Fundamentally Strong Stock to Buy Now for an Upside Potential of Over 60% – Do You Own It?
Fundamentally Strong Stock : The Indian Fast-Moving Consumer Goods (FMCG) sector is set for exponential growth, projected to reach a market size of $220 billion by 2025, growing at a CAGR of 14.9% from $167 billion in 2023. As one of the key players in this booming industry, Varun Beverages Ltd has caught the attention of investors and analysts alike. With strong financials, a robust expansion strategy, and an optimistic brokerage recommendation, this stock is primed for a potential 64% upside.
Let’s dive deeper into why Varun Beverages Ltd could be a great investment opportunity right now.
Stock Price Movement
Varun Beverages Ltd, with a market capitalization of ₹1.58 lakh crore, is currently trading at ₹468 per share, marking an increase of 2.20% from its previous closing price of ₹456.95.
Given its steady growth trajectory and expansion plans, many experts believe this stock has significant room for appreciation.
Brokerage Recommendation
One of India’s leading brokerage firms, CLSA, has given a ‘Buy’ call on Varun Beverages Ltd with a target price of ₹770 per share, indicating a 64% upside potential from its current levels.
Why Is CLSA Bullish on Varun Beverages?
- Despite rising competition, the brokerage believes the company presents a compelling risk-reward opportunity with a potential 70% upside.
- While a 5% EBITDA downside is expected in CY25 due to pricing fluctuations, capital expenditure (capex) peaked in CY23, suggesting lower capex intensity in the coming years, leading to improved financial stability.
- The company’s addressable market is expanding, with increasing soda consumption trends expected to drive long-term growth.
However, CLSA has slightly lowered its CY25-27 earnings estimates by 4-5%, factoring in increased competition in the segment.
Financial Performance
Varun Beverages Ltd reported impressive growth in Q4 CY2024, showcasing its strong financial fundamentals.
| Financial Metric | Q4 CY2024 Performance |
|---|---|
| Revenue Growth | 24.7% (₹200,076.5 million) |
| Sales Volume Growth | 23.2% (1,124.4 million cases) |
| EBITDA Growth | 30.5% (₹47,110 million) |
| PAT Growth | 25.3% (₹26,342.8 million) |
| EBITDA Margin | Improved by 105 bps to 23.5% |
The company’s ability to scale revenue, maintain healthy margins, and grow profits reflects its strong market position and operational efficiency.
Growth Strategy & Market Expansion
Varun Beverages is implementing a multi-pronged strategy to drive future growth:
- Strengthening General Trade Distribution – The company is reducing its reliance on modern trade and focusing on wider retail penetration.
- South Africa Expansion – It has increased visi-cooler placements in the region, surpassing previous operators.
- Backward Integration – Plans to set up backward integration in South Africa to improve margins and efficiency.
- Capacity Expansion – Investments in new Greenfield facilities in India and the Democratic Republic of the Congo (DRC) for long-term growth and infrastructure development.
Capital Expenditure & Future Outlook
- In CY2024, Varun Beverages raised ₹75 billion via QIP and allocated ₹45 billion for capex.
- For CY2025, capex is projected at ₹31 billion, focusing on new facilities and expansions.
- Management remains confident in sustaining strong growth in India and international markets, leveraging technology, strategic expansions, and sustainability initiatives.
The soft drink industry is outpacing other FMCG segments, and Varun Beverages is well-positioned to capture this growth.
Key Financial Ratios & Metrics
Here’s a closer look at Varun Beverages’ financial health:
| Metric | Value |
|---|---|
| Market Cap | ₹1,59,298 Cr. |
| Current Price | ₹471 |
| 52-Week High / Low | ₹683 / ₹419 |
| Stock P/E | 61.4 |
| Book Value | ₹49.1 |
| Dividend Yield | 0.22% |
| ROCE (Return on Capital Employed) | 24.2% |
| ROE (Return on Equity) | 22.0% |
| Face Value | ₹2.00 |
| Promoter Holding | 60.2% |
| Price-to-Book Value | 9.58 |
| Debt-to-Equity Ratio | 0.17 |
| Pledged Percentage | 0.04% |
| Industry P/E | 27.6 |
| Graham Number | ₹92.1 |
| Intrinsic Value | ₹194 |
| RSI (Relative Strength Index) | 36.2 |
| Earnings Per Share (EPS) | ₹7.67 |
| No. of Equity Shares | 338 Cr. |
| PEG Ratio | 1.50 |
| 200-Day Moving Average (DMA 200) | ₹571 |
| Free Cash Flow (3 Years) | ₹-1,122 Cr. |
| Free Cash Flow (5 Years) | ₹-230 Cr. |
| Debt | ₹2,826 Cr. |
The high promoter holding (60.2%) signals confidence in the company’s long-term growth potential, while a low debt-to-equity ratio (0.17) indicates strong financial health.
Should You Invest in Varun Beverages?
Varun Beverages Ltd is a fundamentally strong FMCG stock with a solid growth trajectory, expansion strategy, and strong financial performance. With a potential 64% upside as projected by CLSA, this stock is worth considering for long-term investors.
Key Takeaways:
✅ Strong Revenue & Profit Growth
✅ High Market Potential in FMCG & Beverages
✅ Expansion into International Markets
✅ Low Debt & Strong Promoter Holding
✅ Brokerage Recommendation: ‘BUY’ with a ₹770 Target
While competition in the segment is rising, Varun Beverages’ leadership in the soft drinks market, strong operational efficiency, and aggressive expansion strategy make it a high-potential stock for long-term wealth creation.
Do you own this fundamentally strong stock? If not, is it time to add it to your portfolio?
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.