Varun Beverages: Why Axis Securities sees 15% upside on the stock

Shares of Varun Beverages Ltd rose 4 per cent in Wednesday’s trade following the beverages company's earnings report of a 5 per cent rise in net profit for the June quarter.

At 11.30 am, the Varun Beverages stock was up 1.60 per cent at Rs 520.40 on BSE. Earlier in the session, the stock hit a high of Rs 534, up 4.2 per cent over its Tuesday's closing price of Rs 512.20. With this, the stock is up nearly 27 per cent from its 52-week low of Rs 419.40.

Varun Beverages posted a profit of Rs 1,325.4 crore for Q2, compared to Rs 1,261.83 crore in the corresponding quarter last year. However, revenue from operations declined 2.5 per cent to Rs 7,017.3 crore from Rs 7,196.8 crore in the year-ago period.

Brokerage firm Axis Securities said, “In Q2CY25, the company’s consolidated sales volume declined 3 per cent YoY to ~390 million cases. In India, volumes were adversely impacted by abnormally high and unseasonal rainfall throughout the quarter, leading to a 7.1 per cent decline. However, this was partially offset by strong performance in international markets, where volumes grew 15.1 per cent, led by a 16.1 per cent increase in South Africa.”

“Ebitda margin expanded 82 bps YoY to 28.5 per cent in Q2CY25, despite elevated fixed costs from newly commissioned greenfield plants that are yet to ramp up volumes. The margin improvement was supported by operational efficiencies, stronger international currencies, and deeper backward integration. Low- and no-sugar products accounted for 55 per cent of the total sales volume,” Axis Securities said.

“Despite temporary disruption from unseasonal rains during peak summer, VBL’s structural growth drivers remain intact. We expect the company to sustain strong momentum over the medium to long term and maintain our BUY rating on the stock,” Axis Securities added. The brokerage has a target price of Rs 590, implying a 15 per cent upside from the current market price.

The company's board recommended an interim dividend of Re 0.50 per share. August 2 is the record date for the same.