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    High conviction buy! Varun Beverages can rally over 28%, says Jefferies

    Synopsis

    We expect the company to enjoy industry-leading growth in revenue and earnings. The balance sheet should continue to de-lever, and RoCE looks set to expand to 30% this year. Execution is top-notch with attractive industry opportunity-management guides for double-digit medium-term volume growth," it said.

    High conviction buy! Varun Beverages can rally over 28%, says JefferiesiStock
    Describing Varun Beverages shares as a high conviction buy, global brokerage Jefferies has a buy call on the stock with a target price of Rs 1540, which shows an upside potential of 28% from the current market price of Rs 1,200 apiece.

    Shares of Varun Beverages are nearly down 20% from their recent peak and trades at 40x CY23E P/E, which appears attractive, said Jefferies.

    "We expect the company to enjoy industry-leading growth in revenue and earnings. The balance sheet should continue to de-lever, and RoCE looks set to expand to 30% this year. Execution is top-notch with attractive industry opportunity-management guides for double-digit medium-term volume growth," it said.

    "Soft drink is a large market in India, yet characterised by low per-capita consumption vis-à-vis developed and developing markets. VBL management expects the strong industry growth momentum to continue, with double-digit volume growth guidance in the medium term. We build in 11-12% India volume growth over CY23-24E, among the highest growth in our coverage," the brokerage said.

    Shares of Varun Beverages have climbed over 6% to Rs 1,205.8 In Monday's intra-day trade on BSE. The scrip surged about 40% in the last six months, while it has risen about 91% in the last year and is also outperformed the Nifty FMCG index.

    "Distribution expansion, impacted by Covid-19 in CY20/1HCY21, resumed in CY22. VBL added 40K visi-coolers in CY22 and we expect a steady addition of 40-50k p.a. going ahead. Distribution expansion is an opportunity, especially in South and West, contributing a third to the overall >850K coolers, in our estimate providing strong growth headroom even while existing territory also holds this opportunity," it said.

    "VBL is likely to see among the highest EPS growth in our FMCG coverage in CY23 (22%). The stock is down 20% from the recent peak and trades at 40x CY23E & 34x CY24E P/E, at a discount to peers. Peak season (Q2) contributes 40-50% to EBITDA/PAT and any seasonality issue is a key risk," Jefferies said while setting a target price of Rs 1,540 per share.

    (Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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