Shares of Varun Beverages rose by more than 5% on January 16th, following Jefferies’ decision to retain a ‘buy’ rating on the stock.
Jefferies has kept its ‘buy’ recommendation on the stock with a target price of Rs 1,540 per share, representing an increase of over 28% from the current market price.
According to the research firm, the stock has dropped 20% from its recent high and is trading at 40x CY23E P/E. It expects the company to experience industry-leading growth in revenue and earnings.
Jefferies stated that the company’s Return on Capital Employed (RoCE) is expected to expand this year, and that the company has a strong management team with an attractive industry opportunity.
The research firm noted that the soft drinks market in India is large, but characterized by low per-capita consumption compared to developed and developing markets. Varun Beverages’ management anticipates the strong industry growth momentum to continue, with double-digit volume growth guidance in the medium term. Jefferies forecasts 11-12% India volume growth over CY23-24E, which is among the highest growth in their coverage.
Jefferies believes that Varun Beverages will see a significant improvement in operating cash flow over CY23-24E. In an optimistic scenario, the firm forecasts c.26% annual growth in revenues over CY21-24E with 400bps margin expansion. It predicts EBITDA to rise at 35 percent CAGR, and volume growth is expected to be robust due to strong growth in rural areas as well as in juices and dairy beverages. This should drive strong RoCE and subsequently premium valuation multiples. Jefferies values Varun Beverages at 49x Dec-24 EPS to arrive at a fair value of Rs 1,840 per share.
For More Latest News Click Here
