FMCG stock, Varun Beverages is an attractive bet with the latest recommendation from brokerage KR Choksey which has set a new target price of Rs 770 on the company. The broker is bullish due to Varun Beverages’ acquisition of SBC Tanzania and SBC Ghana, which is going to expand its footprint. Varun Beverages’ share price was corrected on November 22, creating a buy-on-dips opportunity. YTD, the company at the latest has carried a stock split of a 2:5 ratio and paid two dividends of Rs 1.25 per share each.

Varun Beverages Share Price:

After market hours of November 22, the stock price stood at Rs 616.65 apiece, with a market cap of Rs 2,08,518.27 crore. On Friday, the stock dipped by 2%. However, the stock is near its 52-week high level of Rs 682.84 apiece, while its 52-week low is around Rs 412.44 apiece.

The stock’s return on equity is about 26.09%, which is healthy.

BUY Varun Beverages Stock:

In its latest report, KR Choksey said, “While the recent acquisitions may temporarily impact EBITDA margins due to integration costs, VBL has a proven track record of margin improvement post-acquisitions, such as with BevCo. We expect VBL to drive profitability through backward integration, enhancing cost efficiencies and supporting long-term margin expansion. Despite short-term pressure, VBL’s operational expertise should enable sustained growth and margin improvement.”

On the valuation, the report said, “We have incorporated the acquisition of SBC Tanzania and SBC Ghana into our projections for CY25E and CY26E. We expect Revenue, EBITDA, and PAT to grow at CAGRs of 23.5%/25.1%/28.5% respectively, over CY23-CY26E. Following these acquisitions, we have raised our CY26E EPS estimate by ~4.0% to INR 13.4 (from INR 12.9) and maintained our PE multiple of 57x. We expect these strategic expansions will contribute ~5.0% incremental growth to EBITDA and 4.0% incremental growth to EPS in CY26E. As a result, we have upgraded our target price to INR 770 (previously INR 738) and maintain our “BUY” rating on Varun Beverages Ltd.”

One of the largest franchisees of PepsiCo, Varun Beverages has acquired 100% control of SBC Tanzania for Rs 13,040 Mn and SBC Ghana for Rs 1,270 Mn. These strategic acquisitions align with VBL’s objective to expand its operational footprint in Africa, a region identified as key for future growth.

Varun Beverages Stock Split:

The PepsiCo distributor in India, turned ex-split on September 12, as it was also the record date for determining entitlement of Equity Shareholders for sub-division / split of existing Equity Shares of the Company.

The ratio of 5:2 stock split meant that each Equity Share having a face value of Rs. 5/- (Rupees Five only) each fully paid-up, be subdivided/split into such number of Equity Shares having a face value of Rs. 2/- (Rupees Two only) each fully paid-up.

Varun Beverages has a strong record of stock splits, bonus issues, and dividends.

The latest 5:2 split is its second time in less than 2 years. Earlier, on June 15, 2024, the company split into a ratio of 1:2, where the face value of Rs 10 each was cut to Rs 5 each.

Meanwhile, Varun Beverages has also rewarded investors with bonus issues of 1:2 each in June 2022, June 2021, and July 2019.

Further, since August 2017, the company also distributed 10 dividends. In the last 12 months, the company paid dividends of Rs 2.50 per share.

Story first published: Friday, November 22, 2024, 23:42 [IST]