Stock Split, Dividend On July 30: FMCG Giant Varun Beverages In Focus Ahead Of Double Rewards; BUY/SELL?

FMCG player, Varun Beverages will be in focus during the trading week of July 29th to August 2nd, as the company is set to announce double rewards for investors. Varun Beverages will announce stock split and dividends for FY25. The company's board is scheduled to meet on July 30. Alongside, Varun Beverages will also announce Q1 results. Broadly, the consensus recommendation for Varun Beverages is BUY.

Varun Beverages said in its regulatory filing, a meeting of the Board of Directors of the Company will be held on Tuesday, July 30, 2024 inter-alia, to consider and approve the following:

- Unaudited Financial Results of the Company, both on Standalone and Consolidated basis, for the Quarter and Half Year ended June 30, 2024.

- Declaration of interim dividend to the Equity Shareholders of the Company for the Financial Year 2024.

- Proposal for sub-division/split of existing Equity Shares of the Company having a face value of Rs. 5/- each, fully paid up, in such manner as may be determined by the Board of Directors subject to the approval of Equity Shareholders of the Company and other applicable approval(s) (if any).

Varun Beverages Stock Split:

The upcoming stock split will be a second sub-division by Varun Beverages in a little over a year. Last year, Varun Beverages stock split in the ratio of 1:2, with face value of Rs 10 each reducing to Rs 5 each. The first ex-split date was on July 15, 2023.

Varun Beverages Dividend:

The upcoming dividend payout will be the first for FY25. While Varun Beverages delivered dividends of Rs 2.50 per share in FY24. Since August 2017, the company declared 9 dividends. While its dividend yield is at 0.15%.

Varun Beverages Bonus Issue:

The company has a long history of bonus issues. Earlier, Varun Beverages turned ex-bonus for 1:2 bonus shares each in June 2022, June 2021, and July 2019.

Varun Beverages Q1 Results Expectations:

In its preview note, Kotak Institutional Equities said, "We estimate 27% yoy growth in volumes to 401 mn cases, led by (1) 22% yoy growth in domestic volumes (of a weak base), driven by undisrupted summer and heat waves across the country, along with other structural growth drivers such as share gains in under-penetrated areas, distribution expansion, sustained momentum in high-growth portfolio, etc. and (2) 60% yoy growth (8% organic) in International volumes led by addition of South Africa (Bevco acquisition). Overall, the organic volume growth is expected at 19% yoy and the balance 800 bps growth is due to Bevco acquisition."

Kotak has built 3% yoy growth in realization (+6% in India led by product/SKU mix and about 2% decline in international owing to South Africa consolidation). Net-net, we estimate 32% yoy growth in consolidated revenues.

Also, the brokerage has modelled a slight increase in GM on a yoy basis to ~53%. We expect an EBITDA margin at ~28.7% (up 180/580 bps yoy/qoq) led by strong operating leverage.

Varun Beverages Share Price:

Currently, Varun Beverages share price is at Rs 1675.85 apiece, with a market cap of Rs 2,17,768.06 crore on BSE. On July 26, due to upcoming double rewards, Varun Beverages stock touched a new 52-week high of Rs 1,692.90 apiece. While the stock has more than doubled from its 52-week low of Rs 792 apiece. YTD, the stock has soared by 35% on the exchange.

As per Trendlyne data, the consensus recommendation from 19 analysts for Varun Beverages Ltd. is BUY. EPS is expected to grow by 28.1% in FY24. Motilal Oswal has set the highest target on Varun Beverages to the tune of Rs 1,900, hinting at over 13% potential upside ahead.

Motilal Oswal in its note said, "We expect VBL to maintain its earnings momentum, aided by: 1) increased penetration in newly acquired territories in Africa, 2) higher acceptance of newly launched products, 3) ramp-up of snack food segment, 4) continued expansion in capacity and distribution reach, 5) growing refrigeration in rural and semirural areas, and 6) a scale-up in international operations."

Further, the brokerage added, "We expect a CAGR of 21%/22%/29% in revenue/EBITDA/PAT over CY23-26. We value the stock at 60x Sep'26E EPS to arrive at a TP of INR1,900. We reiterate our BUY rating on the stock."

Varun Beverages Limited ("VBL" or the "Company") is a key player in beverage industry and one of the largest franchisees of PepsiCo in the world (outside USA).

The Company produces and distributes a wide range of carbonated soft drinks (CSDs), as well as a large selection of non-carbonated beverages (NCBs), including packaged drinking water sold under trademarks owned by PepsiCo. PepsiCo CSD brands produced and sold by VBL include Pepsi, Pepsi Black, Mountain Dew, Sting, Seven-Up, Mirinda, Seven-Up Nimbooz Masala Soda and Evervess. PepsiCo NCB brands produced and sold by the Company include Slice, Tropicana Juices (100% and Delight), Seven-Up Nimbooz, Gatorade as well as packaged drinking water under the brand Aquafina.