Varun Beverages shares price target at Rs 875: What Kotak says on 'fairly-valued' multibagger stock

Kotak Institutional Equities has upped its share price target -- it calls it fair value -- on Varun Beverages to Rs 875 from Rs 795 earlier, implying (implies 44 times estimated June 2025 earnings per shares.

Kotak, who finds the stock fairly-priced, said the 112 per cent rally that the multibagger Varun Beverages has seen in the last year was led by the PepsiCo bottler's top-notch execution and consistent earnings upgrades. It noted that 2023 consensus EPS estimate for Varun Beverages is up 50 per cent-plus in the past 12 months.

That said, Kotak sees the earnings upgrade cycle could pause for now, owing to milder-than-usual summers and unseasonal rains in North India. It has downgraded Varun beverages by a notch to 'ADD' from 'Buy' but raised its fair value on the stock to Rs 875 from Rs 795,  as we see modest upside in the short term.

Calling it a compounding  story, Kotak, however, feels that South Africa can drive meaningful value creation for Varun Beverages in the medium term.

The domestic brokerage expects Varun Beverages to deliver 14 per cent growth in volume, 18 per cent growth in revenue and 23 per cent growth in EPS compounded annually over 2022-25, driven by resilient underlying demand, share gains in under-penetrated markets and new growth engines (Sting, Tropicana, Gatorade, Dairy).

"Any progress in South Africa (SA) or in the food business should further strengthen the growth trajectory. VBL is a promising compounding story," it said.

Kotak noted that Varun Beverages recently incorporated a wholly-owned subsidiary in South Africa, and it is exploring opportunities in the market.

"SA is $1 billion case soft drinks market ($2.5 billion net sales) where PepsiCo has a negligible 1 per cent market share(Coca Cola is the market leader with a 60 per cent-plus share). PepsiCo’s current bottler in SA (The Beverage Company) has about 10 per cent market share in SA’s soft drinks market, almost entirely attributable to its in-house brands. Considering VBL’s exceptional track record, we would not be surprised if VBL acquires franchise rights for the SA market in the foreseeable future," it said.

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