Citi initiates ‘Buy’ rating on Varun Beverages, sees 36% upside

Global financial services firm Citi has initiated coverage on Varun Beverages with a ‘Buy’ rating and a target price of Rs 800, indicating a potential upside of 36% from the previous closing price of Rs 588 per share.

Citi cited the company’s strong market position in India and significant growth opportunities in the soft drinks sector as key reasons for its positive outlook. The brokerage highlighted Varun Beverages’ go-to-market (GTM) initiatives and its ability to create new product categories as essential drivers of its expansion.

Additionally, Varun Beverages is expected to benefit from its expanding geographic reach, including new territories in Africa, which Citi views as a positive medium-term catalyst. The international brokerage estimates that revenue and earnings per share (EPS) will grow at compound annual growth rates (CAGR) of 23% and 29%, respectively, over the period from CY23 to CY26.

Despite the bullish call from Citi, Varun Beverages shares fell 3% to Rs 570 in Friday’s trade on BSE. The stock has risen 17% year-to-date, while it has rallied 154% in the past two years.

Earlier last week, HSBC also initiated coverage on Varun Beverages with a ‘Buy’ rating and a target price of Rs 780. In its report, HSBC highlighted that Varun Beverages has the potential to become the largest and most disruptive PepsiCo bottler in the company’s history, as competition in India’s bottling sector intensifies.

HSBC noted that Varun Beverages could gain momentum in expanding its market share, driven by innovative digital marketing models. The company is expected to leverage new AI tools and strategies to boost sales and strengthen its presence in the Indian market.In the June quarter of FY25, Varun Beverages reported a 26% year-on-year (YoY) increase in profit after tax (PAT), reaching Rs 1,262 crore. Revenue from operations stood at Rs 7,197 crore, up 28% YoY, compared to Rs 5,611.4 crore in the corresponding quarter of the previous year. For the half-year ending June 2024, revenue showed a 21% YoY growth.The company’s EBITDA rose by 32% to Rs 1,991 crore for the June quarter of calendar year 2024.

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