Varun Beverages share price surged 9% to hit a new high of Rs 1,152.75 apiece on the BSE in Friday’s intra-day trade after the company board recommended bonus shares in the proportion of 1:2 i.e. 1 equity share for every 2 equity share held by the shareholders of the company as on the record date. For the January-March quarter, VBL posted robust 26.2% on-year sales growth. The company’s profit after tax (PAT) nearly doubled or advanced 98.2% on-year to Rs 271 crore from Rs 137 crore driven by improvement in margins, reduction in finance cost and higher profitability from our international operations. Varun Beverages stock has rallied nearly 25% so far in 2022 and 75% in the last one year. Going forward, brokerages see further potential rally of up to 20%.
Should you buy Varun Beverages (VBL) shares?
Motilal Oswal: Buy
Target price: Rs 1,230
Analysts at Motilal Oswal Financial Services expect the strong recovery to continue going forward, led by growing out-of-home consumption, with the opening up of offices and traveling activity; uptick in volumes in new territories; robust growth in launched products; and growing refrigeration in rural/semi-rural areas. “Factoring in its 1QCY22 performance, we raise our CY22/CY23 earnings estimate by 7%/6% as the growth trajectory is expected to continue with robust demand from out-of-home consumption and strong support from newly launched products. We expect a revenue/EBITDA/PAT CAGR of 16%/21%/38% over CY21-23,” the domestic brokerage firm said. It maintained a ‘buy’ rating on the stock with a target price of Rs 1,230 per share, implying 16% upside. “Growth was limited due to capacity constraints (100% utilization at present). Once new capacities come on stream (maybe by CY23), growth will be exponential,” it added.
ICICI Securities: Hold
Target price: Rs 1,030
Analysts at ICICI Securities model Varun Beverages to report revenue and PAT CAGRs of 13.8% and 29.3%, respectively, over CY21-CY23. “It continues to benefit from its relationship with PepsiCo, pan-India distribution, backward integration, and increase in in-home consumption. However, we believe at the current valuations (40x CY23E), the stock price upside is capped and downgrade the stock to HOLD rating with a DCF-based target price of Rs 1,030 (38x CY23E),” the brokerage said. According to analysts, key downside risks include Steep rise in competitive pressures and input prices; delays in launch/failure of new products; and slowdown in urban and rural economies. “While we remain positive on Varun’s business model, the stock price upside is capped at current valuations,” they added.
Kotak Securities: Buy
Fair Value: Rs 1,275
VBL reported strong 16%, 32% on-year growth in domestic and international volumes respectively, led by strong execution and an early onset of summer. Kotak Securities in its institutional equities report stated, “Even as we were expecting a good CY22, VBL is set to exceed our expectations on the back of strong volume growth aided by (1) distribution-led share gains in South/West, (2) stellar growth of Sting (6-7% of sales growing at 100%+) and (3) an unusually hot summer. We raise CY22-24E volumes/revenues by 8-10% to factor in robust underlying industry growth, market share gains and strong traction in Sting, Tropicana and dairy beverages (up to 9% of volumes in 1QCY22 from about 2-3% in CY19).” The brokerage upgraded CY22-24 EPS estimates by 10-12%, rollover and revised FV to Rs 1,275 from Rs 1,100 earlier. It reiterated the ‘buy’ call on the stock.
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