Varun Beverages joins Rs 1 trillion m-cap club; zooms 108% in 11 months

The market capitalisation (m-cap) of Varun Beverages (VBL) crossed the Rs 1-trillion mark for the first time on the bourses on Wednesday, as the stock hit a new high of Rs 1,578.95, rallying 5 per cent on the BSE in the intra-day trade. In the past two trading days, the stock has surged 8.5 per cent. In comparison, the S&P BSE Sensex was down 0.10 per cent at 61,698.

At 10:43 AM; with a market cap of Rs 1.02 trillion, VBL claimed the 48th spot in the overall market cap ranking, the BSE data shows. In the past 11 months, the stock price of the company has more-than-doubled, zooming 108 per cent, from a level of Rs 754.60.

The company’s board recommended stock split of existing equity shares of the company from one equity share having face value of Rs 10 each into two equity shares having face value of Rs 5 each.

VBL produces & distributes carbonated drinks, juices & packaged drinking water in six countries including India. Some of the PepsiCo brands produced by VBL include Pepsi, Diet Pepsi, Seven-Up, Mirinda, Mountain Dew, Nimbooz, String, Slice, Tropicana, Aquafina among others.

VBL reported revenue growth of 38 per cent in March quarter (Q1CY23), driven by robust volume growth and an increase in net realization. Profit after tax (PAT) increased by 61.8 per cent year-on-year (YoY) to Rs 439 crore from Rs 271 crore in Q1CY22 driven by high growth in revenue from operations, improvement in margins, and transition to a lower tax rate in India.

Analysts at Emkay Global Financial Services maintain 'BUY' on VBL, with revised target price of Rs 1,700/share (vs Rs 1,660 earlier), based on unchanged target multiple of 40x. With improved affordability, VBL remains confident about demand for new products and plans improving supply by leveraging its two new manufacturing capacities in CY24 and its existing distribution/visi-cooler network, the brokerage firm said in result update.

VBL has seen 15 per cent organic volume growth in the last three years led by distribution expansion in underpenetrated territories and new launches (Sting, Milk based beverages, etc). It is continuing the growth momentum with 25 per cent volume growth in Q1CY23.

It has commissioned Greenfield capacity in Kota, Rajasthan and is expected to commission another plant in Jabalpur, MP soon. This, along with Brownfield expansion in six other plants has improved capacity by 20-25 per cent.

The growth in newer brands like ‘Sting’ & milk-based beverages growing at faster pace, supporting overall volume growth. VBL would undertake capex with two new facilities in Maharashtra & UP for energy & milk beverages.

Sports drink Gatorade, which was only available in 500 ml SKU is now available in 200 ml SKU as well. With the capacity expansion, smaller SKUs & higher distribution reach, sports drink brand can grow at a faster pace, going forward, analyst at ICICI Securities said in its result update.

Varun Beverages has seen a steady rise in share price since April 2022. In fact, the stock has logged gains in the last 11 out of 12 months. Select momentum oscillators, like the monthly RSI (Relative Strength Index), has been in overbought zone since the last many months, but yet to give a negative divergence.

As per the daily chart, the stock is now seen trading above the higher-end of the Bollinger Bands indicating a bullish bias as long as the stock sustains above Rs 1,520. On the upside, the stock could test Rs 1,650 on the upside, indicates the yearly Fibonacci chart.

Whereas, in cae, the stock fails to hold Rs 1,520-level, the stock can dip to Rs 1,470 level.