Down 20% from peak! Analysts spot buying opportunity in Varun Beverages shares, see up to 45% upside scope

Stocks to buy: Shares of Varun Beverages, one of the largest franchisees of PepsiCo in the world (outside the USA), have been trending higher in recent trading sessions, with the scrip rising another 5% today, March 18, to hit a four-week high of ₹532.20 per share. This brings the stock’s monthly gain to 21.16% so far.

The sharp pullback, after being under pressure for the past two months, comes as analysts maintained their positive outlook on the stock. They noted that the recent correction has made valuations more reasonable and suggested that investors use the dip as a buying opportunity.

Additionally, with the summer season expected to arrive early, demand for cold beverages is likely to see a strong boost, benefiting Varun Beverages.

In its recent note, domestic brokerage firm JM Financial maintained its positive stance on the stock, citing the company's superior execution, large market opportunity, and net debt-free status, leading it to retain its 'buy' rating on the stock with a target price of ₹675 per share, indicating an upside of 27.35% from its latest closing price.

"We believe the recent correction is overdone and the prevailing market pessimism should be used as an opportunity to Add," said JM Financial.

Likewise, DAM Capital has also maintained a ‘buy’ rating on the stock with a target price of ₹670 apiece. Earlier this month, a global brokerage firm raised its target on the stock to a 'high conviction' outperform, up from its previous 'outperform' designation, with a target price of ₹770 per share, indicating a 45% upside. 

The brokerage stated that the recent correction in the stock price has made the risk-reward profile highly attractive, even amid rising competition.

Competitive pressures impact stock performance

The recent correction in the stock price, which is now trading 20% below its peak, has been driven by weak demand and increased competitive intensity, particularly due to aggressive pricing, channel margins, media visibility, and distribution expansion by Campa, according to analysts.

Competition in the domestic market has intensified following the re-launch of Campa by Reliance Consumer Products in March 2023. In its Q3 FY25 earnings call, the company indicated that the brand is expected to cross ₹10 billion in sales in FY25, translating to 60–70 million cases and achieving a low single-digit market share, according to analysts' estimates.

As per the latest estimates, the Indian beverage market is 2.4 billion cases, with the majority of the market share held by Coca-Cola (50-55%) and PepsiCo (30-35%), while regional brands account for the remaining 15%.

Analysts see limited impact from rivals 

According to JM Financial, Campa is targeting states including Tamil Nadu, Andhra Pradesh, Telangana, Uttar Pradesh, and West Bengal as part of its strategy to focus on mass-end consumers who are price-sensitive and less brand-loyal. The company is using aggressive pricing, offering a ₹10 PET bottle, with the Campa CSD range priced at a 30-40% discount per ml compared to Coca-Cola and PepsiCo. 

While Campa has gained visibility in these markets, brokerage channel checks suggest that offtake is largely in smaller SKUs (out-of-home consumption), where consumers are price-sensitive, less brand-loyal, and where PepsiCo and Coca-Cola did not have an offering. However, in larger SKUs (750 ml/2.25 L), which are predominantly for home consumption, PepsiCo and Coca-Cola remain dominant.

The brokerage stated that the impact at the mass end could be higher in packaged water (where pricing and shelf availability matter more than branding) and soda (where local flavors and pricing play a crucial role).

It further underscored that the beverage industry requires strong manufacturing and distribution capabilities to strengthen brand presence. It noted that VBL has developed these capabilities over a decade, making Campa’s execution in these areas something to closely monitor.

Overall, India remains a key ‘anchor market’ for PepsiCo Inc. JM Financial believes that VBL has multiple levers for growth in the domestic business, including capacity expansion, distribution, and portfolio diversification, while also maintaining a strong and intact growth opportunity in Africa. Moreover, a strong summer is expected to benefit both the segment and VBL.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.