Pepsico Distributor Stock Up 6% In Trade Today, Q3 Profit Surges 53%: Buy Stock, Says Top Brokerage

Top brokerage firm Emkay Global has given a buy rating to the stock of Varun Beverages. In Q3 CY22, the company's PAT (profit after tax) increased by 53.3% to Rs. 396 crore from Rs. 258 crore in Q3 CY21. It was driven by high growth in revenue from operations, along with improvement in margins. Today, on November 3, the company's share price gained by around 6% in intra day trade, after the strong Q3 earnings report.

Stock To Buy: Target Price

The Current Market Price (CMP) of Varun Beverages (VBL) is around Rs. 1107. Emkay Global has estimated a Target Price for the stock at Rs. 1280. This stock has the potential to give a 15.60% return, in the upcoming 1 year. It is a large-cap stock with a market capitalization of around Rs. 77,160 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 1107
Target Price	Rs. 1280
Potential Upside	15.60%
52-week high share price	Rs. 1,233
52-week low share price	Rs. 544.87

Strong Revenue

VBL posted 3Y revenue CAGR of ~22%, led by ~15/6% volume/realization CAGR. Both, its India/intl. businesses, saw healthy volume CAGR of 14/18%, resp. India growth was led by strong traction in new products like Sting, juices, and dairy; healthy traction in the core portfolio. Sting contributed 12% to India volumes in Q3 vs. negligible contribution in CY19 and 5% in CY21. Encouragingly, carbonate volumes grew largely in line with the fast-growing water/juice categories, at 14-16% CAGR.

Fresh agreement to distribute and sell

VBL has entered into an agreement to distribute & sell 'Lays, Doritos and Cheetos' for PepsiCo in Morocco w.e.f. from CY23. Pepsico has existing business of Rs. 1.5bn in Morocco. Going ahead, VBL also plans to start manufacturing these brands. Traction in the foods portfolio remains a potential upside. Tropicana is currently being distributed to only 15% of VBL's retail network, due to capacity constraints. VBL expects to better match the supply-demand in Juices/Dairy, with a new plant in CY23E. Resin prices (linked to crude) have started cooling down, while sugar prices are still elevated.

Stock Valuation

Giving a buy rating, Emkay Global said, "The Q3 beat leads to a 5-6% earnings upgrade for CY23/24E. In our view, higher mix of brownfield capex should drive further RoIC gains, to ~26% by CY24E. Potential share gains, best in-class efficiencies and improvement in the RoIC profile keep us positive. We maintain Buy with revised target price of Rs. 1,280 (based on 39x Sep-24E EPS). Scale-up of the foods portfolio in India/Morocco (new agreement) remains a potential upside."

Disclaimer

The above stock was picked from the brokerage report of Emkay Global. 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.