Brokerages positive about Varun Beverages' prospects; can the stock give healthy returns in CY21?

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26 Aug, 2025 12:21

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Shares of Varun Beverages jumped 29 percent on BSE in the calendar year 2020 against a 16 percent rise in the benchmark Sensex and brokerages believe this company has enough steam to rise further in the new calendar year 2021.

Brokerage firm Motilal Oswal Financial Services has initiated coverage on the company with a buy rating and target price of Rs 1,100.

"With excess surplus capacity in place, Varun Beverages has enough headroom to grow volumes without needing additional CAPEX. With operations increasing, economies of scale should kick in. It has a better negotiating power with its suppliers, especially for key raw materials like sugar and PET polymer granules," Motilal Oswal said.

The brokerage firm believes after the initial setback in CY20 due to the COVID-19 pandemic, it should maintain its margin.

Varun Beverages is engaged in the manufacture, sale, bottling, and distribution of PepsiCo’s beverages in pre-defined territories in India (27 states and seven Union Territories).

As per Motilal Oswal, its India operations contributed about 82 percent to CY19 revenue. The company is also present in Sri Lanka, Nepal, Morocco, Zambia, and Zimbabwe.

Over CY12-19, though the volume share of carbonated soft drinks (CSD) declined to 71 percent from 84 percent, the company delivered 17 percent volume CAGR. The blended realisation has increased to Rs 145 from Rs 138 over CY13-19, Motilal Oswal pointed out.

The brokerage firm believes after the commencement of operations at its new plant in Pathankot, the company's revenue share from non-carbonated beverages (NCB) should improve, thereby reducing revenue concentration from CSD alone.

International operations, which now account for 18 percent of total volumes (up 400bp over the last six years), is bound to grow further, Motilal Oswal believes.

Motilal Oswal expects strong demand traction over the next few years due to the company being a monopoly play in PepsiCo India’s business.

Rising penetration on the back of a robust distribution network, diversifying product portfolio, greater refrigerator penetration in rural/and semi-rural areas per household along with higher power availability hours and increasing discretionary spending per capita may also result in traction in demand, Motilal Oswal believes.

"Over CY19- 22E, we expect the company to deliver consolidated revenue/EBITDA/PAT CAGR of 12 percent/15 percent/31 percent to Rs 10,100 crore/Rs 2,200 crore/Rs 1,000 crore and generate strong CFO/FCF of Rs 5,380 crore/Rs 3,400 crore. Overall debt is expected to reduce to Rs 1,570 crore from Rs 3,400 crore, over the same period," said Motilal Oswal.

"Varun Beverages’ global peers trade at an average P/E of 32 times CY20E. Based on the future growth potential and the return ratio profile, we value the stock at 30 times (in line with its three-year average P/E of 32 times) CY22E EPS of Rs 36.2 to arrive at our target price of Rs 1,100," said the brokerage firm.

Axis Securities also has a buy call on the stock with a target price of Rs 1,005.

"With business growth restoring, aided by Unlock as witnessed in Q3CY20, we expect this momentum to continue," Axis Securities said.

Axis pointed out that the trend of in-home consumption has seen an increase and is likely to continue as consumers get habituated to consuming soft drinks at home.

"Share gain opportunities from smaller players are expected to boost its market share, especially in acquired territories of South and West where the company will look to add dealers ahead of the season in CY21," Axis said.

Vinay Rajani, Technical Research Analyst, HDFC Securities pointed out that the stock surpassed its previous all-time high, which was placed at Rs 867, in November.

"Post the breakout, the stock managed to sustain at higher levels. On January 4, the stock surged 5 percent with healthy volumes, which indicates the resumption of an uptrend," said Rajani.

"The stock is placed above all important moving averages. It has been forming higher tops and higher bottoms on the weekly charts. The medium-term target for the Stock is seen at Rs 1,072, which gives the upside of almost 13 percent. Support for the stock is seen at Rs 910 which should be utilised to initiate fresh longs," Rajani said.

Shrikant Chouhan, Executive Vice President, Equity Technical Research at Kotak Securities, highlighted that the stock had been consolidating for the last 10 months in the range of Rs 850 and Rs 550.

"It was a symmetrical triangle formation and finally it has broken the consolidation range on the upward side. We could see the level of Rs 1,250 in the next 1 to 3 months," Chouhan said.

"Recently, the stock hit the psychological hurdle point at Rs 999.75 on December 17, 2020, and reacted sharply to retest the break out levels. We would suggest buying the stocks based on its technical analysis with a price target of Rs 1,250 and with a final stop loss at Rs 850," Chouhan said.

Abhishek Karande, CMT, Senior Research Analyst at Reliance Securities said the stock recently posted a break out at Rs 850 level taking out the historical high's registered in January 2020.

"The stock almost rallied until Rs 1000 mark and now has posted a pullback. We believe this pullback could be considered as an opportunity to accumulate," Karande said.

"At the current market price, bulls will make another attempt to surpass the psychological mark of Rs 1,000. Higher timeframe charts remain bullish. A decisive close above the psychological mark of Rs 1,000 will strengthen the bulls for higher moves until Rs 1,150 and then Rs 1,200," said Karande.

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