Varun Beverages share price jumps over 5% buoyed by Q1 result; should you buy stock? Here’s what experts say

Varun Beverages share price jumped over 5 per cent in morning trade on BSE on Tuesday, May 14, buoyed by the company's impressive March quarter (Q1) earnings. Varun Beverages share price opened at ₹1498.15 against its previous close of ₹1477.80 and jumped 5.5 per cent to the level of ₹1558.45. Around 9:45 am, Varun Beverages share price traded 3.13 per cent higher at ₹1,524 apiece. Equity benchmark Sensex was 0.13 per cent up at 72,874 at that time.

Varun Beverages Q1 result

In an exchange filing during market hours on Monday, May 13, Varun Beverages said its profit after tax (PAT) for the first quarter of the calendar year rose 25 per cent year-on-year (YoY) to ₹548 crore from ₹438.6 crore in the same quarter last year, driven by volume growth, increase in net realisation and improved profit margins.

Net revenue climbed 11 per cent YoY to ₹4,317.3 crore in Q1 against ₹3,893 crore in the corresponding quarter last year.

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Gross margins improved by 385 bps to 56.3 per cent from 52.4 per cent YoY, primarily due to reduced PET prices and the focus on reducing sugar content and light-weighting packaging, the company said.

EBITDA for the quarter under review rose 23.9 per cent YoY to ₹988.8 crore from ₹798 crore in the same quarter last year. EBITDA margin improved by 240 bps to 22.9 per cent in Q1, led by higher gross margins and increased realisation.

The company highlighted it saw an improvement in EBITDA margin despite the rise in fixed costs associated with the acquisition of new territories and commissioning of new greenfield plants for the season.

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Additionally, Varun Beverages announced the appointment of Rajesh Chawla as the Chief Financial Officer (CFO) and a Key Managerial Personnel (KMP) of the company from May 14, 2024, after the resignation of Lalit Malik as the CFO and KMP of the company on May 13, 2024.

Varun Beverages also announced it incorporated a wholly-owned subsidiary company, Varun Foods (Zimbabwe) Pvt. Ltd, in Zimbabwe. The acquisition is expected to be completed on or before August 31, 2024.

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Shares of Varun Beverages ended about a per cent higher on Monday, May 13.

Till May 13 close, Varun Beverages share price has gained about 20 per cent this year so far against a nearly 1 per cent gain in the equity benchmark Sensex.

Brokerages remain upbeat about Varun Beverages after Q1 result

Most brokerage firms appear positive about the prospects of Varun Beverages stock after the company reported a healthy YoY growth in revenue, profit and margin.

Brokerage firm Motilal Oswal Financial Services maintained a buy call on the stock with a target price of ₹1,720, implying a 16 per cent upside potential.

Motilal expects Varun Beverages to maintain its earnings momentum, aided by "increased penetration in newly acquired territories in India and Africa, higher acceptance of newly launched products, continued expansion in capacity and distribution reach, growing refrigeration in rural and semi-rural areas, and a scale-up in international operations".

Motilal expects a CAGR of 21 per cent, 22 per cent and 29 per cent in revenue, EBITDA and PAT, respectively, over CY23-26.

Nuvama Wealth Management maintained a buy call on the stock and raised the target price to ₹1,690 from ₹1,492, implying a 14 per cent upside potential.

The brokerage firm has increased the EPS (earnings per share) estimates for calendar years 2024 and 2025 by 9 per cent each and the target PE to 60 times from 55 times, factoring in improving rural demand in the current year, market expansion following the South Africa acquisition, higher realisation and improving operating leverage.

Brokerage firm Emkay Global Financial Services maintained an 'add' call on the stock but raised the target price to ₹1,650 from ₹1,500 earlier, implying a 12 per cent upside potential.

Emkay pointed out, "Given Varun Beverages' strong track record of successful turnarounds for Pepsico, the acquired South Africa business (SA) improves its medium-term growth profile, as Pepsico’s market share is in a low single-digit in this large 1 billion case market. Traction in DRC (Africa) and expanding engagement in Pepsico’s foods business remain potential upsides".

"Our EPS estimates increase by 5-9 per cent on strong trends and margin beat in the India business. Though consolidation of the SA business drives a ~9% increase in revenue estimate, we believe EPS contribution will be largely neutral for the forecasted period," said Emkay.

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