scorecardresearchVarun Beverages Stock Check: Down 13% in January so far; is it time to exit the stock?

Varun Beverages Stock Check: Down 13% in January so far; is it time to exit the stock?

Updated: 13 Jan 2023, 02:36 PM IST
TL;DR.
After steep gains, some profit booking is on the expected lines but investors seek clarity on the short and medium trend of the stock.
If VBL stock ends in the red in January, it will have snapped the last seven months' winning streak.

If VBL stock ends in the red in January, it will have snapped the last seven months' winning streak.

At first glance, it appears that the shares of Varun Beverages (VBL) have lost steam as they have been witnessing strong selling in January so far.

While the stock is up 90 percent in the last one year, it has lost about 13 percent in January so far. If it ends in the red in January, it will have snapped the last seven months' winning streak.

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Varun Beverages stock in last one year.

After steep gains, some profit booking is on the expected lines but investors seek clarity on the short and medium trend of the stock. Will it fall more or reverse its trend?

MintGenie talked to fundamental and technical analysts about the stock. Here's what they said:

Fundamental Views

Analyst: Rameshver Dongre, Research Analyst - Equity Research, CapitalVia Global Research

Varun Beverages is the second largest bottling company of PepsiCo's beverages in the world outside the United States.

Dongre said concerns over proposed WHO guidelines that asked governments to raise the price of a variety of beverages through taxation in order to reduce consumption and support a "healthy diet" have had a negative impact on the share price of the company.

Any GST increase could have a negative effect on VBL's business. The stock is experiencing profit booking because of this.

Dongre highlighted that the company has produced solid profit growth over the past five years at a CAGR of about 72 percent while also maintaining a healthy dividend payout.

The only drawback is that it trades at about 16 times its book value. The short-term correction may therefore continue up to the 1,120–1,100 level, said Dongre.

However, he added that it will only last a short while. Furthermore, with summer's arrival and the increase in mobility, demand for soft drinks may start to rise significantly as early as February.

"The stock is expected to rise. Investors should therefore continue holding this stock over the medium term because it may be easy for VBL to set a new record high," said Dongre.

Analyst: Sneha Poddar, AVP Research, Broking and Distribution, Motilal Oswal Financial Services

The stock witnessed a correction recently given weak demand due to the onset of winter. North India is faced with severe cold waves which would have a seasonal impact on the H2FY23 profitability.

However, this provides a good opportunity to accumulate the stock at lower levels as the long-term fundamentals remain strong.

Technical Views

Analyst: Jigar S. Patel, Senior Manager - Equity Research, Anand Rathi Share and Stock Brokers

After making the top of 1,432 in December 2022, this counter has corrected almost 17 percent.

At the current juncture, VBL is trying to take support near 100 DEMA which is around 1,165.

On the indicator front, daily MACD has made an oversold structure, indicating it may apply brakes to the downside in the coming sessions and start consolidating between 1,150-1,175.

"If someone has already bought then he/she should wait as VBL is near its crucial support. Fresh buying is only advised when we get confirmation on the daily MACD (in the form of a bullish cross). If in the coming sessions, we get a bullish cross then the upside target will be 1,260 and the stop loss would be 1,120," said Patel.

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Varun Beverages tech chart

Analyst: Vaishali Parekh, Vice President - Technical Research, Prabhudas Lilladher

The stock, in the recent past, has resisted near 1,430 and witnessed a decent correction to erode almost 17 percent from the peak level.

A further decisive breach below the crucial trendline zone of 1,145 can trigger a fresh selloff with the next support near 1,090.

"Short to medium-term investors can exit from their holdings once the 1,145 level is breached and at the same time, a decisive move past the 1,260 level would improve the bias to some extent," said Parekh.

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Varun Beverages technical chart

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of MintGenie.

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First Published: 13 Jan 2023, 02:36 PM IST