Varun Beverages zooms 15% to hit 52-week high on South African acquisition

CLSA has upgrade the stock to ‘buy’ and also raised the target price to Rs 1,419 from Rs 1,070 a share

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Varun Beverages share price gained 15 percent to hit a 52-week high of Rs 1,380.45 in the early trade on December 20 after the company announced the acquisition of South Africa-based Beverage Company (Bevco) along with its wholly-owned subsidiaries.

“………. board of directors at their meeting held on December 20 approved to acquire 100% stake in the business conducted by The Beverage Company (Proprietary) Limited, South Africa along-with its wholly-owned subsidiaries (Bevco) with an option to accept minority co-investment from large equity fund subject to regulatory and other approvals (if any) including but not limited to PepsiCo Inc. and Competition Commission South Africa,” the company said in a release.

Bevco manufactures and distributes licenced PepsiCo Inc and own-branded non-alcoholic beverages in South Africa. It has PepsiCo’s franchise rights in South Africa, Lesotho and Eswatini and also has distribution rights for Namibia and Botswana.

The transaction is expected to be completed on or before July 31, 2024.

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Foreign research firm CLSA has upgrade the stock to “buy” and raised the target price to Rs 1,419 from Rs 1,070 a share.

The acquisition announcement is continuation of company’s inorganic strategy. The deal is valued at 0.83x FY23 EV/sales. South Africa is the largest beverage market in Africa but has limited Pepsico share, it said.

Jefferies has stuck with “buy” rating with a target of Rs 1,100. The acquisition is along expected lines, given the past communications. Expect excessive focus on Pepsico brands, which should also be margin accretive, and target adds 7-15 percent on consolidated EBITDA/volumes.

According to Motilal Oswal, the acquisition of BevCo is EPS-accretive for the company and represents an attractive valuation. This acquisition will improve the company’s presence in Africa.

It reiterated “buy” call on the stock, keeping the target price at Rs 1,285.

In November, Varun Beverages announced a subsidiary, VBL Mozambique, in Mozambique.

At home, the company signed a memorandum of understanding (MoU) with the Jharkhand government on December 18 for a manufacturing plant in Patratu, with a total capital outlay of approximately Rs 450 crore when fully commissioned.

For the September quarter, the company’s net profit jumped nearly 30 percent to Rs 514.05 crore and revenue rose 21 percent to Rs 3,937.75 crore.

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