Varun Beverages share price cracks 7% to hit 1-year low after Q4 numbers. Should you buy, sell or hold?

Pepsi India bottler Varun Beverages saw its shares tumble 7% in intraday trade on Tuesday, February 11, hitting a 12-month low of ₹511.15 apiece after the company’s operating expenses rose sharply during the December quarter. Today marks the fourth consecutive day of decline for the stock.

Despite strong volume growth during the reporting quarter, driven primarily by volume additions from South Africa and the Democratic Republic of Congo (DRC), the rise in raw material costs has impacted the company’s bottom line numbers. 

Furthermore, a 48% year-on-year (YoY) jump in finance costs and a 57% rise in depreciation and amortisation expenses—due to the BevCo acquisition and new facilities—pushed operating expenses to ₹3,478 crore in Q4CY24, marking a 40% increase compared to ₹2,489 crore recorded in the same period last year.

The company reported a 38% YoY growth in revenue to ₹3,688 crore, driven by a 38% increase in volume, taking overall volumes to 215 million cases. Average realisation grew 0.3% YoY to ₹179.6, partly impacted by the consolidation of BevCo, which has a lower realisation.

It posted a 36% year-on-year (YoY) surge in consolidated net profit to ₹195 crore in Q4CY24, compared to ₹143 crore in the same period last year.

The company witnessed strong growth in South Africa and the DRC, with these regions collectively reporting volumes of 51 million cases, accounting for 24% of overall volume growth.  During CY24, the company expanded its geographical presence into new territories in South Africa and secured distribution rights for Namibia, Botswana, Mozambique, and Madagascar. Additionally, the company commenced greenfield operations in the DRC.

Domestic brokerage firm Kotak Institutional Equities stated that the company remains focused on sustaining healthy growth in both Indian and international markets through deeper market penetration (strengthening last-mile distribution and deploying visi-coolers), strategic capacity expansion, and continued investments in technology and sustainability.

The Indian beverage market remains largely untapped and continues to grow, with no signs of a slowdown in VBL’s growth trajectory despite rising competition. In South Africa, VBL is focusing on increasing the general trade mix (higher margin) compared to the heavy mix (40-45%) of modern trade (low margin), thereby improving regional margins.

In Tanzania, PepsiCo already has a strong foothold, and the company aims to enhance its go-to-market strategy while building capacities, according to Motilal Oswal. Meanwhile, the company turned net debt-free in Q4CY24 through QIP proceeds, with the CFO standing at ₹3,380 crore as of CY24, compared to ₹2,390 crore in CY23.

Varun Beverages stock: Should you buy?

Domestic brokerage firm Motilal Oswal expects Varun Beverages to sustain its earnings momentum, supported by increased penetration in newly acquired African territories, stable growth in the domestic market, continued expansion in capacity and distribution reach with a 10% annual addition in outlets, and rising refrigeration in rural and semi-rural areas.

“We expect a CAGR of 12%/11%/17% in revenue, EBITDA, and PAT over CY24-26. We largely maintain our CY25/CY26 earnings estimates. We value the stock at 55x CY26E EPS, arriving at a price target of ₹680. We reiterate our ‘buy’ rating on the stock,” the brokerage stated.

Similarly, Kotak Institutional Equities has also retained its ‘buy’ call on the stock with a target price of ₹585 apiece, valuing VBL at 50x March 2027E PE. The brokerage’s estimates and valuations factor in some impact from Campa.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.