Morgan Stanley's Coverage Initiation Boosts Varun Beverages
Key Point About Varun Beverages
Morgan Stanley has initiated coverage on Varun Beverages, assigning it an “overweight” rating and a price target of ₹1,701, indicating a 23% potential upside from Monday’s closing levels.
With Morgan Stanley’s rating, Varun Beverages now enjoys the support of 18 out of 22 analysts, who have given it a “buy” or equivalent rating. Morgan Stanley’s price target ranks third highest among other brokerage targets.
Morgan Stanley emphasizes Varun Beverages’ strong track record in seizing domestic and global opportunities, coupled with robust profitability, positioning it for growth surpassing the F&B industry.
Over the next three years, Varun Beverages is projected to achieve 19% annual revenue growth for its India business, maintaining steady EBITDA margins at 23.7%.
Varun Beverages appears favorably valued compared to peers, trading at 57x CY2025 EPS estimates, versus Nestle at 66x FY2026 EPS and Tata Consumer at 54x FY2026 EPS.
Since its 2016 listing, Varun Beverages has consistently delivered positive annual returns, showcasing its resilience and investor appeal.
The company’s profits have shown significant improvement, with EPS soaring by 37% over the last year and revenue climbing by 22% to ₹160 billion.
Insider ownership stands at 37%, signaling strong alignment between company leadership and ordinary shareholders, a positive indicator for investor confidence.
Despite its promising growth trajectory and insider support, investors should remain vigilant of potential risks associated with investing in Varun Beverages.
Know About Varun Beverages
Varun Beverages Limited
Varun Beverages Limited (VBL) stands as a prominent Indian multinational enterprise, specializing in the manufacturing, bottling, and distribution of beverages.
Franchise Dominance
Positioning in the PepsiCo Network
VBL proudly holds the distinction of being the second-largest franchisee of PepsiCo’s beverages worldwide outside the United States, further cementing its status as the largest within the AMESA (Africa, Middle East, and South Asia) sector.
Foundational Journey
Incorporation and Parentage
Established in 1995, VBL emerged as a subsidiary of RJ Corp, deriving its name from founder Ravi Jaipuria’s son.
Product Diversification
Expansive Offerings
VBL boasts a diverse product portfolio, encompassing PepsiCo’s carbonated soft drinks (CSDs) and non-carbonated beverages (NCBs), including popular brands such as Pepsi, 7 Up, Mountain Dew, and Mirinda. Additionally, the company distributes a spectrum of other beverages including Tropicana and Tropicana Slice fruit juices, Gatorade sports-themed drinks, Sting energy beverages, Creambell milkshakes, Duke’s club soda, Lipton ready-to-drink ice tea, and Aquafina bottled water.
Global Reach
Expanding Footprint
With a stronghold in India spanning 27 states and 7 union territories, VBL extends its manufacturing and distribution network to Nepal, Sri Lanka, Morocco, Mozambique, Zambia, Zimbabwe, South Africa, and Botswana. Recent endeavors include a collaboration with PepsiCo India Holdings to produce Kurkure Puffcorn and the acquisition of PepsiCo’s South African bottler, Bevco, in December 2023.
Financial Performance
Steadfast Growth
Demonstrating robust financials, VBL reported a revenue of ₹16,043 crore (approximately $2 billion) and a net income of ₹2,102 crore (around $260 million) in the calendar year 2023. The company’s unwavering focus on operational efficiency and cost optimization underscores its consistent revenue growth and healthy profit margins.
Investor Outlook
Endorsement by Morgan Stanley
Backed by Morgan Stanley’s ‘overweight’ rating, VBL garners investor confidence owing to its commanding market position, favorable industry dynamics, efficient operations, robust financial standing, and attractive valuation. With a target price of ₹1,701, the stock presents promising upside potential from its current market value.
In essence, Varun Beverages emerges as a frontrunner in both the Indian and global beverages market, propelled by its steadfast allegiance to PepsiCo’s brands and a legacy of unwavering financial performance and operational excellence.
