Varun Beverages Shares Gain After Jefferies Gives A 'High Conviction Buy'

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 as much as 7.4% to Rs 1,220 apiece. This is the most the stock has gained since Dec. 26. It ended Monday's session 6.3% higher.

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%.