Invest In this This Multibagger Food Processing Stock For Gains Up To 20%

Leading brokerage Motilal Oswal has given buy rating to the food processing sector stock Varun Beverages for a potential gain of 20% with a target price of Rs 1110 apiece. VBL posted strong revenue growth in 2QCY22, led by robust volume growth (up 97% YoY) and higher realization (up 3%).

EBIDTA/unit case improved by 11% YoY to INR41.7 on the back of operating leverage and higher realizations, despite inflationary raw material environment impacting gross margin.

Varun Beverages Stock Outlook

The current market price of the stock is Rs 924 apiece with a surge of 0.99% till today's morning trading (10:19 am). The stock has given a return of 74% in 1 year, 232% in 3 years, and 520% in 5 years. The 52-week high of the stock is Rs 960 and 52-week low is Rs 480 apiece. According to Motilal Oswal, if you buy the stock at current market price of Rs 926, it has the potential to surge to Rs 1110 apiece.

2. Expanding distribution network

VBL has expanded its overall distribution to more than 3m outlets (including 0.25m international outlets), which aided volume growth. Out of itstotal network, 0.4m outlets are dedicated exclusively to its energy drink: 'Sting'. At present, juices are distributed via 60-70% of its outlets.

Robust demand from under penetrated markets

VBL's under penetrated territories (with a market share of 15-20%) such as Madhya Pradesh, Odisha, Bihar, Jharkhand, and Chhattisgarh have shown robust growth in 2QCY22. It will keep on improving distribution in under-penetrated markets, with more visi-coolers and vehicles, as the management sees huge growth prospects in such markets.

4. Valuation

We expect VBL to maintain its earnings momentum, led by: a) increased penetration in newly acquired territories of South and West India, b) higher acceptance of newly launched products, and c) growing refrigeration in rural and semi-rural areas. Factoring better than expected volume and realization growth in 2QCY22, we raise our CY22/CY23/CY24 earnings estimate by 7%/10%/10%. We expect a revenue/EBITDA/PAT CAGR of 20%/24%/37% over CY21-24. We value the stock at 40x CY24E EPS to arrive at our TP of INR1,110. We maintain our Buy rating.

5. About Varun Beverages

Varun Beverages Limited came into existence on June 16, 1995 at New Delhi as a public limited company under the Companies Act, 1956. It obtained a certificate of commencement of business on July 4, 1995. It has been associated with PepsiCo since the 1990s and have over two and half decades consolidated the business association with PepsiCo, increasing the number of licensed territories and sub-territories covered by it. It produces and distributes a vast range of PepsiCo beverages, introducing various SKUs in the portfolio, and expanding the distribution network. It has a market capitalization of Rs 60,057.36 crore.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal Financial Services. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.