Shares of Varun Beverages Limited (VBL), one of PepsiCo’s largest bottlers globally, surged over 3% on Tuesday after global brokerage CLSA upgraded the stock to ‘High Conviction Outperform’. However, CLSA trimmed its target price to ₹770 from ₹802, citing minor adjustments to earnings estimates amid a competitive soft drinks market.
Key takeaways from CLSA’s report:
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Risk-reward remains compelling: CLSA maintains a bullish outlook on Varun Beverages, even factoring in potential competition in the soft drinks industry. The brokerage’s bear case scenario estimates only a 5.0%/6.2% downside in EBITDA/EPS for CY25, indicating earnings resilience.
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Capex intensity to ease: VBL’s capital expenditure as a percentage of sales peaked in CY23 and is now expected to moderate, supporting a healthier cash flow position.
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Soft drink market expansion: VBL operates in a large and growing market, providing significant opportunities for volume and revenue expansion in the coming years.
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Earnings estimates revised slightly: CLSA has cut CY25-27 earnings estimates by 4-5%, reflecting a heightened competitive environment but remains optimistic about the company’s long-term growth potential.
With a strong market position and strategic expansion plans, VBL continues to attract investor confidence despite minor downward adjustments in projections.
