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Varun Beverages Ltd (VBL), a prominent PepsiCo bottler, experienced a 6% decline in its share price following the release of its Q2 results. While the company reported a strong 22.9% year-on-year (YoY) increase in India volumes, driven by expanded capacity, enhanced distribution, and a favorable summer season, the results fell short of analyst expectations in terms of sales. Despite this, VBL's gross margin saw a positive rise of 222 basis points to 54.7%, attributed to strategic procurement and storage of PET chips, efforts to reduce sugar content, and optimized packaging.
Analysts expressed mixed sentiments regarding the stock's future. The flattish net realisation per case, particularly in international markets and the seasonally weak African market, raised concerns. However, the company's expansion into snacks, through a partnership with PepsiCo, in Zimbabwe and Zambia by 2025 and 2026, respectively, offered a potential avenue for growth. The strategic partnership with PepsiCo includes exclusive rights to manufacture, distribute, and sell 'Simba Munchiez' in these regions, indicating VBL's commitment to diversifying its portfolio and expanding its reach.
Several brokerage firms provided their perspectives on VBL's stock. Elara Securities, while reiterating its 'Accumulate' rating, revised its target price to Rs 1,780 from Rs 1,590, factoring in lower-than-anticipated revenue growth. Nuvama, after adjusting its estimates for a soft Q2 and strong monsoon, maintained a 'Buy' rating with a revised target price of Rs 1,854. Emkay Global, highlighting VBL's expected double-digit growth and opportunities in snacking, maintained an 'ADD' rating with a target price of Rs 1,650. MOFSL, recognizing VBL's earnings momentum and expansion initiatives, retained its 'Buy' rating with a target price of Rs 1,850. These varying perspectives reflect the complexity of evaluating VBL's future, with analysts acknowledging both the company's strengths and challenges.
To enhance retail participation, the Varun Beverages board announced a stock split, allowing each existing share with a face value of Rs 5 to be split into a higher number of shares with a face value of Rs 2. Additionally, the company declared an interim dividend of Rs 1.25 per share. This move underscores VBL's commitment to shareholder value and its growth aspirations. Overall, Varun Beverages continues to navigate a dynamic market landscape, with its future trajectory dependent on factors such as the success of its expansion initiatives, the performance of its international markets, and its ability to manage costs effectively.
Source: Varun Beverages shares at 58x! Should you buy VBL stock post Q2 results, split? Target prices & more