Varun Beverages shares clocked multibagger returns in three years; more upside likely?

Shares of Varun Beverages Ltd have delivered multibagger returns (467%) in the last three years. The stock has surged 70% in the last one year against 11.30% returns Sensex generated during the period. The uptrend seems to be in intact with the stock rising 39.24% in the last six months.  In the current session, Varun Beverages shares were trading flat at Rs 912.85 against the previous close of Rs 919 on BSE. A total of 0.20 lakh shares of the firm changed hands, amounting to a turnover of Rs 1.78 crore on BSE. Market cap of the firm stood at Rs 1.18 lakh crore. The stock has a one-year beta of 0.7, indicating very low volatility during the period.

Axis Securities believes Varun Beverages is geared for growth. The brokerage has assigned a target price of Rs 1,000.  It has cited five factors on account of which the firm is likely to continue its strong growth momentum.  

“We believe VBL is expected to continue its strong growth momentum on account of 1) Normalcy of operation and market share gains of newly acquired territories post COVID-19 disruptions, 2) The management’s continued focus on the efficient go-to-market execution in acquired and underpenetrated territories as reflected in its recently commissioned Bihar plant operations (it has started gaining market share), 3) Expansion in its distribution reach to 3.5 Mn outlets in CY23 from 3 Mn currently, 4) Focus on expanding high-margin Sting energy drink across outlets coupled with increased focus on expansion of Value Added Dairy, sports drink (Gatorade) and Juice segment and 5) Robust growth in the International geographies,” said the brokerage.  

Two brokerages Antique Stock Broking and Kotak Institutional Equities, however, do not see upside to the stock. Kotak Institutional Equities has 'Add' rating on Varun Beverages with a fair value estimate of Rs 910. Antique Stock Broking has 'Hold' rating on the stock with a target of Rs 820. As per Trendlyne, the average target price on the stock at Rs 898 suggests a 2 per cent potential downside.

In terms of technicals, the relative strength index (RSI) of Varun Beverages stands at 64.2, signaling the stock is neither oversold nor overbought. Varun Beverages shares are trading higher than the 20 day, 50 day, 100 day, 200 day and lower than the 5 day and 10 day moving averages.

The company follows the January-December format for results.   

In the second quarter of this fiscal, the firm reported a 25.36 per cent rise in consolidated net profit to Rs 1,005.42 crore led by revenue growth and improvement in margins. The company had posted a net profit of Rs 802.01 crore during the April-June quarter a year ago.  

Revenue from operations surged 13.6% in Q2 to Rs 5,699.73 crore against Rs 5,017.57 crore revenue of the corresponding period last fiscal. Net realizations climbed 8.3 percent to Rs 179 on account of continued improvement in mix of smaller SKUs (250 ml) as compared to the base quarter.    

Operating profit or EBITDA, zoomed 21 percent to Rs 1,510.9 crore in Q2  compared to Rs 1,250.4 crore in the year-ago quarter. EBITDA margins came at 26.5 percent versus 25 percent year-on-year led by higher gross margins and operational efficiencies.    

Varun Beverages reported a strong set of earnings for the quarter ended March too. Net profit in Q1 climbed 69 percent year-on-year to Rs 429 crore. Operating profit or EBITDA climbed 50 percent to Rs 798.1 crore. EBITDA margin in the March quarter rose 170 basis points year-on-year to 20.5 percent.   

Revenue rose 38 percent to Rs 3,893 crore on a year in year basis. Revenue growth was led by robust volume growth and an increase in net realisations.    

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