FMCG stock to buy now for an upside of 40%; Recommended by Citi

Synopsis: VBL’s shares are in focus following its recent update on plans to acquire 100% of a South African company, and Citi maintains a ‘Buy’ rating on the stock with a target price of ₹675, implying an upside potential of 40%

The shares of the Large-cap stock specialising in the manufacturing, distribution, and sale of a wide range of beverages, as one of the largest franchisees of PepsiCo, have been in the spotlight following their latest updates and Buy Target by Citi.

With a market capitalization of Rs. 1,62,792.03 crores on Tuesday, the shares of Varun Beverages Ltd jumped upto 0.6 percent, making a high of Rs. 489.00 per share compared to its previous closing price of Rs. 485.70 per share.

What Happened

Varun Beverages Ltd, engaged in the manufacturing, distribution, and sale of a wide range of beverages, as one of the largest franchisees of PepsiCo, is in focus following the recent company update on acquisition and buy target by a leading Global brokerage firm, Citi, initiated with an upto 40 percent Upside Potential from the previous day’s close.

Recent Update 

Varun Beverages Limited plans to acquire 100% of Twizza Proprietary Limited, a South African company that manufactures and distributes non-alcoholic beverages, through its local subsidiary, The Beverages Company Proprietary Limited. 

Twizza operates three production facilities in Cape Town, Queenstown, and Middelburg with an annual capacity of ~100 million 8oz cases and reported sales of 71 million cases in FY25.

The deal, valued at around ZAR 2,095 million (~INR 11,187 million), is subject to regulatory approvals in South Africa, Botswana, and Eswatini. This acquisition expands Varun Beverages’ presence in South Africa, one of Africa’s largest soft drink markets with favourable demographics and strong consumption growth.

Along with this, global brokerage Citi has given additional reasons for the buy target on the company, citing an upside potential of up to 44%.

Reason for the Buy target

• Acquisition of a South African soft drinks brand: Expands the company’s international presence, helping it tap into new markets and diversify revenue sources.
• Backward integration strategy: It supports operational efficiency by controlling the supply chain, reducing costs, and ensuring consistent quality.
• Improved performance of India business: The brokerage anticipates growth in the domestic market, driven by demand recovery and stronger sales execution.
• Scaling up international operations: Long-term growth is expected from expanding global footprint, entering new markets, and leveraging brand recognition.
• New ventures as growth drivers: Strategic initiatives and investments in new products or markets can create additional revenue streams over time.

Financials & Others

The company’s revenue rose by 1.91 percent from Rs. 4,805 crores to Rs. 4,897 crores in Q2FY25-26. Meanwhile, Net profit rose from Rs. 629 crores to Rs. 745 crores in the same period.

The company demonstrates strong financial health, with a return on capital employed (ROCE) of 24.8% and return on equity (ROE) of 22.5%. Its low debt-to-equity ratio of 0.12 indicates a conservative capital structure. Overall, these metrics reflect efficient operations and prudent financial management.

The company has delivered strong financial performance, with profit growing at a 41.4% CAGR over the past five years. It has maintained a healthy return on equity of 28.2% over the last three years. Over the past decade, the company’s median sales growth has been 24.7%, reflecting consistent business expansion and operational strength.

Varun Beverages Limited is a prominent player in the beverage industry and ranks among the largest PepsiCo franchisees globally outside the USA. The Company produces and distributes a diverse range of carbonated soft drinks (CSDs) and non-carbonated beverages (NCBs), including packaged drinking water, under PepsiCo-owned trademarks. 

Its CSD portfolio includes popular brands such as Pepsi, Pepsi Zero, Mountain Dew, Sting, Seven-Up, Mirinda, Seven-Up Nimbooz Masala Soda, and Evervess, while its NCB offerings feature Slice, Tropicana Juices (100% and Delight), Seven-Up Nimbooz, Gatorade, and Aquafina packaged drinking water.

Currently, it holds franchises for PepsiCo products across 26 Indian states and 6 Union Territories, with India accounting for approximately 72% of its net revenues in Fiscal 2024. Beyond India, VBL has been granted franchises in Nepal, Sri Lanka, Morocco, Zambia, Zimbabwe, South Africa, Lesotho, Eswatini, and the DRC, along with distribution rights in Namibia, Botswana, Mozambique, and Madagascar, solidifying its presence as a key global franchisee for PepsiCo beverages.

Disclaimer

The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Trade Brains Technologies Private Limited or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.

The post FMCG stock to buy now for an upside of 40%; Recommended by Citi appeared first on Trade Brains.