Varun Beverages Limited trading at 52-week low; Is it the right time to buy?

During Tuesday’s trading session, the shares of a key player in the beverage industry and PepsiCo’s bottling partner moved down by nearly 7 percent, reaching a new 52-week low of Rs. 511.45 on BSE. 

Despite the company reporting decent Q3 FY24 results and maintaining strong fundamentals and a positive future outlook, the stock continues to trade at a low.

Price Movements

With a market cap of Rs. 1.76 lakh crores, the shares of Varun Beverages Limited (VBL) closed in the red at Rs. 521.55, down by nearly 5 percent, as against its previous closing price of Rs. 548.55.

The stock hit its 52-week high at Rs. 682.84 on 29th July 2024, and compared to its current trading price of Rs. 520.2, the stock is trading at a discount of nearly 24 percent.

The stock delivered negative returns of nearly 6.4 percent in one year, as well as around 9.5 percent of returns in the last one month.

Business Segment & Capex Plans

The company generates revenue solely from the manufacturing and sale of beverages, which is its only business segment. The expected capex for CY25 is around Rs. 3,100 crores, with Rs. 2,000 crores allocated for the establishment of greenfield facilities in Prayagraj, Buxar, Damtal, and Meghalaya in India.

The remaining Capex will be directed towards snack manufacturing at the Sricity (Brownfield) facility, the rPET facility in India, and expansion efforts in the Democratic Republic of Congo (DRC).

Also read: Penny stock jumps 8% after reporting 1045% QoQ revenue growth in Q3

Future Plans

The recent acquisitions of Tanzania Bottling Company SA (with an equity value of ~$154.50 million) and SBC Beverages Ghana (with an equity value of ~$15.06 million) are expected to be finalized on/before 28th February 2025 for Ghana and 31st March 2025 for Tanzania.

Varun Beverages Morocco SA has entered into an exclusive snack appointment agreement for the manufacturing of “Cheetos” in Morocco, set to begin on 1st May 2025. This is in addition to an existing distribution agreement for snack products, including Lays, Cheetos, and Doritos, in that country.

Varun Zimbabwe and Varun Zambia have both signed similar agreements with Premier Nutrition Trading to manufacture and sell “Simba Munichez” in Zimbabwe and Zambia. Distribution is expected to commence on 1st February 2025, with manufacturing expected to begin in Zimbabwe on/before 1st October 2025 and for Zambia on/before 1st April 2026.

Brokerages Target

The global brokerage firm Morgan Stanley has maintained its ‘overweight’ rating with a target price of Rs. 674 per share on Varun Beverages, representing a potential upside of nearly 30 percent from its Tuesday closing price of Rs. 520.2.

Additionally, Emkay Global has also maintained its ‘buy’ rating for VBL, setting a target price of Rs. 800 per share, indicating a potential upside of nearly 54 percent from today’s closing price.

About the Company

Varun Beverages Limited is engaged in the business of manufacturing, selling, bottling and distributing beverages of the Pepsi brand in geographically pre-defined territories of India, Sri Lanka, Nepal, Zambia, Morocco and Zimbabwe as per franchisee agreements with PepsiCo India Holdings Private Limited and its affiliates.

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.

VBL is a key player in the global beverage industry and the second largest franchisee of PepsiCo in the world (outside US) with operations spanning across 10 countries with franchise rights and an additional 4 countries with distribution rights.

Financial Performance

The consolidated revenue from operations has increased by 39.78 percent YoY from Rs. 2,730.98 crores in Q4 CY23 to Rs. 3,817.61 crores in Q4 CY24, but declined by 22.59 percent QoQ from Rs. 4,932.06 crores in Q3 CY24. The company was able to deliver a 3-year revenue CAGR of around 28.61 percent consistently for Q3 FY25.

VBL’s consolidated net profits have increased by around 36.08 percent YoY from Rs. 143.76 crores in Q4 CY23 to Rs. 195.64 crores in Q4 CY24. As compared to Q3 CY24, its net profits have declined by 68.88 percent QoQ from Rs. 628.82 crores. 

The EBITDA margins stood at 23.5 percent for CY24. The Gross margins rose 55.5 percent as of CY24, an increase from 53.8 percent in CY23. Varun Beverages’ consolidated sales volume increased by 23.2 percent to 112.44 crore cases in CY24.

Written by Shivani Singh

Disclaimer

The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Dailyraven Technologies or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.

The post Varun Beverages Limited trading at 52-week low; Is it the right time to buy? appeared first on Trade Brains.