The market appears to be happy with the December quarter (Q3FY23) earnings of Varun Beverages as the stock jumped 7 percent to close at ₹1,306.20 on BSE on February 7, following an over 5 percent gain in the previous session.
The company reported its December quarter scorecard on February 6.
As per a BSE filing, its profit after tax (PAT) in the December quarter surged 150 percent to ₹81.52 crore from ₹32.59 crore in the same quarter last year. However, on a quarter-on-quarter (QoQ) basis, PAT was down 79.4 percent against ₹395.49 crore in Q2FY23.
Revenue from operations for Q3FY23 rose nearly 28 percent year-on-year (YoY) to 2,257.2 crore against ₹1,764.94 crore in Q3FY22. On a QoQ basis, revenue was down 30.5 percent against ₹3,248.31 crore in Q2FY23.
Varun Beverages is the second largest bottling company of PepsiCo's beverages in the world outside the United States. The company produces and distributes carbonated drinks, juices and packaged drinking water in six countries including India.
The stock has jumped over 100 percent in the last one year.
Brokerages upbeat
Brokerage firms still see more upside in the stock despite sharp gains in it in the last one year.
Brokerage firm Kotak Institutional Equities has upgraded Varun Beverages stock to a 'buy' from an 'add' and raised the target price to ₹1,500 from ₹1,200 earlier, valuing the stock at 40 times March 2025E PE (price to earnings ratio) which implies nearly 22 times EV/EBITDA.
It also increased 2023-24E EPS (earnings per share) by 8-10 percent.
Kotak believes Varun Beverages is well-placed to deliver 18 percent revenue and 26 percent earnings CAGR over CY2022-24E, led by (1) continued success of Sting, (2) capacity expansion of about 20-30 percent, (3) introduction and pan-India rollout of new products (dairy, juices, Gatorade, Rockstar), (4) distribution expansion by 10-15 percent per year, and (5) further share gains in underpenetrated markets (South, West and East).
"Any progress on foods or the inorganic front (optionality) should add to the strong organic growth that beverages offer," Kotak said.
Brokerage firm Motilal Oswal Financial Services maintained a 'buy' call on the stock with a target price of ₹1,550, valuing the stock at 42 times 2024 EPS. The brokerage firm has broadly maintained its earnings estimates for 2023 and 2024.
Motilal expects a revenue CAGR of 16 percent, EBITDA CAGR of 18 percent and PAT CAGR of 27 percent over calendar years 2022-24.
"We expect Varun Beverages to maintain its earnings momentum, underpinned by (1) increased penetration in newly acquired territories of South and West India, (2) higher acceptance of newly launched products, and (3) growing refrigeration in rural and semi-rural areas," said Motilal Oswal.
Brokerage firm Nuvama Wealth Management also maintained a 'buy' call on the stock, pegging the target price of ₹1,512, valuing the stock at 45 times 2024 PE.
"On the back of the strong volumes trend and factoring in the 15 percent share in volumes for Sting sustaining, we increase our PAT estimates for the year 2023 by 16 percent and for the year 2024 by 14 percent," said Nuvama.
Disclaimer: The views and recommendations given in this article are those of the broking firms. These do not represent the views of MintGenie.
