Varun Beverages shares: Can this Pepsi India bottler deliver big post Q4 results?

Shares of Varun Beverages Ltd, which have climbed 113 per cent in the past one year and 984 per cent in five years, reported a Varun Beverages Ltd, delivered a strong operating performance in its fourth quarter results and a few analysts increased their earnings estimates and target multiples for the stock following the quarterly earnings. That said, Varun Beverages' rich valuations overshadow healthy growth outlook, analysts said. Also, higher interest cost, led by increase in debt, may partly offset increase in earnings, they added.

A few target prices on the stock were in the Rs 1,300-1,500 range.

Antique Stock Broking has assumed a revenue growth of 22 per cent, Ebitda growth of 23 per cent and EPS growth of 26 per cent, compounded annually, over 2023-2026. It sees an Ebitda margin of 23.5 per cent by 2026.

"We upgrade our target multiple to 45 times (earlier 35 times). However, the upside remains capped at the current valuation. We thus maintain HOLD with a revised target price of Rs 1,300 (earlier Rs 1,010) based on a PE of 45 times 1HCY26 EPS," it said.

Varun Beverages stock has a 5-year average valuation of 32 times.

The PepsiCo franchisee had on Monday clocked 76 per cent year-on-year (YoY) surge in net profit at Rs 143.76 crore for the December quarter, led by growth in revenue and improved margins. Revenue from operations jumped 20.5 per cent YoY to Rs 2,667.70 crore for the quarter, led by volume growth in both India & International markets.

Emkay Global said the beverage category is outperforming other FMCG categories due to under-penetration, improved road and electricity infra, and scale-up of the energy-drink category. Varun Beverages, it said, has identified these tailwinds and should benefit from its capacity expansion, distribution expansion, and launch of new products at affordable price-points.

"These 360-degree investments should help VBL to deliver an Ebitda /EPS CAGR of 25-30 per cent over CY23-26E. We upgrade VBL to ADD (from Reduce) and markup the target by 20 per cent to Rs 1,400, led by 4 per cent rise in EPS, 10 per cent in multiple to 50 times on strong visibility/outperformance vs. peers and 5 per cent incremental value addition from the South Africa acquisition," Emkay said.

Motilal Oswal said it has maintained its 2024 earnings forecast and increased 2025 earnings estimate by 7 per cent, integrating the recently acquired South African beverage company BevCo’s financials and also increasing volume growth estimate of the existing business.

"However, higher interest cost, led by increase in debt (capex and acquisition-led increase) partly offsets the increase in earnings. We reiterate our BUY rating on the stock with a target of Rs 1,500," it said.

 

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