Varun Beverages sees earnings upgrades on strong growth, margin outlook

Africa push, category expansion and pricing support drive estimate upgrades

Riding on broad-based growth across domestic and international operations, Varun Beverages delivered a better-than-expected first quarter (January-March/Q1) performance for calendar year (CY) 2026. Varun Beverages follows the calendar year as its financial year, which runs from January 1 to December 31. In addition to strong operational performance in the quarter, the company was positive on the near-term sales and margin outlook.

 

Given the forecast for higher volumes, as well as consolidation of its recent acquisitions, brokerages have increased their earnings estimates for 2026-27. While the stock has been a major outperformer, surging 33 per cent over the past month, the strong outlook and target prices indicate further gains even from the current level of ₹518.

 

Consolidated sales growth rose 18 per cent, driven by robust volume growth of 16 per cent and a 1.6 per cent rise in realisations. Volume growth in India stood at 14.4 per cent, while international operations grew 21.4 per cent, taking the total cases sold across geographies to 363 million. Net realisation per case at ₹174 was largely driven by the international business due to favourable currency movements, while the domestic market saw a 1.5 per cent dip on account of pack upsizing and targeted price-point launches.

 

On the outlook ahead, analyst Abhijeet Kundu of Antique Stock Broking believes that, with favourable climate conditions so far, management commentary suggests even better growth trends in the second quarter (April-June/Q2), which, coupled with a low base, bodes well for a strong growth uplift in CY2026. On a consolidated basis, the brokerage believes strong growth in Africa, coupled with capacity expansion and scaling up of new categories such as dairy product, energy drink, and snack, provides a long-term sustainable growth outlook for the company.

 

The brokerage has increased its CY2026 and CY2027 estimates by 7 per cent and 8 per cent, respectively, and maintained a ‘buy’ rating with a target price of ₹585.

 

Despite a high base, the company managed to improve operating profit by a healthy 21 per cent, aided by 16 per cent growth in India and a 40 per cent jump in the international business. Gross margin improved by 62 basis points (bps) year-on-year (Y-o-Y) to 55.2 per cent, largely due to a better product mix and early stocking of raw materials. However, margin gains at the operating level were lower due to elevated employee costs, which rose 21 per cent Y-o-Y. The company is expected to reduce discounting and take pricing actions to protect margins going ahead.

 

Emkay Research believes the company is better placed in terms of margins versus peers, with strategic stocking of polyethylene terephthalate and lower discounting in a strong demand environment. This was reflected in a reduction in the volume-value gap to 150 bps (versus 400 bps in the preceding quarter) and an operating profit margin gain of about 60 bps in Q1 CY2026. The only headwind is an increase in gasoline costs, which could raise logistics costs in coming quarters, say analysts at the brokerage led by Devanshu Bansal.

 

Emkay Research has maintained a ‘buy’ rating on the company and increased its target price by 15 per cent to ₹620, based on a 5-6 per cent increase in earnings, led by an 11 per cent beat on net profit in Q1 CY2026, and after incorporating numbers from South African beverage firm Twizza, which was acquired in December last year.