Varun Beverages soars 9%, hits new high on bonus issue plan, healthy Q1 nos

Shares of Varun Beverages (VBL) hit a new high of Rs 1,152.75 after they rallied 9 per cent on the BSE in Friday's intra-day trade after the board recommended bonus shares in the proportion of 1:2 i.e. 1 equity share for every 2 equity share held by the shareholders of the company as on the record date.

For January-March quarter (Q1CY22), VBL posted robust 26.2 per cent year-on-year (YoY) sales growth, supported by strong 19 per cent YoY volume growth across geographies, and 6 per cent YoY higher realization. Volume growth was led by the early onset of summer in India, translating into higher demand.

Despite increase in input costs, earnings before interest, taxes, depreciation, and amortization (ebitda) margin improved by 175 bps to 18.8 per cent in Q1CY22 led by higher realization and operating leverage from increased sales volume.

The company's profit after tax (PAT) nearly doubled or advanced 98.2 per cent YoY to Rs 271 crore from Rs 137 crore driven by improvement in margins, reduction in finance cost and higher profitability from our international operations.

"Robust demand in both domestic and international markets, also supported by the early onset of summer in India, translated to healthy volumes during the quarter. This along with improved net realizations resulted in a solid net revenue growth in Q1CY22," VBL's management said.

On the demand front, the company is seeing a solid uptick in consumption. On the back of an improving demand environment, the management remains confident of delivering healthy volume growth in the medium to longer term.

Motilal Oswal Financial Services expects the strong recovery to continue going forward, led by growing out-of-home consumption, with the opening up of offices and traveling activity, uptick in volumes in new territories, robust growth in launched products, and growing refrigeration in rural/semi-rural areas.

"Factoring in its Q1CY22 performance, we raise our CY22/CY23 earnings estimate by 7 per cent/6 per cent as the growth trajectory is expected to continue with robust demand from out-of-home consumption and strong support from newly launched products," the brokerage firm said in result update. 

Technical View

Bias: Positive

Target: Rs 1,235

The stock has witnessed a gradual rally in the last four weeks gaining as much as 23 per cent in the same period. The trend looks fairly bullish both on the daily and the weekly charts, with bias likely to favour the bulls as long as the stock trades above Rs 1,075-level.

Currently, the stock is trading close to its yearly Fibonacci resistance (R3) at Rs 1,164, above which the next target will be Rs 1,235.

The daily charts indicate near support at Rs 1,130, sustained trade below the same can trigger some profit-taking towards Rs 1,075-1,050 zone.

The key momentum oscillators on the daily charts are all in favour of the bulls - the DI (Direcetional Index), MACD (Moving Average Convergence and Divergence and Stochastic Slow are all positive.

(With inputs from Rex Cano)