The soft drink market in India is experiencing significant growth, driven by rising disposable incomes, urbanization, and changing consumer preferences towards ready-to-drink beverages. The market includes carbonated drinks, fruit juices, energy drinks, and bottled water, with carbonated drinks being the largest segment.
Health-conscious consumers are increasingly opting for healthier alternatives like low-sugar and natural beverages. The expansion of modern retail and online distribution channels further supports growth. With a young, dynamic population and growing demand for convenience, the future scope for the soft drink market remains promising, especially in tier-2 and tier-3 cities where penetration is still low.
Support and resistance are key concepts in technical analysis. Support is the price level where an asset tends to find buying interest, preventing it from falling further. Resistance is the price level where selling pressure emerges, preventing further price increases. These levels help identify potential price reversals.
Key Support Levels are:
- SUPPORT 1: Rs. 568 level
- SUPPORT 2: Rs. 538 level
- SUPPORT 3: Rs. 479 Level
Fundamentals of the Stock
Varun Beverages Limited reported strong year-on-year growth for September 2024 compared to September 2023. Sales increased by 24% from ₹3,871 crore to ₹4,805 crore, reflecting robust demand for its products. EBITDA grew by 30.5%, from ₹882 crore to ₹1,151 crore, indicating improved operational performance.
The operating profit margin (OPM) also saw an improvement, rising from 23% in September 2023 to 24% in September 2024. Net profit increased by 22.5%, from ₹514 crore to ₹629 crore, signaling stronger profitability. This growth across all key financial metrics highlights the company’s successful strategies and its ability to improve both revenue and operational efficiency year-over-year.
Key Metrics
Varun Beverages Ltd demonstrates strong financial health with a Price-to-Earnings (PE) ratio of 76, indicating robust market valuation relative to earnings. The company boasts a substantial market capitalization of ₹1,93,355 crore, reflecting its large scale and investor confidence. With a Return on Capital Employed (ROCE) of 28.8%, it efficiently utilizes capital to generate profits.
Its debt-to-equity ratio of 0.79 suggests a manageable level of debt, ensuring financial stability. A Price-to-Book (P/B) ratio of 21.6 indicates the market values its assets highly. The Price-to-Earnings Growth (PEG) ratio of 1.61 suggests balanced growth relative to its earnings growth, highlighting sustainable growth prospects.
Brokerage Targets
KRChoksey: has given a BUY recommendation with a target price of ₹770.00 for Varun Beverages, offering a potential upside of 35.16% from LTP of 569. The rationale given by the brokerage is Varun Beverages Limited (VBL), one of PepsiCo’s largest franchisees, has announced the acquisition of full ownership in two African beverage companies: SBC Tanzania and SBC Beverages Ghana. VBL has acquired 100% control of SBC Tanzania for INR 13,040 Mn and SBC Ghana for INR 1,270 Mn.
AXIS Direct: has also given a BUY rating on the stock with a target price of Rs. 700, indicating an upside potential of Rs. 22.8% from its CMP of of Rs. 569. The rationale given by the brokerage is that:
Strategic Expansion in Africa
The proposed acquisitions of SBC Beverages Tanzania (SBCT) and SBC Beverages Ghana (SBCG) offer Varun Beverages Ltd (VBL) a strong foothold in the fast-growing African beverage market. With PepsiCo’s relatively low market share in Africa, VBL is well-positioned to capture significant growth opportunities in the region, as demonstrated by its successful expansion in India.
Valuation and Market Opportunity
SBCT, valued at ₹1,304 Cr (~USD 154.5 Mn), operates with a solid market position, holding a 56% volume market share in Tanzania. Meanwhile, SBCG, valued at ₹127 Cr (~USD 15.06 Mn), offers significant growth potential in Ghana, with PepsiCo holding only a 13% market share.
Long-Term Growth Potential
With the recent acquisition of BevCo and the proposed purchases of SBCT and SBCG, VBL is positioning itself for long-term success in Africa. These acquisitions align with VBL’s track record of executing successful market expansions, promising robust future growth for the company.
Written By: Dipangshu Kundu
