The Global FMCG market is anticipated to rise at a considerable rate during the coming decade or so. In the past year, the market grew at a steady rate, and with the rising adoption of strategies by key industry players, the markets are expected to rise over the horizon projected above.
Listed below is one such stock from the FMCG sector portraying a three-year revenue CAGR of more than 30 percent that received a ‘Buy’ call from an international Brokerage for a potential upside of more than 20 percent:
Varun Beverages Limited
With a market capitalization of Rs 1.81 lakh crores, the stocks of Varun Beverages Limited closed their trading session on Friday at Rs 1,395.60, having a flat movement compared to the previous closing price of Rs 1,397.35 apiece.
The company’s stock has delivered a compounded annual growth rate (CAGR) of its operating revenues of approximately 35 percent over three years, shifting up from Rs 6,450 crores during FY19-20 to Rs 16,043 crores during FY22-23.
Recently, Morgan Stanley, a Multinational Investment Bank (IB) & Financial Services company headquartered in New York, America, initiated coverage on the stocks of VBL with an “Overweight” rating and gave a target price on the company’s stock at Rs 1,701, i.e., a potential upside around 21 percent.
The Brokerage expects the FMCG company to deliver India business’s revenue growth averaging at around 19 percent annually along with its EBITDA margins staying at a steady average of approximately 24 percent. The IB’s report also included VBL to fit in well with the preference for mass discretionary names in 2024.
In addition to the above, the Brokerage also mentioned VBL outpacing the Food & Beverages (F&B) industry due to a solid track record of profitability and scaling domestic as well as global opportunities.
During the recent financial quarters, the company’s prime business parameters, viz, its operating revenues as well as bottom-line numbers, witnessed a dip in numbers with the former slipping from Rs 3,871 crores during Q3FY24 to Rs 2,668 crores during Q4FY24, and the latter, during the same period, shifted down from Rs 514 crores to Rs 144 crores.
As per the latest presentations, the company expanded across key geographies through the strategic expansion of various greenfield and brownfield facilities. Moreover, the FMCG company reported a net CapEx of approximately Rs 21,000 million, invested in land acquisition for future plant construction and new production facilities.
For the future periods, the company expects expansion of production capacity in dairy-based beverages, Gatorade, and Tropicana to drive growth. In addition, it expects the margins to stabilize at around 21 – 22 percent despite affected freight charges due to geopolitical factors.
Varun Beverages Limited (VBL) is engaged in the business of manufacturing, selling, bottling, and distributing beverages under the ‘Pepsi’ brand name in pre-defined territories within India, and overseas too, in countries including Nepal, Zambia, Morocco, Zimbabwe, etc. Some of the well-known brands include Mountain Dew, Mirinda, Seven-Up, and other related products.
Written by Amit Madnani
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