Shares Of This FMCG Major Can Jump 16% In Short Term, Emkay Global Revises Target Price

Emkay Global has recommended investors to buy the shares of Varun Beverages Ltd with a target price of Rs 1220 apiece and a potential return of up to 16%. The analyst has given a time period of 12 months when the stock will achieve its specified target price of Rs 1220. VBL posted ~19% revenue CAGR in CY12-21, led by revenue CAGR of 18% in India and 23% in international geographies.

The robust global growth was driven by strong rampup in three-country Africa operations and a sustained growth in Nepal.

1. Varun Beverages Stock Outlook

The current market price of Varun Beverages is Rs 1052 apiece with a 52-week high at Rs 1194 apiece and 52-week low at Rs 540 apiece, respectively. The company has a market capitalisation of Rs 68,361.85 crore. The stock has given a return of 603% in last 5 years, 279% in last 3 years, and 93% in last 1 year.

2. Varun Beverages Medium Term Growth Prospects

According to Emkay Global, "We see potential of USD25bn incremental retail sales for PepsiCo in Africa by CY35E, provided it expands its presence further. With strong execution in Zimbabwe/Morocco (31%/21% rev. CAGR in CY18-21), we expect VBL to capture 30% of this opportunity. This incremental opportunity, along with ~15% CAGR in existing geographies, should help VBL to deliver ~26% CAGR in Africa, over the next decade. Led by the long-term Africa opportunity, we raise our CY25-35 growth expectations by 300bps to 18%."

3. Varun Beverages Valuation

According to Emkay Global, "We estimate that PepsiCo currently addresses 40-45% of the Africa market (value terms) via presence in 13 countries vs. ~100% for The Coca-Cola Company (TCCC) via presence in >50 countries. Hence, potential distribution expansion by PepsiCo should help it to grow faster than the industry. We increase our CY25-35E growth by 300bps to 18%, effecting a higher multiple, at 40x Sep-24 EPS (vs. 34x earlier). RoIC for international geographies has also improved, to ~20% in CY21, led by margin gains and better sweating of assets. We maintain BUY with revised TP of Rs1,220 (vs. Rs1,060 earlier)."

4. About Varun Beverages

It has been associated with PepsiCo since the 1990s and has over two and half decades consolidated its business association with PepsiCo, increasing the number of PepsiCo licensed territories and sub-territories covered by it, producing and distributing a wider range of PepsiCo beverages, introducing various SKUs in its portfolio, and expanding distribution network.

It has been granted franchisees for various PepsiCo products spread across 27 States and 7 Union Territories (except Jammu & Kashmir and Andhra Pradesh) in India.

 

Disclaimer

The stock has been picked from the brokerage report of Emkay Global. Greynium Information Technologies, the Author, and the respective 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 decision.