Beverage packing manufacturer Varun Beverages has been a boon for its long-term investors. The stock has given hefty returns, rising over 7 times since December 2016. From trading around ₹106 in December 2016, the stock has surged over 650 percent to its all-time high of ₹805, hit on June 15, 2022.
The stock gained 5 percent in intra-deals today (June 15), to hit its new record high of ₹805.45 on the BSE on the back of strong earnings outlook.
An investment of ₹10 lakh in the stock in December 2016 would have turned to over ₹75 lakh currently.
Just in 2022 YTD, the stock has jumped nearly 35 percent as against a 9 percent decline in the benchmark indices. Meanwhile, it has advanced around 50 percent in the last one year, and nearly 180 percent in the past 2 years, making it a preferred choice for investors.
Despite the current outperformance, brokerages expect up to another 58 percent upside in the stock in the next 12 months.
Incorporated in 1995, Varun Beverages is a major player in the beverage industry and one of the largest franchisees of PepsiCo outside the US. The company manufactures, bottles, distributes, and sells a range of CSDs under the Pepsi, Diet Pepsi, Seven-Up, Mirinda Orange, Mirinda Lemon, Mountain Dew, Seven-Up Nimbooz Masala Soda, Evervess Soda, Duke’s Soda, Sting, Pepsi Black, Mountain Dew Ice, Slice Fizzy, and Teem brands.
In the March quarter, Varun Beverages posted a 26.2 percent YoY rise in its sales aided by strong volume growth across geographies, and higher realization. Volume growth was led by the early onset of summer in India, translating into higher demand for beverages.
The company's net nearly doubled, rising 98.2 percent YoY to ₹271 crore in Q4FY22 from ₹137 crore a year ago. The rise in profit was on the back of the rise in margins, reduction in finance costs and higher profitability from international operations, said the company. It added that it is also seeing a solid uptick in consumer demand. With this, the management remains confident of delivering healthy volume growth in the medium to longer term.
Domestic broekrage house Kotak Securities said that even as they were expecting a good CY22, VBL exceeded their expectations. Kotak reiterated a 'buy' call on the stock and raised its target to ₹1,275 from ₹1,100 earlier, indicating an upside of 58 percent for the stock.
"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 percent of sales growing at over 100 percent) and (3) an unusually hot summer," stated Kotak.
It raised CY22-24E volumes/revenues by 8-10 percent to factor in robust underlying industry growth, market share gains and strong traction in Sting, Tropicana and dairy beverages (up to 9 percent of volumes in Q1CY22 from about 2-3 percent in CY19).”
Meanwhile, analysts at ICICI Securities have given a target price of ₹1,030 to the stock, implying an upside of nearly 28 percent.
“The company continues to benefit from its relationship with PepsiCo, pan-India distribution, backward integration, and increase in in-home consumption. However, while we remain positive on Varun’s business model, the stock price upside is capped at current valuations," it said.
It added that the key downside risks include a steep rise in competitive pressures and input prices, delays in the launch/failure of new products, and a slowdown in urban and rural economies.
Motilal Oswal also said that the firm is expected to benefit from a strong recovery going forward, led by growing out-of-home consumption, with the opening up of offices and traveling, an uptick in volumes in new territories, and traction in new products.
It added that the firm has signed a co-packing agreement to manufacture ‘Kurkure Puffcorn’ for PepsiCo India in Feb’22. "This is the first time that it has ventured into the manufacture of non-Beverages. In the long-term, the company may acquire additional manufacturing and distribution rights of other food products of PepsiCo," MOSL pointed out.
The brokerage estimates a revenue/PAT CAGR of 16 percent/38 percent over CY21-23. However, it cut the stock's target price to ₹820 from rs 1,250 on expensive valuation.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.