Varun Beverages’ pact with PepsiCo can benefit the FMCG stock; here’s how

Shares of Varun Beverages Ltd (VBL) look set to hit the Rs 1,900 mark, thanks to the FMCG major’s recent agreement with PepsiCo to manufacture, distribute, and sell snack food items in Zimbabwe and Zambia. According to brokerage Motilal Oswal, this agreement will serve as a building block for VBL’s snack food business.

The price target is 17% higher to the current market price. In the current session, Varun Beverages shares were trading 2% lower at Rs 1595.90 against the previous close of Rs 1627.60 on BSE. The stock touched its all-time high of Rs 1673.70 on June 19, 2024.

A total of 0.35 lakh shares of the firm changed hands, amounting to a turnover of Rs 5.66 crore on BSE. Market cap of the firm slipped to Rs 5.66 lakh crore. The stock has delivered mutlibagger returns of 287% in two years and rose 1,035% in five years.

In terms of technicals, the relative strength index (RSI) of Varun Beverages stands at 59.1, signaling the stock is trading neither in the overbought and nor in the oversold zone. Varun Beverages shares stand lower than the 5 day, 10 day, 20 day but higher than the 30 day, 50 day 100 day, 150 day and 200 day moving averages.

“This is an exclusive snacks franchising agreement with PepsiCo to manufacture, distribute, and sell snack foods under the brand name “Simba Munchiez” in Zimbabwe and Zambia. VBL will set up a 5,000 mtpa manufacturing capacity in each location for aggregate capex of Rs 120 crore,” said Motilal Oswal

“We expect a CAGR of 21%/22%/29% in revenue/EBITDA/PAT over CY23-26. We value the stock at 60x Sep’26E EPS to arrive at a price target of Rs 1,900. We reiterate our BUY rating on the stock,” added the brokerage.

Global brokerage CLSA is also bullish on Varun Beverages. The brokerage has raised its price target stating that higher affordability of its products and increasing market size is helping driving growth.

CLSA has maintained its 'Buy' call on the stock with a price target of Rs 1,977 per share. The brokerage said the increased affordability of Varun Beverages' offerings, new territories and products will help the PepsiCo bottler sustain growth.

Varun Beverages is a beverage company. It operates franchisee of PepsiCo. The company produces and distributes a range of carbonated soft drinks (CSDs), as well as a large selection of non-carbonated beverages (NCBs), including packaged drinking water sold under trademarks owned by PepsiCo.