with improved mix, RM moderation and curtailed discounts. The beverage category is outperforming other FMCG categories on under-penetration and improved road/electricity infra. Varun Beverages has identified these tailwinds and has invested Rs 3,000 crore for capacity expansion," Emkay Global said.
The brokerage said Varun Beverages was benefiting from new products at affordable price-points, which should together drive Ebitda CAGR of 25-30 per cent over CY22-25E. Emkay upped its target on the stock by 14 per cent to Rs 1,150.
Varun Beverages, meanwhile, signed a distribution agreement for Mozambique (re-entry), and plans to leverage capacity in Zambia.
"Our 50 times PE partially factors in the optionality with a potential South Africa announcement being a significant addition. We are edging up CY24E/25E PAT by 2 per cent/3 per cent and rolling forward the valuation to Q3CY25, yielding an increased target of Rs 1,031 (Rs 960 earlier); maintain ‘BUY’. Watch out for the Campa Cola entry, but its scale-up will be closer to the next peak season," said Nuvama Institutional Equities in a note.
Antique Stock Broking said growth in emerging categories of energy drinks and dairy products combined with capacity expansion will support volume and margin expansion. It however felt that the upside for the stock remains capped at the current valuation, despite factoring in peak volume growth and margins.
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Varun Beverages Ltd reported a healthy set of September quarter results, with volume growth and higher realisation driving sales and low raw material prices aiding margin expansion. The PepsiCo bottler logged a 30 per cent YoY rise in profit after tax at Rs 514.10 crore in the third quarter on 21.80 per cent YoY sales at Rs 3,870.50 crore. Analysts are largely positive on Varun Beverages, which follows calendar as financial year, post its quarterly results. They said Varun Beverages is doing exceeding well in the FMCG category led by expanding the go-to-market, unlike peers, and penetration in rural areas.
Motilal Oswal Securities expects Varun Beverages to maintain its earnings momentum, led by increased penetration in newly acquired territories in South and West India, higher acceptance of newly launched products, continued expansion in capacity and distribution reach and growing refrigeration in rural and semi-rural areas. It also expects a scale-up in Varun beverages' international operations.
The domestic brokerage values Varun Beverages at 47 times 2025 EPS and suggested a target of Rs 1,090 on the stock.
Emkay Global said Varun Beverages' Ebitda was 3-4 per cent above its estimates, led by 8 per cent better Ebitda in India and 14 per cent lower international Ebitda due to foreign exchange fluctuations. Revenue growth, it said, was robust at 22 per cent, led by broad-based volume growth of 16 per cent and realisation gain of 5 per cent.
"India has seen a strong recovery post a weak summer (unseasonal rains). Gross margin was better with improved mix, RM moderation and curtailed discounts. The beverage category is outperforming other FMCG categories on under-penetration and improved road/electricity infra. Varun Beverages has identified these tailwinds and has invested Rs 3,000 crore for capacity expansion," Emkay Global said.
The brokerage said Varun Beverages was benefiting from new products at affordable price-points, which should together drive Ebitda CAGR of 25-30 per cent over CY22-25E. Emkay upped its target on the stock by 14 per cent to Rs 1,150.
Varun Beverages, meanwhile, signed a distribution agreement for Mozambique (re-entry), and plans to leverage capacity in Zambia.
"Our 50 times PE partially factors in the optionality with a potential South Africa announcement being a significant addition. We are edging up CY24E/25E PAT by 2 per cent/3 per cent and rolling forward the valuation to Q3CY25, yielding an increased target of Rs 1,031 (Rs 960 earlier); maintain ‘BUY’. Watch out for the Campa Cola entry, but its scale-up will be closer to the next peak season," said Nuvama Institutional Equities in a note.
Antique Stock Broking said growth in emerging categories of energy drinks and dairy products combined with capacity expansion will support volume and margin expansion. It however felt that the upside for the stock remains capped at the current valuation, despite factoring in peak volume growth and margins.
Also read: Delhivery shares: CLSA cuts stock price target to Rs 493. Here's why
Also read: NHPC, Power Grid, NTPC: Trading strategies for these buzzing power stocks