Varun Beverages gains as BoFA gives buy rating; analysts see 23% upside

In the 12 months gone by, Varun Beverages stock has rallied 70 percent compared to 27 percent rise in Nifty.

Shares of Varun Beverages (VBL), the franchise partner of PepsiCo, gained over 2 percent on August 21 as the Bank of America Securities (BofA Sec) issued a "Buy" call on the stock with a target price of Rs 1,840 per share.

The international brokerage highlighted that despite a recent pullback in share price, the company's business fundamentals remain robust, presenting an enhanced buying opportunity.

Analysts at BoFA Sec note that VBL's business momentum is healthy and expect significant upside from distribution expansion and the introduction of new products, including dairy beverages and energy/sports drinks.

Additionally, expansion into new territories such as South Africa and Congo is seen as a potential growth driver for the company.

Follow our market blog to catch all the live action

Varun Beverages recently informed that its two subsidiaries plan to enter into an agreement with multinational food and beverages major PepsiCo to manufacture, distribute and sell the snacks brand 'Simba Munchiez' in Zimbabwe and Zambia.

The company plans to set up manufacturing units in Zimbabwe and Zambia entailing an investment of $7 million (around Rs 60 crore).

Shares of Varun Beverages can hit Rs 1,900 mark, according to brokerage Motilal Oswal whose analysts believe that this agreement will serve as a building block for VBL’s snack food business. “We expect a CAGR of 21%/22%/29% in revenue/EBITDA/PAT over CY23-26,” the brokerage said.

CLSA is also bullish on Varun Beverages. The global brokerage maintained its 'Buy' call on the stock but raised the target price to Rs 1,977 stating that the higher affordability of its products and increasing market size is helping driving growth. Increased affordability of Varun Beverages' offerings, new territories and products will help the PepsiCo bottler sustain growth, it said.

Also Read | PNB Housing surges 6% after General Atlantic Singapore likely sells 5% stake

At 10:03 am, Varun Beverages shares were trading 2.3 percent higher at Rs 1,527 on the National Stock Exchange (NSE).

So far this year, the stock has gained 23 percent, beating benchmark Nifty's returns of around 13 percent during this period. In the 12 months gone by, the counter has rallied 70 percent compared to 27 percent rise in Nifty.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.