Antique maintains 'buy' on Varun Beverages, hikes target price to Rs 710

Varun Beverages Ltd. (VBL) has expanded its operations in Africa through the acquisition of two key beverage companies: SBC Tanzania and SBC Beverages Ghana

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Antique Stock Broking reiterated its bullishness on Pepsico bottler Varun Beverages Ltd., hiking its target price as international volumes are set to rise following its acquisitions in Africa.
It maintained a "Buy" recommendation for Varun Beverages Ltd. (VBL) with an increased target price of Rs 710 per share, up from the previous target of Rs 690.

This recommendation is based on a projected price-to-earnings (P/E) multiple of 50 times the company's estimated earnings per share in calendar year 2026 (CY26).

With the recent announcement of Varun Beverages Ltd. (VBL) expanding its operations in Africa, the report anticipates VBL's share of international volume to increase to ~36.5 percent by CY26 (19.3 percent in CY23).

The brokerage expects VBL to deliver overall volume of 21 percent, revenue 24 percent, and EBITDA CAGR of 28 percent, over CY23-26. The CY24/ 25/ 26 EPS estimates were revised by -3 percent/ +10 percent/ +3 percent.

As CNBC-TV 18 reports observed, VBL being among PepsiCo's largest bottling partners globally, has managed to deliver positive annual returns every single year since listing. It has exhibited a year-to-date return of 30 percent in 2024. While this growth rate is slightly lower than the company's average annual returns since its 2016 IPO, it comfortably surpasses the 9 percent gain observed in the Nifty 50 index.

The key acquisitions include the Tanzanian market which has about 200 million cases, and a 34 percent market share, at an enterprise value of Rs 17.5 billion; and the Ghanaian market that has about 20 million cases, with 11 percent market share for Rs 1.9 billion. As of recent, VBL had also announced of increasing its stake in Lunarmech Technologies to 100 percent.

The report believes Tanzania to be a well-penetrated market for PepsiCo and have the capacity to deliver mid-teen volume growth going forward. On the other hand, Ghana is a relatively small market but a strategic location for VBL to understand nearby growth markets in West Africa and provides opportunity for market share gains in Ghana.

VBL conducted a Qualified Institutional Placement (QIP) raising Rs 75 billion from institutional investors.  This is to enable the company to utilize Rs 56 billion of the proceeds to repay debt, transforming VBL into a net cash company.

A portion of these funds will be utilized to repay existing debt, while the remainder will be allocated towards funding the acquisitions and supporting future growth initiatives. Varun Beverages stock is currently trading at Rs 633.55. The stock is down 1.54 percent today, with a price change of Rs 9.90.