Varun Beverages Q2 Results Review: Analysts Raise Target Price As Africa Acquisitions To Aid Earnings
Snacking rights in three African countries is a big opportunity, said Emkay Research.
Varun Beverages Ltd.'s second-quarter results were in line with analyst estimates, prompting brokerages to raise their target prices.
Shares of the company gained again on Wednesday after a blip on Tuesday following a four-day rally. The stock had fallen as much as 7% the day before.
Jefferies has maintained a 'buy' rating on the stock but raised its target price to Rs 1,800 from Rs 1,690 per share earlier.
"While the share price corrected 6.5% today (on Tuesday) following 2Q announcement, which has surprised some investors, we highlight the result by itself was a slight beat," Jefferies said.
Volume growth in India was strong, also benefiting from a low base, Jefferies said. With record high margins, international segment gets complex due to BevCo acquisition. Organic business suffered due to sugar tax in Zimbabwe but management expects this to stabilise soon, it said.
Jefferies cut the current year's earning per share estimates by 4% to factor in higher interest costs. However, EPS estimates for next two years remain largely unchanged.
Motilal Oswal Financial Services Ltd. expects the company to maintain its earnings momentum, aided by increased penetration in newly acquired territories in Africa, higher acceptance of newly launched products, continued expansion in capacity and distribution reach. Growing refrigeration in rural and semi-rural areas, and a scale-up in international operations are also positives, it said.
The brokerage also maintained its 'buy' call and a target price of Rs 1,850 per share.
Snacking rights (PepsiCo) in three African countries is a big opportunity (industry size: $800 million), with better return ratios versus the beverage business, Emkay Research said.
"We build-in this opportunity, giving a 4% nudge to the TP multiple to 58 times." The brokerage has an 'add' for the stock with revised target of Rs 1,650 apiece.
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Shares of Varun Beverages rose as much as 2.7%, before paring some gains to trade 2.2% higher at Rs 1,612.80 apiece, as of 10:06 a.m. This compares to a 0.3% advance in the NSE Nifty 50.
The stock has risen 30.45% year-to-date and 100% in the last 12 months. Total traded volume so far in the day stood at 0.74 times its 30-day average. The relative strength index was at 51.87.
Out of 21 analysts tracking the company, 18 maintain a 'buy' rating and three recommend a 'hold', according to Bloomberg data. The average 12-month analysts' consensus price target implies an upside of 6.3%.
