Varun Beverages Hits 52-Week Low: Is This the Right Time to Buy?
Varun Beverages Limited (VBL), a key bottling partner of PepsiCo, faced a sharp decline in its stock price during Tuesday’s trading session, hitting a 52-week low of ₹511.45 on the BSE. The stock tumbled nearly 7% intraday and closed at ₹521.55, marking a 5% drop from its previous closing price of ₹548.55.
Despite reporting strong Q3 FY24 results and maintaining a positive long-term outlook, the stock continues to face selling pressure. Investors are now questioning whether this dip presents a buying opportunity or signals further downside risks.
Stock Performance and Price Movements
Varun Beverages’ stock price has been under pressure for the past few months. The stock hit a 52-week high of ₹682.84 on July 29, 2024, and is currently trading at a discount of nearly 24% from that peak. Over the past year, the stock has delivered negative returns of 6.4%, with a 9.5% decline in the last month alone.
Despite its market capitalization of ₹1.76 lakh crores, the stock’s recent downturn raises concerns about investor sentiment.
| Stock Details | Value |
|---|---|
| Market Cap | ₹1,75,874 Cr. |
| Current Price | ₹520 |
| 52-Week High / Low | ₹683 / ₹511 |
| Stock P/E | 67.8 |
| Industry P/E | 34.8 |
| Dividend Yield | 0.19% |
| Book Value | ₹49.1 |
| Debt-to-Equity Ratio | 0.17 |
| ROCE | 24.2% |
| ROE | 22.0% |
Business Growth and Expansion Plans
Varun Beverages operates as a leading beverage manufacturer focused on carbonated and non-carbonated drinks under PepsiCo’s brand. The company has major expansion plans, with an estimated capital expenditure (capex) of ₹3,100 crores for CY25.
- ₹2,000 crores is allocated for new greenfield facilities in Prayagraj, Buxar, Damtal, and Meghalaya in India.
- Additional investments will go into snack manufacturing in Sricity (Brownfield facility), an rPET recycling facility in India, and expansion in the Democratic Republic of Congo (DRC).
VBL has also made strategic acquisitions to strengthen its global footprint:
- Tanzania Bottling Company SA ($154.50 million equity value)
- SBC Beverages Ghana ($15.06 million equity value)
These acquisitions are expected to be completed by Q1 2025. Additionally, the company has signed exclusive snack manufacturing agreements in Morocco, Zimbabwe, and Zambia, further diversifying its portfolio.
Financial Performance and Key Metrics
Despite the stock’s downturn, VBL’s financial performance remains strong, with consistent revenue growth.
| Financial Metric | Q4 CY23 | Q4 CY24 | YoY Growth |
|---|---|---|---|
| Revenue | ₹2,730.98 Cr | ₹3,817.61 Cr | +39.78% |
| Net Profit | ₹143.76 Cr | ₹195.64 Cr | +36.08% |
| EBITDA Margin | 23.5% | 23.5% | – |
| Gross Margin | 53.8% | 55.5% | +1.7% |
However, on a quarterly basis, the company saw a 22.59% decline in revenue (QoQ) and a 68.88% drop in net profits, which might have triggered recent selling pressure.
Valuation and Key Ratios
| Metric | Value |
|---|---|
| Debt | ₹2,826 Cr |
| PEG Ratio | 1.66 |
| Intrinsic Value | ₹194 |
| Graham Number | ₹92.1 |
| Piotroski Score | 5.00 |
| Price-to-Book Value | 10.6 |
| ROIC | 16.2% |
While the stock’s P/E ratio of 67.8 appears high, it reflects the company’s strong growth trajectory. The low debt-to-equity ratio (0.17) indicates a healthy balance sheet, making the company financially stable despite the current dip.
Brokerage Views: Strong Upside Potential
Leading brokerage firms remain bullish on Varun Beverages despite the recent slump.
- Morgan Stanley has maintained its ‘overweight’ rating, setting a target price of ₹674 per share, implying a 30% upside from current levels.
- Emkay Global has a more aggressive target of ₹800 per share, indicating a 54% potential upside.
These bullish ratings suggest that the stock’s recent dip may be a temporary correction rather than a fundamental weakness.
Should You Buy Varun Beverages at This 52-Week Low?
Reasons to Consider Buying
✔ Strong Revenue Growth: The company has consistently delivered high double-digit revenue growth, supported by its dominant market position.
✔ Aggressive Expansion Plans: VBL’s ₹3,100 crore capex strategy will enhance production capacity and geographic reach, paving the way for long-term growth.
✔ Healthy Financials: The company maintains robust margins, a strong ROCE of 24.2%, and a low debt-to-equity ratio of 0.17.
✔ Attractive Upside Potential: Leading brokerages expect the stock to rally 30-50% from current levels.
Risks to Consider
⚠ High Valuation: With a P/E of 67.8, the stock remains expensive compared to the industry average (34.8), making it vulnerable to short-term corrections.
⚠ Profit Decline (QoQ): While YoY growth is strong, quarterly profits have declined sharply, which could indicate near-term challenges.
⚠ Macroeconomic Risks: Inflation and changes in raw material prices could impact profit margins, especially in international markets.
Final Verdict: A Buy-the-Dip Opportunity?
Varun Beverages’ recent fall to its 52-week low presents a compelling buying opportunity for long-term investors. The company’s strong fundamentals, expansion plans, and favorable brokerage targets make it a promising pick for growth investors.
However, given its high valuation, short-term traders should exercise caution. Investors with a long-term horizon may find this an attractive entry point, especially if the stock stabilizes around current levels.
Would you consider buying the dip, or are you waiting for further corrections? Share your views in the comments!
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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.