Varun Beverages shares in correction mode, slip 25% this year; can they recover?

Shares of Varun Beverages Ltd have slipped 25% this year. The multibagger stock has seen correction in the short term, falling 5% in a month and 12% in a year. Varun Beverages stock closed 2% higher at Rs 487.90 in the previous session.
Market cap of the PepsiCo bottler rose to Rs 1.64 lakh crore. A total of 3.24 lakh shares of the firm changed hands, amounting to a turnover of Rs 15.90 crore. The multibagger stock fell 24.51% in six months but climbed 86% in two years. 

The stock fell to its 52 week low of Rs 419.40 on march 3 this year. 

In terms of technicals, the relative strength index (RSI) of Varun Beverages stands at 43.5, signaling the stock is trading neither in the overbought nor in the oversold zone. Varun Beverages shares are trading higher than the 5 day, 10 day, 20 day but higher than the 30 day, 50 day, 150 day and 200 day moving averages. 

The stock has a beta of 0.8, indicating very low volatility in a year. 

Jefferies has maintained its 'buy' stance on Varun Beverages and raised its target price to Rs 715. 

The global brokerage believes the stock correction is overdone and sees the current valuation as attractive, given Varun Beverages’ growth potential. A strong summer season is expected to act as a key short-term catalyst.

Jefferies said its channel checks feedback is mixed, with the Campa brand gaining ground mainly against local and regional offerings. It said while it is closely monitoring developments, it find VBL share price correction exaggerated. 

CLSA has upgraded its rating on Varun Beverages to a 'high conviction outperform' from 'outperform'. However, it marginally reduced its price target to Rs 770 from the previous Rs 802 per share. 

CLSA said the risk-reward for the stock is very compelling even assuming an impact due to rising competition within the beverage market.

CLSA said the current pricing scenarios signal a 5% bear case downside for the company's Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) and a 6.2% bear case downside to its Earnings Per Share (EPS) estimates for calendar year 2025.

Varun Beverages' capex as a percentage of sales rose in the 2023 calendar year and CLSA sees the capex intensity to now ease.

KR Choksey has assigned a price target of Rs 657 on the VBL stock. 

Justifying its bullish stance behind the stock, the brokerage said the company is driving capacity expansion, product diversification, and international growth, targeting higher margins through backward integration and general trade while sustaining double-digit growth across beverages, snacks, and new markets such as Ghana and Tanzania with strong financial backing and sustainability initiatives.

"We expect Revenue/EBITDA/Adj. PAT to grow by 22.1%/23.2%/27.9% CAGR over CY24-26E. We apply a P/E multiple of 52.0x on CY26E EPS of INR 12.6, resulting in a target price of INR 657/share," said  KR Choksey. 

Varun Beverages is a beverage company. It operates franchisee of PepsiCo. The company produces and distributes a range of carbonated soft drinks (CSDs), as well as a large selection of non-carbonated beverages (NCBs), including packaged drinking water sold under trademarks owned by PepsiCo.