Varun Beverages rallies 6%, nears record high; trades ex-date for 2:5 split

Varun Beverages (VBL) share price today rallied 6 per cent to Rs 665.65 on the BSE in Thursday's intraday trade, surging nearly 10 per cent in two trading days. The stock of the beverages company turned ex-date for a 2:5 stock split today.

The board of directors of VBL fixed Thursday, September 12, 2024 as the 'Record Date' for determining the entitlement of equity shareholders for the purpose of sub-division / split of existing equity shares of the company having face value of Rs 5 each into face value of Rs 2 each.

VBL said the rationale behind the split is to enhance liquidity of the company's equity shares and to encourage participation of small investors by making equity shares of the company more attractive to invest. Earlier, on June 15, 2023, VBL had sub-divided the equity shares of the company in the ratio of 1:1 i.e. stock split from Rs 10 to Rs 5.

At 09:38 AM, Varun Beverages share price was trading 4.5 per cent higher at Rs 655.90 as compared to 0.35 per cent rise in the BSE Sensex. The stock had hit a record high of Rs 682.84 on July 29, 2024. However, in the past three months, VBL has underperformed the market by gaining 5 per cent as against a near 7-per cent rally in the benchmark index.

VBL is a key player in the Indian beverage industry and is one of the largest franchisees of PepsiCo in the world (outside USA). The company produces and distributes a wide 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.

PepsiCo CSD brands produced and sold by VBL include Pepsi, Pepsi Black, Mountain Dew, Sting, Seven-Up, Mirinda, Seven-Up Nimbooz Masala Soda and Evervess. PepsiCo NCB brands produced and sold by the company include Slice, Tropicana Juices (100 per cent and Delight), Seven-Up Nimbooz, Gatorade as well as packaged drinking water under the brand Aquafina.

VBL has also entered into an exclusive snack franchising agreement with Pepsico for manufacturing/distribution of snacks into Zimbabwe and Zambia. The company had recently received similar rights for snack distribution in Morocco. The cumulative market size for snack business across these geographies stands at around Rs 6,640 crore. Additionally, the snack business generates relatively better margins than the beverage business.

Analysts at ICICI Securities, in their June quarter results review, said it sees potential revenue and margin drivers for the company in CY26E. 

"Despite a seasonally weak quarter, BevCo has registered a strong volume of ~28 million cases (similar to quarterly run-rate of CY23). It indicates higher volumes in H2CY24. VBL is prudently expanding its domestic and international businesses. Backward integration, capacity expansion and operating leverage provide margin tailwinds. We remain positive on Varun’s strong business outlook but its current valuations seem stretched," the brokerage said.