The shares of Varun Beverages are in focus as investors remain worried that the company may report weak numbers in the next quarter, which is supposed to be the best quarter of the year. In this article, we will discuss more about the details further.
With a market capitalization of Rs 1,56,532 crores, the shares of Varun Beverages Ltd are currently trading at Rs 463 per share, down by 32.2 percent from its 52-week high of Rs 682.84 per share. Over the past five years, the stock delivered a return of 624 percent.
Multiple researchers, including Jefferies, Nomura, and Nuvama, raised concerns with businesses that are dependent on summer sales. Summer sales generally account for the highest footfall in beverage sales during the traditional summer season of April-June, where footfalls are normally uplifted from hot weather, school vacations, and general outdoor activities.
This year, the trend was disrupted by unseasonably wet weather and a lower-than-average temperature in May-June, which contributed to weaker-than-expected demand.
Q2 2024 sales volume increased by 28.1 percent to 40.20 crore unit cases from 31.40 crore unit cases in Q2 2023. If we look at its financials closely, we can see that over 34 percent of its annualised revenue is contributed by its June quarter itself. It recorded its highest units sold in the June quarter, followed by September and the March quarter in C.Y 2024
Also read: Power stock to buy now for an upside of more than 30%; Do you own it?
Companies in allied segments, like Hindustan Coca-Cola Beverages and even consumer durables companies such as Voltas and Blue Star, are expected to report volume pressure due to early monsoons and weak consumer sentiment. This reinforces the overall sector issue.
VBL reported a consolidated revenue of Rs 5,567 crores in Q1 FY25, up by 29 percent from its Q1 FY24 revenue of Rs 4,317 crores. It reported a net profit of Rs 731 crores in Q1 FY25, up by 33.4 percent from its Q1 FY24 profit of Rs 548 crores. However, Q2 may not maintain this growth momentum.
The stock delivered an ROE and ROCE of 22.49 percent and 24.85 percent, respectively, and is currently trading at a P/E of 56.80x as compared to its industry peers of 57.14x.
Varun Beverages Limited is one of the largest bottlers for PepsiCo, and oversees several different products in its portfolio, such as soft drinks (Pepsi, 7UP, Mountain Dew), juices (Tropicana, Slice), water (Aquafina), and snacks (Lay’s, Doritos, Kurkure), among others. Varun operates in India and overseas in international markets such as Sri Lanka, Nepal, and parts of Africa. Varun has a firm foundation.
Conclusion
Varun Beverages usually generates more than one-third of its annual revenue in the June quarter, but they face headwinds from unseasonal rains and cooler weather. Any deviation from typical summer conditions will affect volumes and depress margins in Q2. For now, the fundamentals remain sound and the company is doing well, but the near-term sentiment may be bearish.
Written by Satyajeet Mukherjee
Disclaimer
The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Trade Brains Technologies Private Limited or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
