The stock of Varun Beverages (VBL) has been on a roll this year; the stock is up 97% this year till September 23.
On September 22, it hit the fresh 52-week high of ₹1,194.80. On September 23, it witnessed some profit booking and declined 0.79% to end at ₹1,161.80 on BSE.
After the sharp gains, some profit booking is on expected lines as the stock's valuation is rich.
As per Trendlyne, Varun Beverages' trailing twelve-month PE (price-to-earning) ratio is near 58 while at present, the stock's PE is above 72 (as per BSE).
It 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. A hot and undisrupted summer season is very critical for the company.
What should you do with this stock? Here's what analysts say.
Fundamental view
Amit Agarwal, Vice President - Fundamental Research, Kotak Securities has an "add' call on Varun Beverages with a target price of ₹1,025.
Agarwal pointed out that in the recent quarter, VBL reported 102% year-on-year (YoY) growth in revenues to ₹4,950 crore led by a strong 97% YoY growth in volumes to 300 mn cases led by distribution expansion, the stellar success of Sting and a hot and undisrupted summer season.
The growth in newer brands like ‘Sting’ & milk-based beverages supported overall volume growth. The underpenetrated territories of Bihar, MP, Jharkhand and southern and western territories are growing to their potential after distribution expansion to three million outlets.
"With strong volume growth and capacity utilisation touching 90%, VBL would be expanding its capacity by 30% with capex of ₹1,200 crore in CY23. This is one company which is continually reporting strong quarterly numbers and seeing upgrades. We expect the trend to continue and remain positive on the stock," said Agarwal.
Technical view
Santosh Meena, Head of Research, Swastika Investmart, said Varun Beverages is in strong bullish momentum and continuing its northward journey with higher highs and higher lows formation.
"A breakout of ascending triangle formation may lead to the further upside towards the ₹1,300 level. On the downside, rising 20-DMA around ₹1,080 will act as an immediate support level while ₹1,000 is a sacrosanct support mark. Momentum indicators are also positively poised to support the current uptrend," said Meena.
Vaishali Parekh, Vice President - Technical Research, Prabhudas Lilladher has a 'hold' call on the stock.
"Varun Beverages has witnessed a decent rise after the consolidation phase from ₹650 during the March-April month and post the breakout has rallied to almost ₹1200 levels now at all-time high levels and with the indicators all at their highly overbought zone," said Parekh.
"Chances of some consolidation or profit booking cannot be ruled out but at the same time, a decisive move past ₹1,200 can carry the price to ₹1,380-1,450 levels and with near-term support at ₹1,050 zone the overall bias is maintained positive and strong. We can suggest maintaining a trailing stop loss and holding on to the stock enjoying the gains," said Parekh.
According to a MintGenie poll, an average of 14 analysts have a ‘strong buy’ call on Varun Beverages.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of MintGenie.
