Buy This Largecap Stock, Share Rises 50% In Past 1 Year, PAT Doubled To Rs. 694 Crore

Brokerage firm Hem Securities recommends investors to buy the stocks of Varun Beverages. Its PAT almost doubled to Rs. 694 Crore from Rs. 329 Crore is driven by lower interest expense, lower cost of borrowings and higher margins. It is one of the largest franchisee of PepsiCo in the world (outside USA).

Target Price, Current Market Price, and Company Performance

The Current Market Price (CMP) of Varun Beverages is Rs. 749. Hem Securities has estimated a Target Price for the stock at Rs. 898. The stock has potential to give a 20% return, in the upcoming 1 year. This is a large-cap company with a market capitalization of around Rs. 71427.72 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 749
Target Price	Rs. 898
Potential 1 year return	20.00%
52 week high share price	Rs. 805.60
52 week low share price	Rs. 472.67

Varun Beverages Ltd.'s revenue, EBITDA and PAT have grown by 26%, 39% and 98% respectively led by robust volume growth of 18.7% on the back of early onset of summer. Its volume sales stood at Rs. 17.97 Crore cases. Revenue contribution for CSD, Juice and PDW stood at 70%, 7.2% and 22.8% respectively. The management thinks that margins should remain in the range of 20%-22% as they have enough stock of PET and sugar, so no challenge on that front and concentrate prices are also stable.

Hem Securities comments: stock advantages and risks

The company's management expects robust performance in coming quarters driven by strengthening demand, strong distribution network and success of new products. According to management, demand has been robust in new product segments such as Sting, Value Added Dairy, and Tropicana. However, growth was limited due to capacity constraints (100% utilization at present).

According to Hem Securities, "The management has been focusing on enhancing distribution. This is the first year since it has augmented its distribution and the same is delivering results. The company is already witnessing accelerated growth in South and West India. CSD volumes increased by 18.5% YoY to 12.6 Crore unit cases due to growing out-of-home consumption, which was driven by the resumption of offices and an increase in traveling activity. NCB volumes grew 18% YoY to 1.3 Crore unit cases on the back of robust growth and growing acceptance of newly launched Sting and Tropicana. Water volumes surged 20.6% YoY to 4.1 Crore unit cases on the back of higher growth from the international segment. We expect healthy revenue, EBITA, and PAT growth by 15%, 20% and 35% in coming years."

Company profile

Varun Beverages Ltd. is the second largest franchisee in the world (outside US) of carbonated soft drinks ("CSDs") and non-carbonated beverages ("NCBs"). The company has entered into an agreement to manufacture Kurkure Puffcorn for PepsiCo India Holdings Private Limited as part of its network of copackers. The company has been aggressively installing visi-coolers to ensure volume growth in the coming months and meet demand. PepsiCo CSD brands sold by the company include Pepsi, Diet Pepsi, Seven-Up, Mirinda Orange, Mirinda Lemon, Mountain Dew, Seven-Up Nimbooz Masala Soda, Evervess Soda, Duke's Soda and Sting. PepsiCo NCB brands sold by the company include Tropicana (100%, Essentials & Delight), Tropicana Slice, Tropicana Frutz, Seven-Up Nimbooz, Gatorade and Quaker Oat Milk as well as packaged drinking water under the brand Aquafina. In addition, the company has also been granted the franchise for the Ole brand of PepsiCo products in Sri Lanka. It has been associated with PepsiCo since the 1990s.

Disclaimer

The above stock was picked from the brokerage report of Hem Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.