CLSA upgraded its rating on Varun Beverages to a “high conviction outperform” but marginally cut its price target on the stock to ₹770 apiece from the previous ₹802 per share. The 70% upside potential is despite the price target cut.
The brokerage said the risk-reward for the stock is very compelling even assuming an impact due to rising competition within the beverage market.
CLSA wrote in its note that the current pricing scenarios indicate a 5% bear case downside for the company’s Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) and a 6.2% bear case downside to its Earnings Per Share (EPS) estimates for calendar year 2025.
Varun Beverages’ capex as a percentage of sales peaked in the 2023 calendar year and CLSA expects the capex intensity to now ease.
The company’s total addressable market is very large and continues to grow, the brokerage said, adding that there is a large upside for soft drink consumption in the country.
Even then, CLSA has cut the 2025-2027 calendar year earnings estimates by 4% – 5% to reflect the heightened competition.
Varun Beverages’ December quarter revenue increased 38% to ₹3,689 crore from the previous year. Its net profit surged 40% to ₹185 crore. Its EBITDA gained 39% to ₹580 crore, while the EBITDA margin remained flat at 15.7%.
It company also recommended a final dividend of ₹0.5 apiece for the financial year ended December 31, 2024. The board of directors is yet to determine the record date for the same.
Of the 26 analysts that have coverage on the stock, 23 have a ‘buy’ rating and three have a ‘hold’ rating.
Varun Beverages ended the previous trade session 4.64% higher at ₹456.3 apiece. It has fallen 29.89% this year, so far. The stock is down 33% from its peak of over ₹680 per share.
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First Published: Mar 4, 2025 7:53 AM IST
