Varun Beverages Ltd is a good match for investors' portfolios due to the company's strong growth prospects and commitment to enhancing shareholder value, according to brokerage house Sharekhan by BNP Paribas.
"The company's growth visibility has improved tremendously in the past five years with the addition of new territories in the domestic market and expansion in the international markets. Along with a focus on investing in future growth pillars, the company has also maintained its thrust on rewarding shareholders with consistent dividend payout through strong cashflow generation," said the brokerage.
Hence, the brokerage retains positive stance for the stock with an expectation of a 24% potential upside over the next 12 months from the current market price of ₹1,316.
Shares of the company on Wednesday surged nearly 5%. The stock has gained 126.73% from the 52-week low of ₹593.5. The stock ended 2.53% higher at ₹1,345.65 on the NSE. Shares of the company had touched an intraday high of ₹1,378.50 and low of ₹1,316.50.
In the past year, the stock price rose 124.3% and outperformed its sector by 71.6%.
Recently, the domestic brokerage house met the company's management to understand the impact of early summers on the current business environment and future growth prospects of the company. Following the meet, the brokerage expects the revenue and profit after taxes (PAT) to grow by 18% and 25%, respectively, over calendar year (CY)2022-CY2024E (estimates).
"Management was optimistic about achieving strong revenue growth in the upcoming season as inventory created for the summer season has already been exhausted…Sensing the strong opportunities in the domestic market, the company will be expanding its existing capacity by 30% and distribution by 10% in the coming years," said the brokerage.
Further, in the upcoming years, incremental development will be driven by strong go-to market strategy and traction for new products/categories.
Any modification to the policy governing carbonated beverage products or an increase in the tax on beverage products will reduce demand in the domestic market and pose a serious risk to the brokerages' earnings projections.