Varun Beverages Shares Surge 5% After Strong Q1 Earnings Report

Varun Beverages' shares jumped 5% after reporting a 25% year-on-year increase in profit after tax to ₹548 crore in Q1 2024. The company also saw an 11% increase in net revenue, driven by higher gross margins and increased realization.

Bijay Laxmi
New Update
Varun Beverages Shares Surge 5% After Strong Q1 Earnings Report

Varun Beverages Shares Surge 5% After Strong Q1 Earnings Report

Shares of Varun Beverages Limited, a prominent franchisee of PepsiCo, jumped over 5% to hit a high of ₹1,558.45 on the Bombay Stock Exchange (BSE) on Tuesday, May 14, 2024, after the company reported impressive earnings for the first quarter ended March 31, 2024. The beverage giant saw its profit after tax (PAT) rise 25% year-on-year to ₹548 crore, up from ₹438.6 crore in the same quarter last year.

Why this matters: The strong performance of Varun Beverages has implications for the Indian economy, as it indicates a growing demand for consumer goods and a potential boost to the country's GDP. Furthermore, the company's expansion into international markets and partnerships with global brands like PepsiCo can have a ripple effect on the global beverage industry.

Varun Beverages, which follows the calendar year as its financial year, also witnessed an 11% increase in net revenue, which climbed to ₹4,317.3 crore in Q1 2024 from ₹3,893 crore in the corresponding quarter of the previous year. The company's EBITDA surged 23.9% to ₹988.8 crore, with EBITDA margin expanding by an impressive 240 basis points to 22.9%, driven by higher gross margins and increased realization.

The company's gross margins improved by 385 basis points to 56.3% from 52.4% year-on-year, primarily due to reduced PET prices and a focus on reducing sugar content and light-weighting packaging materials. Ravi Jaipuria, Chairman of Varun Beverages Limited, emphasized the company's commitment to growth, stating, "To fulfil our growth commitment in our core market i.e. India, we commenced three new greenfield facilities... This expansion is designed to meet the rising demand for beverages in India and support our long-term growth trajectory."

Varun Beverages has been actively expanding its presence both domestically and internationally. The company recently commissioned three greenfield production facilities in India, located in Supa, Maharashtra; Gorakhpur, Uttar Pradesh; and Khordha, Odisha. It also expects to commence operations at its new factory in the Democratic Republic of the Congo in the upcoming quarter.

In addition to its beverage business, Varun Beverages has signed a deal to manufacture and package Cheetos snacks in Morocco by May 2025, further strengthening its partnership with PepsiCo. The company has also made strategic acquisitions, such as purchasing The Beverage Company in South Africa, bolstering its presence in multiple African markets.

Following the strong Q1 results, several brokerage firms have expressed positive views on Varun Beverages' stock. Motilal Oswal Financial Services maintained a buy call with a target price of ₹1,720, implying a 16% upside potential. Nuvama Wealth Management also reiterated a buy call and raised its target price to ₹1,690 from ₹1,492, seeing a 14% upside. Emkay Global Financial Services kept an add call but increased its target price to ₹1,650 from ₹1,500, suggesting a 12% upside potential.

Varun Beverages' shares have gained about 20% year-to-date, outperforming the nearly 1% gain in the benchmark Sensex index. The company's strong financial performance, strategic expansions, and partnerships with PepsiCo have positioned it as a key player in the beverage industry. As Varun Beverages continues to capitalize on growth opportunities and improve its operational efficiency, it remains well-poised for long-term success in the dynamic beverage market.

Key Takeaways

  • Varun Beverages' Q1 profit rises 25% to ₹548 crore, driven by strong demand.
  • Net revenue increases 11% to ₹4,317.3 crore, with EBITDA surging 23.9%.
  • Gross margins improve by 385 basis points to 56.3% due to reduced PET prices.
  • Company expands operations globally, with new facilities in India and Africa.
  • Brokerages maintain buy calls, citing strong Q1 results and growth potential.