Varun Beverages Share Price: Big investments can surprise positively in this calendar year, says Emkay

Source: Motilal

Meanwhile, UBS has initiated coverage with a 'Neutral' rating on Varun Beverages Ltd, with a base target of ₹1,550 per unit.

Analysts at Emkay Global said Varun Beverages is making big investments to capture industry tailwinds and expand new categories. With the likely commissioning of four new plants and expansion in eight existing plants, the company's capacity ahead of this calendar year (CY24) season is 45% higher versus CY22, they said.

In addition, the domestic brokerage said that Varun Beverages Ltd's traction in 'Sting' has helped the company to nearly double its distribution reach while near-tripling of capacities for high realisation juice/dairy segments should drive better EBITDA/case.

Among subsidiaries, Zimbabwe and Morocco are gaining share and delivering strong 43-55% growth, while Nepal and Zambia saw weak trends in CY23 due to macros. The beverage company's operating cash flows remain healthy at 85% of tax-adjusted EBITDA, while capacity expansion drove negative free cash flow, Emkay said.

Meanwhile, Motilal Oswal in a note said it expects Varun Beverages to maintain its earnings momentum, aided by higher acceptance of newly launched products; increased penetration in newly acquired territories in India and Africa; continued expansion in capacity and distribution reach; growing refrigeration in rural and semi-rural areas' and a scale-up in international operations.

Factoring the strong fundamentals and potential for future growth, the brokerage expects the company's revenue, EBITDA, and profit after tax to grow at a CAGR of 21%, 22%, and 28%, respectively, over CY23-26.