Varun Beverages shares cut gains, settle 7% higher; here are analyst targets

Shares of Varun Beverages Ltd logged strong gains on Wednesday, even as selling spree gripped the broader market, thanks to its acquisition of South African bottler BevCo. Analysts said the acquisition multiple at 0.7 times 2023 sales is attractive, in-line with the previous acquisitions and provides a 5-7 times value creation opportunity.

With Bevco's acquisition, Varun Beverages has access to 10 African nations. It now controls most of southern Africa.  Among the new regions, South Africa gains significance as its NARTD market is 40 per cent of India’s market, albeit growing at a slower pace of 3-5 per cent volume CAGR.

The stock settled at Rs 1,254.55 on BSE, up 7.04 per cent. It hit a record high of Rs 1,380.45 earlier today. 

"The market is mature, but we remain confident of share gains for VBL, given its strong track record in Zimbabwe and Nepal (over 50 per cent share now). Portfolio-led pricing gain is also a big opportunity, given 50 per cent lower realisations for Bevco vs. CCBA, a Coke bottler. Post 70 per cent run-up in the last 12-month, we have a Reduce rating on Varun Beverages. However, consistent outperformance versus  peers and value creation in intl. geos provide scope for further re-rating," Emkay Global said.

Kotak Institutional Equities baked in the acquisition and raised its 2024 and 2025 EPS estimates by 3 per cent and 6 per cent, respectively. "We expect VBL to deliver 20 per cent/24 per cent volume/EPS CAGR over 2023-26E. We roll over and revise fair value to Rs1,250 from Rs 1,025 earlier, valuing VBL at 48 times March 2026E PE (44 times earlier)," Kotak said. 

"The acquisition of BevCo is EPS-accretive for the company and represents an attractive valuation (6 times EV/Ebitda of FY24 as per acquisition guidelines of VBL versus EV/Ebitda of 43.5 times for VBL; 0.7 times/0.8 times of sales of FY23/FY24E versus 9.8 times sales for VBL). Further, this acquisition will improve the company’s presence in the African sub-continent," Motilal Oswal Securities said.

This brokerage has a target of Rs 1,285 on the stock.

Axis Securities said Varun Beverages has been among its top picks portfolio since long and that it continues to remain positive on the stock on a mid to long-term basis.

"We believe VBL's acquisition of BevCo provides a much-needed thrust to expand its geographical  footprint in Africa coupled with the expansion of other businesses – Energy Business, Dairy and Juice  would be key growth drivers for the company in the coming years," it said.

The brokerage has maintained 'Buy' rating on the stock with the revised target price of Rs  1,450 per share against Rs 1,200 earlier.

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