Top Brokerage Initiates Coverage On Multibagger FMCG Stock With Buy Call, Sees Robust Gains

A leading brokerage firm Keynote Capitals has initiated a buy call on Varun Beverages Limited with a target price of Rs 1,540 apiece. If the stock is purchased at the current market price while taking the given target price into consideration, the stock is likely to give up to 16% return on investments in 12 months. With a market cap of Rs 85,019.55 crore, it is a large-cap FMCG company.

CMP, 52-Week Low & High, and Returns over the years

The current market price (CMP) of Varun Beverages is Rs 1,329.75 apiece on NSE, trading 1.59% up from its previous close. Today it opened at Rs 1,308.90 apiece. The stock hit a 52 week high on 5 December 2022 at Rs 1,377.65 apiece. Its 52 week low level is Rs 544.87 apiece.

The stock surged 4.42% in a week. In a month it surged 14.31% and in 3 months, it surged 20.51%, respectively. It gave 124.64% multibagger returns in the past 1 year. In 3 years it gave 314.7% multibagger returns and in 5 years, it gave 771.55% multibagger returns.

Fizz available to grow organically

Currently, out of ~3 Mn retail outlets where VBL is present (out of the addressable market of ~10-11 Mn), ~60% don't have a visi-cooler because of the non-availability of electricity or a competitor has already set up one of its visi-cooler. The Company has a target to add 40,000-50,000 visi-coolers* every year. Adding visi-coolers will help VBL gain customer attention, which will elevate volume growth. This creates a headroom for VBL to grow its volume organically.

Strengthening position in new territories

The Company is increasing its penetration in the newly acquired territories on the back of a robust distribution network, diversifying its product portfolio with an increasing focus on rural & semi-rural areas. VBL continues to be on a strong footing and is diligently working toward strengthening its position as a key player in the beverage industry.

Entering into manufacturing, selling & distribution of food products

VBL got into a co-agreement to manufacture Kurkure Puffcorn, and in Q3 CY22, they commenced trial production in their Uttar-Pradesh plant for PepsiCo India Holdings Private Limited. Apart from this, in the testimony of a strong relationship with PepsiCo, VBL entered into an agreement to distribute & sell Lays, Doritos, and Cheetos in the territory of Morocco from January 2023. If VBL can decode the manufacturing & distribution of the food business like the beverage business, it will have a long runway for growth.

View & Valuation

The brokerage said, "We initiate our coverage on Varun Beverages limited with a BUY rating and a target of Rs. 1,540 (58x CY23 EPS). Compared to FMCG companies, VBL is a capital-intensive business leading to lower return ratios. Due to this, we are valuing it at a 10% discount to an average FMCG company (Average 5-year PE multiple: 64.7)."

About the Company

Incorporated in 1995, Varun Beverages Limited (VBL) is PepsiCo's second largest franchisee (outside the US). The Company produces and distributes a wide range of Carbonated Soft Drinks (CSDs), as well as a large selection of Non-Carbonated Beverages (NCB), including packaged water sold under trademarks owned by PepsiCo. The Company has established a robust business model to emerge as a key beverage player in India. VBL has a franchise rights of various PepsiCo products across 27 States and 7 Union Territories in India, along with territories of Sri Lanka, Nepal, Morocco, Zambia, and Zimbabwe. Currently, VBL owns franchisee rights of PepsiCo to manufacture and distribute products till 2039.

Disclaimer

The stock has been picked from the brokerage report of Keynote Capitals. 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 making any investment decision.