Varun Beverages rises 17% in 3 days after hitting 52-week low; here's why

Shares of Varun Beverages, the biggest PepsiCo bottler outside of the US, have rebounded sharply after hitting a fresh 52-week low ₹419.55 on the National Stock Exchange on March 3. The stock has jumped 17% in three sessions after falling as much as 38% from its 52-week high of ₹681.12 it touched on July 29, 2024.

The stock faced selling pressure amid ongoing correction in the equity market. The downfall, that lasted till March 3, wiped out ₹64,000 crore from its market capitalisation.

Analysts say that the rebound in the stock has happened on the back of value buying after its price-to-earnings (P/E) ratio saw a major decline.

Global investment banking and capital markets firm Jefferies says that the stock is currently trading at 45 times one-year forward P/E ratio, which is below its five-year average and close to some of the FMCG peers despite a better growth profile.

Equity research firm CLSA, in a report, said that Varun Beverages' valuations have corrected, with its one year forward P/E ratio correcting from 63 times to 48 times. CLSA noted that investors’ concerns are overdone and that the stock is trading below its average multiple.

Intensifying cola war

The stock came under selling pressure owing to slowing consumer demand and aggressive pricing, distribution and marketing campaign by Campa Cola, which is owned by Reliance Industries, to gain the market share ahead of the key summer season. Reliance has come up with aggressive product pricing with higher trade margins, back-end investment, along with installation of refrigerators and signages at points of sale. The brand has also won the co-presenting rights for IPL, Jefferies said in a report.

As per channel checks done by Jefferies, Reliance is gaining ground with its aggressive strategy but there have been instances where regular supply to retail has been an issue.

Jefferies observed that some Campa-branded refrigerators also stocked Coke and Pepsi. While retailers tend to promote Campa due to higher profit margins, and it has gained some market share from regional brands, most retailers believe that customers still prefer Pepsi or Coke when available, despite the price difference.

To compete, Campa Cola has introduced 200 ml bottles for ₹10, prompting Pepsi and Coke to launch 400 ml bottles at ₹20. In certain regions, Coke is also offering its 200 ml bottles at ₹15.

Meanwhile, the India Meteorological Department has predicted above normal maximum temperatures across most parts of India which is likely to further increase the demand for cold drinks and can further intensify the ongoing battle of gaining market share.

Jefferies noted that the March to June is a crucial period for Varun Beverages as it derives nearly half of its India volumes in these months and it expects double digit volume growth in 2025.

December quarter earnings

In the quarter ended December 2024, Varun Beverages revenue from operations rose 40% to ₹3,817.61 crore from ₹2,731 crore in the same period last year. Its net profit advanced 36% to ₹196 crore as against ₹144 crore.

The company's earnings before interest, tax, depreciation and amortisation (EBITDA) also known as operational profit jumped 39% to ₹580 crore at the end of December quarter and its operating profit margin dipped slightly to 15.19% compared with 15.33% in the year-ago period.