Varun Beverages Shares Reverse Gains To Close With Over 1% Loss Despite Q1 Beat

Shares of Varun Beverages Ltd. hit a 52-week high intraday before erasing all gains to close with losses even as analysts bet on the company's new launches, distribution expansion and volume growth after the first quarter of this fiscal.

The largest PepsiCo bottler outside of the U.S. saw its net profit and revenue beat analysts' estimates in the quarter ended June 30.

Key Highlights (Consolidated, YoY)

• Net profit at Rs 802.01 crore vs Rs 318.80 crore (Estimate: Rs 661 crore)

• Revenue at Rs 5,017.58 crore vs Rs 2,483.04 crore (Estimate: Rs 4,193 crore)

• Ebitda at Rs 1,250.62 crore vs Rs 570.8 crore (Estimate: Rs 1,067 crore)

• Ebitda margin at 24.92% vs 22.99%

• Dividend of Rs 2.50/share declared

Varun Beverages Chairman Ravi Jaipuria said high operating leverage due to volume growth aided Ebitda margin, and consumption is at enhanced levels across markets. The company witnessed limited impact on gross margin despite inflationary raw material environment, he said.

Shares of the company gained as much as 3.66% at open to hit a 52-week high of Rs 960 apiece. The stock then reversed gains to close with 1.13% losses. The stock's trading volume was 2.5 times the 30-day average.

The stock had risen nearly 5% on Monday after the quarterly results were announced.

Of the 17 analysts tracking Varun Beverages, 16 recommend a 'buy' and one suggests a 'hold', according to Bloomberg data. The 12-month consensus price target implies an upside of 13.6%.

Here's what analysts have to say about Varun Beverages' Q1 results:

Emkay

• Reiterates 'buy' with a target price at Rs 1,060, an implied return of 14.02%.

• Sustained momentum strengthens confidence in the company's execution capabilities.

• Strong traction in new products like Sting, juices and dairy, traction in core portfolio, distribution expansion aided India growth.

• The company expects double-digit volume growth to continue.

• Expects normalisation of raw material costs and operating leverage to aid Ebitda margin gains.

Jefferies

• Maintains 'buy' with a target price of Rs 1,050, an implied upside of 13.38%.

• Raises CY22-24EPS by 5-17%.

• The company remains confident of posting double-digit volume growth in the upcoming quarters.

• There is a long growth runaway for energy drinks segment with Sting energy drink growing 185% YoY.

Motilal Oswal

• Reiterates 'buy' with a target price of Rs 1,110, an implied return of 19.31%.

• Robust volume growth and higher realisation aided revenue growth.

• Raises CY22/23/24 earnings estimate by 7%/10%/10% to factor in a better-than-expected volume and realisation growth.

• Expansion of distribution network, strong demand aid volumes while margins contracted due to RM costs.

• Sees robust growth in underpenetrated markets in Madhya Pradesh, Odisha, Bihar, Jharkhand, Chhattisgarh as a huge positive.

• Expects firm to maintain earnings momentum aided by increased penetration in South, West India, new launches and refrigeration.

• Expects revenue/Ebitda/PAT CAGR of 20%/24%/37% over CY21-24.