Multibagger stock: Varun Beverages shares can rally up to 24%, says analyst
Shares of Varun Beverages have yielded multibagger returns to its investors with a 120 per cent return in the last 12 months and over 600 per cent return in the last five years
PremiumDomestic brokerage house Sharekhan by BNP Paribas has retained a positive stance on one of the largest franchisees of PepsiCo, Varun Beverages (VBL), with an upside potential of 24 per cent for the next 12 months from the current market price of ₹1,316 per share.
In Wednesday's trade, shares of Varun Beverages were trading 5 per cent higher at ₹1,378.75 apiece on the BSE. The stock of VBL inched towards its record high level of ₹1,432.05, touched on 12 December last year.
Shares of the beverages company have yielded multibagger returns to its investors with a 120 per cent return in the last 12 months and over 600 per cent return in the last five years.
VBL's strong growth outlook
“Management was optimistic about achieving strong revenue growth in the upcoming season as inventory created for the summer season has already been exhausted. This might lead to higher volume growth compared to the company's near aspiration in Q1CY2023 and Q2CY2023," the brokerage said.
Sensing the strong opportunities in the domestic market, the company will be expanding its existing capacity by 30 per cent and distribution by 10 per cent in the coming years.
The brokerage expects revenue and PAT to grow by 18 per cent and 25 per cent, respectively, over CY2022-CY2024E.
Strong traction to new products/categories and sustained go-to-market strategy will lead to incremental growth in the coming years, the note said.
VBL's growth visibility has improved tremendously in the past five years with the addition of new territories in the domestic market and expansion in the international markets.
Along with a focus on investing in future growth pillars, the company has also maintained its thrust on rewarding shareholders with consistent dividend payout through strong cashflow generation, according to Sharekhan's research report.
Driven by pan-India expansion of new product launches, finding foothold in newer markets coupled with capacity expansion and market share gains, the brokerage expects VBL to deliver a solid 25 per cent CAGR in EPS over CY2022-CY2024.
Thus, considering strong growth prospects and focus on enhancing shareholder value, it believe the beverages company is a good fit for investors' portfolio at current valuations of 45 times/36 times its CY2023/CY2024 earnings.
Key risks
Any change in the carbonated beverage products policy or incremental tax on beverage products will curb consumption in the domestic market and will act as a key risk to our earnings estimates.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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