Shareholders of Varun Beverages have reasons to celebrate, as the shares have been on a soaring trajectory for the last seven years. The shares that hit the secondary market in 2016 have never turned back, marking new record highs year after year and being resilient against market fluctuations, economic downturns, and industry disruptions.
After finishing its listing year in negative territory, the stock witnessed a robust surge of 72% in the subsequent year (CY17). This upward momentum persisted in CY18, CY19, and CY20, yielding gains of 20%, 36%, and 30%, respectively.
The stock further maintained its upward momentum in CY21 and CY22, with returns of 45% and an impressive 124% gain, respectively. In the current year, the stock has already experienced a notable 39% increase. At current levels, the stock is positioned as the top gainer in the Nifty FMCG index.
On August 17, the stock reached a new high of ₹934.35 apiece. Moreover, the shares this year entered the ₹one lakh market capitalisation club. In CY23 so far, the company's market cap has jumped from ₹85,882 crore to ₹1,19,214 crore.
Meanwhile, the company's shares have been trading on an ex-split basis with a 1:2 ratio since June 15, 2023.
Going forward, the company is expected to perform well due to the normalisation of operations and gaining market share in the newly acquired territories after the disruptions of COVID-19 and continued management focus on efficient go-to-market execution in the acquired and underpenetrated territories, as reflected in the recently commissioned Bihar facility, said domestic brokerage firm Axis Securities.
The company aims to expand its distribution network to reach 3.5 million outlets by CY23, a strategic move that aligns with its commitment to market penetration and growth.
Furthermore, the company's dedicated efforts towards expanding high-margin products such as Sting, an energy drink, alongside a heightened emphasis on value-added dairy, sports drinks (Gatorade), and juice segments are anticipated to contribute significantly to the company's strong performance, as per the brokerage.
For Q2CY23, the company delivered a healthy performance, with its consolidated net profit surging 25% YoY to ₹1,005 crore, driven by growth in revenue from operations and improvement in margins.
The consolidated sales volume grew by 4.6% to 314 million cases in Q2CY23 from 300 million cases in Q2CY22, led by robust growth in international markets.
Its consolidated revenue from operations grew by 13.23% YoY in Q2CY23 to ₹5,611 crore, driven by an increase in net realisation per case by 8% YoY to ₹179. EBITDA margins improved by 169 basis points to 26.9% in Q2CY23 led by higher gross margins and operational efficiencies.
The company has successfully set up greenfield plants and brownfield manufacturing lines in Bundi, Rajasthan, and Jabalpur, Madhya Pradesh, while also augmenting the capacity at six existing locations. The company is actively engaged in establishing greenfield facilities in Uttar Pradesh, Maharashtra, and Odisha, in addition to one international plant in the Democratic Republic of the Congo (DRC).
Given the growth outlook and guidance, domestic brokerage firm Keynote Capitals maintained a 'buy' call on the stock with a target price of ₹962 apiece, valuing the stock at 55x CY24 earnings.
Varun Beverages is the second-largest bottling company of PepsiCo's beverages in the world outside the United States. The company produces and distributes a wide range of carbonated soft drinks (CSDs), as well as a large selection of non-carbonated beverages (NCBs), including packaged drinking water sold under trademarks owned by PepsiCo.
15 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.