Shares of Varun Beverages surged by over 5% in early trading on Tuesday as the FMCG company reported a 25% jump in the net profit in Q4FY24. The stock rallied by 5.53% to reach an intra-day high of Rs 1,559 per share on the NSE.
Varun Beverages announced a 25% year-on-year (YoY) increase in its Profit After Tax (PAT) for the first quarter of the calendar year, rising to Rs 548 crore from Rs 438.6 crore in the corresponding quarter last year. This growth was attributed to volume expansion, higher net realisation, and enhanced profit margins.
In Q1, net revenue surged by 11% year-on-year (YoY) to Rs 4,317.3 crore, compared to Rs 3,893 crore in the corresponding quarter last year.
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The company reported an improvement in gross margins, which increased by 385 basis points (bps) to 56.3% from 52.4% year-on-year (YoY). This improvement was primarily attributed to reduced PET prices and a focus on reducing sugar content and light-weighting packaging.
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In the quarter under review, EBITDA rose by 23.9% YoY to Rs 988.8 crore from Rs 798 crore in the same quarter last year. The EBITDA margin saw a notable improvement, rising by 240 bps to 22.9% in Q1. This was driven by higher gross margins and increased realization.
Brokerages On Varun Beverages
Motilal Oswal on Varun Beverages
According to a recent report by Motilal Oswal, Varun Beverages is anticipated to sustain its earnings growth momentum, supported by several key factors. These include increased penetration in newly acquired territories within India and Africa, as well as a growing acceptance of newly launched products.
Additionally, the company’s ongoing expansion in capacity and distribution reach, coupled with the rising refrigeration penetration in rural and semi-rural areas, are expected to contribute to its growth trajectory. Moreover, a scale-up in international operations further bolsters its outlook.
The report forecasts a Compound Annual Growth Rate (CAGR) of 21%, 22%, and 29% in revenue, EBITDA, and Profit After Tax (PAT) respectively over the period spanning CY23 to CY26.
While maintaining earnings estimates for CY24, CY25, and CY26, Motilal Oswal values the stock at 57 times Jun’26E EPS, setting a target price of Rs 1,720. The report reiterates a BUY rating on Varun Beverages, underlining confidence in its future performance.
Nuvama on Varun Beverages
Nuvama Wealth Management has upheld its buy recommendation on Varun Beverages, while concurrently revising the target price upward to Rs 1,690 from Rs 1,492, indicating a potential upside of 14%.
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In tandem with the target adjustment, the brokerage firm has augmented its earnings per share (EPS) estimates for the calendar years 2024 and 2025 by 9% each. Moreover, Nuvama has elevated the target Price-to-Earnings (PE) ratio to 60 times, up from 55 times previously.
The decision to enhance EPS projections and target PE ratio stems from several factors outlined in the report. These include the anticipation of improving rural demand throughout the current year.
The report also says a projected market expansion subsequent to the acquisition in South Africa, expectations of higher realization, and a progressive enhancement in operating leverage. Such considerations underpin Nuvama’s positive outlook on Varun Beverages, reaffirming its confidence in the company’s growth prospects.
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