Shares of Varun Beverages look set for an upward move with brokerages maintaining their buy stance post Q4 earnings. Varun Beverages ended the year on a high note, with healthy volume growth in India (11%) and expansion in international markets (through acquisition and greenfield capacity expansion), according to brokerage Motilal Oswal.
The brokerage reiterated its BUY rating on the stock noting that the management has guided to continue this growth momentum with double-digit volume growth in the domestic market and a much higher growth rate in international markets.
It expects a CAGR of 12%/11%/17% in revenue/EBITDA/PAT over CY24-26 and largely maintained CY25/CY26 earnings estimates.
“Varun Beverages is expected to maintain its earnings momentum, aided by: 1) increased penetration in newly acquired territories in Africa, 2) stable growth in the domestic market, 3) continued expansion in capacity and distribution reach (10% annual addition in outlets), and 4) growing refrigeration in rural and semi-rural areas. We value the stock at 55x CY26E EPS to arrive at a target price of Rs 680,” said Motilal Oswal.
The Pepsico bottler reported a 40.3% rise in net profit for the December 2024 quarter. Net profit climbed to Rs 185.1 crore in Q4 against Rs 131.9 crore in the December 2023 quarter. Revenue from operations in Q4 rose 40.3% to Rs 3818 crore against Rs 2731 crore in the corresponding period of the previous fiscal. EBITDA rose 38.7% in Q4 to Rs 580 crore from Rs 418 crore in the Q4 of previous fiscal. The board also cleared a final dividend of Rs 0.50 per share.
The company has become net debt free through prepayment of debts by using the proceeds from the QIP issue, said Varun Beverages.
Ravi Jaipuria, Chairman – Varun Beverages said, “We grew South Africa sales by 12.5% in our first year, expanding general trade distribution and placing record visi-coolers. Plans for backward integration are underway. We aim to sustain growth through market penetration, capacity expansion, and investments in technology and sustainability. Strengthening last-mile distribution and deploying Visi Coolers will expand our reach. With a strong foundation, we are confident in driving long-term value.”
Global brokerage Morgan Stanley has maintained an overweight stance on the stock with a target price of Rs 674. It has reitererated guidance for volume and margins in CY25. The growth momentum remains strong Q1CY25, the brokerage said adding that management is not seeing any effect of competition from Campa in India. The market already had 20% share of B brands, which were cheaper than Pepsi. Distribution expansion opportunity in double digits from 4mn outlets is a key growth driver. The market is large enough to accommodate new competition.
Varun Beverages is a beverage company. It operates franchisee of PepsiCo. The company produces and distributes a range of carbonated soft drinks (CSDs), as well as a large selection of non-carbonated beverages (NCBs), including packaged drinking water sold under trademarks owned by PepsiCo.
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