Varun Beverages (VBL) witnessed a more than 4 percent increase in its shares on November 7 following the announcement of robust financial results for the September quarter. The company reported a substantial 30 percent surge in net profit, reaching Rs 514.05 crore, while its revenue saw a 21 percent increase, reaching Rs 3,937.75 crore. This growth was driven by rising sales volumes, increased realization, and the benefit of lower raw material costs.
Analysts are expressing optimism about this PepsiCo bottler, recognizing its strong performance in the FMCG sector. VBL’s expansion of its go-to-market strategy, especially in rural areas, has set it apart from its peers.
The company is maintaining its growth outlook for CY23, thanks to effective on-ground execution, expanding manufacturing capabilities, and an extended distribution network.
Outlook:
Axis Securities anticipates that Varun Beverages will continue its impressive market performance due to normalized operations and the acquisition of market share in newly-added territories. The company’s efficient go-to-market strategy and recent Bihar plant operations are key factors contributing to its success.
The expansion of its distribution network from 3 million outlets to 3.5 million outlets in CY23, a focus on introducing high-margin products like Sting energy drink, and the expansion of Value-Added Dairy, sports drink (Gatorade), and Juice segments, as well as robust international growth, are all expected to fuel Varun Beverages’ future performance.
Is it a good time to invest in Varun Beverages shares?
Motilal Oswal remains optimistic about VBL’s earnings momentum, expecting it to benefit from increased penetration in recently acquired territories in South and West India, the growing acceptance of newly launched products, capacity and distribution expansion, expanding refrigeration in rural and semi-rural areas, and the scale-up of international operations. They reiterate their ‘buy’ rating on the stock with a target price of Rs 1,090.
Axis Securities also recommends a ‘buy,’ stating that VBL is likely to sustain its robust growth momentum. They acknowledge that competitive intensity, raw material inflation, and a weakening demand environment pose key risks for the company.
Jefferies analysts believe that Varun Beverages has demonstrated strong execution in the packaged beverages category, with the potential to expand distribution, increase market share in the South and West, and drive significant earnings per share (EPS) growth. They forecast a 17 percent annual revenue growth over CY22-25E with a 170bps margin expansion, along with a 21 percent CAGR for EBITDA.
Furthermore, an extended distribution reach and improved cooling infrastructure in rural and newly acquired regions provide ample growth potential for VBL, which should contribute to enhanced Return on Capital Employed (RoCE) and valuation multiples, according to Jefferies. They establish a fair value of Rs 1,100 per share and even higher at Rs 1,250 per share in an upside scenario.
At 11:27 am, Varun Beverages shares were trading at Rs 985.00 on the National Stock Exchange (NSE), marking a 4.16 percent increase. Year-to-date, the stock has risen by 47.78 percent, outperforming the Nifty benchmark, which has recorded a 6.5 percent increase during the same period.
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