Shares of Varun Beverages climbed 6 per cent in Tuesday's trade after the PepsiCo bottler reported better-than expected December quarter results, thanks to strong volume growth and higher realisation. A handful of analysts have price targets of up to Rs 1,550 on the stock, which suggests a potential up to 20 per cent upside over Tuesday’s high of Rs 1,292.85 level/
Kotak Institutional Equities has increased its 2023 and 2024 EPS estimates by 8-10 per cent and revised its fair value for the stock to Rs 1,500 from Rs 1,200 earlier, valuing Varun Beverages at 40 times March 2025E PE. It now has a 'Buy' rating on the stock against 'Add' rating earlier.
Motilal Oswal Securities said Varun Beverages posted robust revenue growth, fuelled by strong volume growth (up 18 per cent YoY) and higher realisation (up 9 per cent YoY). Gross margin improved 90 bps YoY, despite the inflationary raw material environment, aided by higher realisation and early stocking of key raw materials.
"We largely maintain our CY23/CY24 earnings estimates and reiterate our Buy rating on the stock with a target of Rs 1,550," it said.
The company reported a 150.20 per cent year-on-year (YoY) surge in consolidated profit at Rs 81.52 crore for the December quarter compared with Rs 32.59 crore in the same quarter last year. Revenue for the fourth quarter rose 22.7 per cent to Rs 2,257.20 crore from Rs 1,764.94 crore YoY. Sales volume grew 17.8 per cent to 132 million cases, Varun Beverages said.
Emkay Global said Varun Beverages' Q4 Ebitda was 7-19 per cent above Street estimates. The beat was led by stronger traction in Sting, better revenue mix in favour of Sting/smaller SKUs and price hikes. It said the company exudes confidence on continuation of strong double-digit volume growth beyond 2022, led by 10-15 per cent distribution expansion against the targeted 8-10 per cent earlier. However, such growth would require higher capital employment than earlier expectations, Emkay said.
"Inventory days were higher at 55 in 2022 against 45 days historically and Varun Beverages expects to incur a higher capex of Rs 1,500 crore in 2023 against earlier target of Rs 1,200 crore. Faster traction in Sting and stronger distribution expansion leads to a 5-6 per cent increase in our Ebitda estimates. However, higher capital investment restricts EPS increase to 1-2 per cent and drives a 200-300 bps reduction in our RoIC estimate," it said.
On the back of the strong volume trend and factoring in the 15 per cent volumes share for Sting sustaining, Nuvama has increased its 2023 and 2024 PAT by 16 per cent and 14 per cent for Varun Beverages. "We value VBL at 45 times 2024 PE (in-line with India F&B), which gives us a target of Rs 1,512. Maintain ‘BUY’. The initiatives on the food-side, while small, presents an option value," it said.
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