Momentum Pick: Up 112% in 1 year! Another 24% upside scope makes Varun Beverages a top bet

Varun Beverages (VBL) has given returns of 112% over the past 12 months, outperforming benchmark Nifty50 which has given 1.9% returns during this period. The stock has a potential upside of 24% according to the estimates given by Sharekhan. However, the stock has a hurdle to cross before it can set itself for any further upside.

Varun Beverages shares ended at Rs 1,310 on the NSE on Thursday and were up by 35.65 points or 2.65% from the previous closing price.

VBL is a key player in the beverage industry and is one of the largest franchisee of PepsiCo in the world (outside US).

Technical View by Nilesh Jain of Centrum Broking
Buy | CMP: Rs 1,310 | Target: Rs 1,380 | Upside: 5%
Jain said that VBL is in a secular uptrend and can be accumulated on declines. The stock is facing resistance at Rs 1,380 which is an immediate target for the counter.

Jain is Assistant Vice President (AVP), Equity Research Technical and Derivatives at Centrum Broking.

Momentum indicators RSI and MFI are in a medium range at 59.1 and 65.9, respectively according to the data sourced from Trendlyne. A number below 30 indicates that the stock is trading in oversold territory while above 70 suggests that it is in the overbought zone.

The multibagger stock is also less volatile with a 1-year beta of 0.69, Trendlyne data suggested.

Fundamental View

Sharekhan on VBL | Buy | Upside 24%
Sharekhan retains its positive stance on Varun Beverages with a potential upside of 24% over the next 12 months. The stock is currently available at 45x/36x its CY2023/CY2024E earnings.

ETMarkets.com

Management is optimistic about posting strong double-digit revenue and earnings growth in the current season (in Q1 and Q2CY2023) on the backdrop of rising temperature.

The company is focusing on strengthening its backend by increasing the capacities of core carbonated drinks/new products by ~30% and of new categories such as dairy beverages by 3x, sensing strong opportunities emerging in the medium to long run.

The company aims to achieve mid-to-high teens growth (with double-digit volume growth); OPM is expected to be at 21-22%; consistent improvement in the return profile with RoE and RoCE to be at 31% and 30%, respectively in CY2024E.

Key Risks
– Slowdown in the demand environment: Any slowdown in demand or adverse change in carbonated drinks policy or a sharp increase in taxes would affect sales of key products, resulting in a moderation of sales volume growth.

– Increased input prices: Any significant increase in the prices of some key raw materials would affect profitability and earnings growth.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)