Varun Beverages shares at Rs 1,000 mark! Five factors that can push the stock into four-digit zone

Shares of Varun Beverages Ltd gained over 4% amid weak sentiment in the market today. Varun Beverages stock rose 4.57% intraday to Rs 855 against the previous close of Rs 817.60 on BSE. In a year, the stock has rallied 69% and gained 28% in 2023. A total of 0.66 lakh shares of the firm changed hands, amounting to a turnover of Rs 5.56 crore on BSE. Market cap of the firm rose to Rs 1.10 lakh crore.

In terms of technicals, the relative strength index (RSI) of Varun Beverages stands at 52.1, signaling the stock is neither oversold nor overbought. The stock has a one-year beta of 0.9, indicating low volatility during the period. Varun Beverages shares are trading higher than the 5 day, 20 day, 50 day, 100 day and 200 day moving averages.

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The company follows the January-December format for results.

In the second quarter of this fiscal, the firm reported a 25.36 per cent rise in consolidated net profit to Rs 1,005.42 crore led by revenue growth and improvement in margins. The company had posted a net profit of Rs 802.01 crore during the April-June quarter a year ago.

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Revenue from operations surged 13.6% in Q2 to Rs 5,699.73 crore against Rs 5,017.57 crore revenue of the corresponding period last fiscal. Net realizations climbed 8.3 percent to Rs 179 on account of continued improvement in mix of smaller SKUs (250 ml) as compared to the base quarter.

Operating profit or EBITDA, zoomed 21 percent to Rs 1,510.9 crore in Q2 compared to Rs 1,250.4 crore in the year-ago quarter. EBITDA margins came at 26.5 percent versus 25 percent year-on-year led by higher gross margins and operational efficiencies.

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Here’s a look at the outlook of the Varun Beverages stock.

Abhijeet from Tips2tades said, "Despite strong and consistent fundamentals in terms of profit growth and improving ROCE, Varun Beverages remains undervalued fundamentally and has potential to move higher from a long-term perspective. Technically, Rs 860 is a strong resistance on the Daily charts. A daily close above this resistance could lead to targets of Rs 925- Rs 1027 in the coming weeks. Strong support will be at Rs 720."

Vaishali Parekh, Vice President - Technical Research, Prabhudas Lilladher said,"The stock has been in consolidation with narrow rangebound movement witnessed for quite some time maintaining the support near the significant 50EMA level of Rs 805 zone and upside a decisive breach above Rs 850 levels is needed to indicate a breakout and anticipate for further rise. Keeping the stop loss near 800 zone one can stay invested and anticipate for further gains with next target of Rs 930 expected once a breakout above Rs 850 zone is confirmed.”

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Axis Securities in its Q2 earnings review listed out five factors which can ensure strong growth for the company.

"We believe Varun Beverages is expected to continue its strong growth momentum, which will be led by

1) Normalcy of operations and market share gains in newly acquired territories (post COVID-19 disruptions).

2) The management’s continued focus on the efficient go-to-market execution in acquired and underpenetrated territories as reflected in its recently commissioned Bihar plant operations (it has started gaining market share).

3) Expansion in its distribution reach to 3.5 Mn outlets in CY23 from 3 Mn currently.

4) Focus on expanding high-margin Sting energy drink across outlets coupled with increased focus on expansion of value-added Dairy, sports drink (Gatorade) and Juice segment.

5) Robust growth in the International geographies led by focused execution.”

The brokerage has assigned a price target of Rs 920 to the stock.

Varun Beverages reported a strong set of earnings for the quarter ended March too. Net profit in Q1 climbed 69 percent year-on-year to Rs 429 crore. Operating profit or EBITDA climbed 50 percent to Rs 798.1 crore. EBITDA margin in the March quarter rose 170 basis points year-on-year to 20.5 percent.

Revenue rose 38 percent to Rs 3,893 crore on a year in year basis. Revenue growth was led by robust volume growth and an increase in net realisations.

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