Varun Beverages shares jumped over 5 percent in the morning session on January 16 after Jefferies retained the 'buy' rating on the stock.
The global research firm has maintained its 'buy' call on the stock with a target of Rs 1,540 per share, an upside of over 28 percent from current market price.
According to the research firm, the stock is down 20 percent from recent peak and trades at 40x CY23E P/E. It expects the company to enjoy industry-leading growth in revenue and earnings.
"Return on Capital Employed (RoCE) looks to expand this year. Execution is top-notch with attractive industry opportunity. Management guides for double-digit medium-term volume growth," it said.
According to the research firm, soft drinks is a large market in India, yet characterised by low per-capita consumption vis-à-vis developed & developing markets. Varun Beverages' management expects the strong industry growth momentum to continue, with double-digit volume growth guidance in the medium term. We build in 11-12 percent India volume growth over CY23-24E, which is among the highest growth in our coverage," it said.
"Varun Beverages should see a material improvement in operating cash flow over CY23-24E. In an upside scenario, we forecast c.26% annual growth in revenues over CY21-24E with 400bps margin expansion. We forecast EBITDA to rise at 35 percent CAGR. Volume growth is expected to be robust on the back of strong growth in rural, as well as juices and dairy beverages. This should drive strong RoCE and thereby premium valuation multiples. We value Varun Beverages at 49x Dec-24 EPS to arrive at a fair value of Rs 1,840 per share," the brokerage firm said.
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At 10:19am, Varun Beverages was quoting at Rs 1,203.10, up Rs 68.30, or 6.02 percent on the BSE. It has touched an intraday high of Rs 1,204.55 and an intraday low of Rs 1,138.50.
Varun Beverages has yielded impressive results in 2022, growing over 120 percent in the year. The stock has outperformed the Nifty FMCG index. The company has given positive returns to shareholders every single year since its listing in 2016.
The company had last month surpassed Godrej Consumer Products Ltd to become India's sixth-largest FMCG company by market capitalisation.
It entered the mutual fund (MF) industry list of large-cap companies after a strong run-up in share price in the last six months of 2022 (CY22). The Association of Mutual Funds in India (Amfi) releases a reclassified list of stocks every six months. Stocks that rank between one and 100 in terms of full market capitalisation (MCap) are classified as large-caps, those between 101 and 250 as mid-caps, and stocks ranked 251 and below as small-caps.
With agency inputs
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