Shares of Varun Beverages fell over a percent on February 10 but brokerage houses remained positive on the stock due to the company's robust performance in 2019.
The stock was quoting at Rs 833.05, down Rs 9.60, or 1.14 percent on the BSE at 1448 hours IST, against 8.5 percent rally seen on Friday following earnings.
"We believe strong organic growth over the last few quarters allays concern regarding the soft drink industry in India. Additionally, the company's focus on healthier options would help drive incremental volumes and margins," ICICI Securities said, while maintaining buy rating on the stock with a target price at Rs 950.
"As volume growth picks up in new territories and the company participates in the manufacturing segment of Tropicana, we expect revenue & earnings CAGR of 12 percent and 26.6 percent in CY19-21, respectively. We value VBL at 36x CY21E earnings," it added.
Sharekhan also expects organic volume growth of 13-15 percent to sustain along with strong double-digit growth in the international business, and maintained its positive view on the stock with 13-15 percent upside from current levels.
Varun Beverages, the national bottling partner for PepsiCo, ended calendar year 2019 on strong footing with revenues growing by 39 percent, while PAT rose by 57.5 percent, largely driven by strong volume growth of 45 percent (organic volume growth of 13 percent).
Despite integration of some of the acquired territories in south and west, the operating profit margin improved by 30 bps to 20 percent in CY2019 and expected to gradually improve in the coming years, Sharekhan said.
India organic volume growth was led by good performance in underpenetrated territories acquired in the last two years. International volume growth of 15.5 percent was due to double digit growth in Morocco, Zimbabwe and Sri Lanka.
Management maintained its confidence on sustaining the double-digit organic volume growth trajectory seen in CY19 (organic domestic volume growth was 13%) partly aided by its levers of increasing market penetration in newly acquired territories and scaling-up the high growth juices and dairy segment.
Post the QIP, balance sheet has also now strengthened with net debt being marginally lower than its equity base and this has also helped lower its cost of debt.
"With capex also now largely done with, we expect a better conversion of operating cash flow to free cash flow which should imply a healthy reduction in debt going forward. The company has delivered quite well on most operating parameters which is now well-reflected in its share price performance - up over 60 percent in the past 12 months," said JM Financial which maintained buy call as it still believes the stock could continue to trade well on the back of sustained strong momentum in the business.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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