Shares of Varun Beverages Ltd. gained the most since Dec. 26 after it received a ‘high conviction buy’ from Jefferies as the recent drawdown in the stock made valuations “attractive”.
“The stock is down 20% from its recent peak and trades at 40 times 2023 earnings, which appears attractive,” the brokerage said in a note dated Jan. 15.
The target price of the PepsiCo bottler has been set at Rs 1,540 apiece, implying an upside of 36%.
“We expect the company to enjoy industry-leading growth in revenue and earnings,” Jefferies said. “The balance sheet should continue to de-lever and the return on capital employed looks set to expand to around 30% this year. Execution is top-notch, with an attractive industry opportunity.”
Soft drinks are a large market in India, “yet characterised by low per-capita consumption vis-à-vis developed and developing markets,” it said.
“Varun Beverages’ management expects the strong industry growth momentum to continue, with double-digit volume growth guidance in the medium term,” Jefferies said. “We built in 11–12% India volume growth over CY23–24, which is among the highest growth in our coverage.”
Shares of the company gained 6.2% to Rs 1,206 apiece, while the benchmark Nifty 50 rose 0.18%. This is the most the stock has gained since Dec. 26. Of the 19 analysts tracking the company, 16 maintain ‘buy’ and three suggest ‘hold’. The return potential of the stock implies a upside of 14.2%.