Shares of Varun Beverages climbed 5 per cent in Wednesday's trade following a better-than-expected September quarter results. Analysts have raised earnings estimates for the Pepsi bottler by 4-8 per cent post the quarterly results and largely recommended a 'Buy’ rating on the stock. The scale-up of the foods portfolio in India and Morocco (new agreement) remains a tailwind, brokerages said.
The Pepsi bottler reported a 58.67 per cent YoY jump in net profit at Rs 381.04 crore for the third quarter compared with Rs 240.14 crore in the same quarter last year. Revenue for the quarter grew 32.46 per cent YoY to Rs 3,176.62 crore from Rs 2,398.16 crore in the year-ago quarter. Operating margin came in at 22 per cent against 20.63 per cent in the year-ago quarter.
Following the development, the scrip climbed 5.26 per cent to hit a high of Rs 1,165 on BSE. The stock has risen 96 per cent year-to-date. The price targets on the counter suggests up to 14 per cent upside potential on the counter.
Emkay Global said Varun Beverages' Ebitda was 15-30 per cent above Street estimates, led by a beat on both revenue and margins.
"The revenue beat was on strong traction in ‘Sting’ and greater benefits from distribution expansion during the pandemic. Ebitda margin beat was led by better revenue mix in favour of smaller packs. In our view, higher mix of brownfield capex should drive further RoIC gains to 26 per cent by 2024E. Potential share gains, best-in-class efficiencies and improvement in the RoIC profile keep us positive," the brokerage said while suggesting a target of Rs 1,280 on the stock.
Motilal Oswal expects Varun Beverages to maintain its earnings momentum, underpinned by an increased penetration in newly acquired territories of South and West India, higher acceptance of newly launched products, and growing refrigeration in rural and semi-rural areas.
"Further, Varun Beverages is raising its capacities by 20 per cent, which are likely to be operational before the next summer. The capex for capacity expansion is likely to be Rs 1,200 crore. Factoring in a better-than-expected volume and realisation growth in Q3, we raise our 2022, 2023 and 2024 earnings estimates by 6-8 per cent, respectively," it said while suggesting a target of Rs 1,330.
Varun Beverages expects double-digit volume growth to continue, led by 5-10 per cent annual outlet expansion and growth in revenue per outlet.
Varun Beverage’s share price has given 7.3 times return to Rs 1,107 in October 2022 from Rs 150 in October 2017. ICICIdirect has revised its 2022 and 2023 revenue and earnings numbers upward after
robust volume growth in nine months of 2022.
"Given most positives are already factored in valuation, we change our rating on the stock from BUY to HOLD," it said while suggesting a target of Rs 1,235.
Nuvama Institutional Equities has rolled over its estimates over to Q1 2024 and revised its price target for the stock to Rs 1,291 from Rs 1,112 earlier. "Besides, the initiative on the foods business, while small at present, offers a potential option value," it said.
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