Extending its bull run, Varun Beverages stock reached an all-time high of Rs. 1,233 in Thursday's intra-day trade. The stock rose for four consecutive trading sessions, delivering a return of 14.32%.
The stock witnessed a one-way jump since the start of this year by climbing from Rs. 592.20 to Rs. 1,189 levels, generating a multi-bagger return of 103.54%. while the Nifty50 has only increased by 4.07%. On average, the stock has jumped 10.35% month over month so far in 2022.
Varun Beverages' share price has soared by nearly 260% in the past three years, from ₹330 to its current level of ₹1,189. In addition, the market price of the stock has increased by nearly 700% in the last five years.
The company is one of the largest franchisees of PepsiCo in the world. It produces and distributes carbonated drinks, juices, and packaged drinking water in six countries, including India.
On Tuesday, VBL reported a 53.34% rise in its consolidated net profit at Rs. 395.48 crore for the September ending quarter as against a net profit of Rs. 257.90 crore in the same quarter of last year, driven by higher growth in the revenue from operations. The company's revenue surged 33% YoY to ₹3,248.30 crore, aided by strong volume growth and higher realization. The strong performance of the energy drink "Sting" in the domestic market has pushed the overall volume growth for the company in Q3.
VBL sales volumes in India grew by 22.1% in Q3 CY2022 to 148 million cases, and in international markets, volumes grew by 31.3% to 42 million cases. The total volume for the quarter came in at 190 million cases.
The company's Chairman Ravi Jaipuria said the company India business has delivered "solid organic volume growth" of 22 percent, led by a favourable demand environment and the strong performance of the energy drink Sting.
About the outlook, he said the demand environment for the beverage industry has been robust, and VBL is witnessing a healthy offtake in India as well as in its international markets.
In a separate filing, VBL said its board has approved the proposal to enter into an agreement by Varun Beverages Morocco SA, a wholly-owned subsidiary of the company, to distribute and sell Lays, Doritos, and Cheetos for PepsiCo's wholly-owned subsidiaries in the territory of Morocco with effect from January 2023, PTI reported.
After the solid Q3 show, domestic brokerage firm Motilal Oswal has raised its target price on the stock and maintained a 'buy' call with a target price of Rs. 1,330 per share, an upside of over 12.14% from the stock's previous closing price. The brokerage expects a revenue/EBITDA/PAT CAGR of 23%, 28%, and 45% over CY21–24, respectively.
Factoring in better-than-expected volume and realisation growth in 3QCY22, the brokerage raised its CY22E/CY23E/CY24E earnings by 6%, 7%, and 8%, respectively.
Motilal Oswal expects VBL to maintain its earnings momentum, underpinned by increased penetration in newly acquired territories in South and West India, higher acceptance of newly launched products, and growing refrigeration in rural and semi-rural areas.
In the opinion of Axis Securities, the company's short-term difficulties, such as RM inflation and top-line growth, are over, VBL is expected to perform well moving forward on account of the newly acquired territories that will see normalcy of operations and market share gains post-COVID-19 disruptions. Expansion in its distribution reach by 8-10% from the current 3 million outlets as it penetrates further into weaker territories, a focus on expanding high-margin Sting energy drink across outlets, and the maintenance of healthy double-digit volume growth in the medium- to long-term, it added.
The brokerage factored in Revenue/EBITDA/PAT CAGR of 27%/35%/52% over CY21–24E and arrived at a revised Target price of ₹1,300/share vs. ₹1150/share earlier, valuing it at 36x Sep–24E EPS.
An average of 14 analysts polled by MintGenie have a strong 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.