Varun Beverages witnessed a remarkable surge of 15% in its share price, reaching a 52-week high of Rs 1,380.45 during early trade on December 20. This surge came on the heels of the company's announcement regarding the acquisition of South Africa-based Beverage Company (Bevco) and its wholly-owned subsidiaries. The Board of Directors, in a meeting held on December 20, approved the acquisition of a 100% stake in The Beverage Company (Proprietary) Limited, South Africa, with an option for minority co-investment from a large equity fund, subject to regulatory approvals, including those from PepsiCo Inc. and Competition Commission South Africa.
Bevco is a key player in the South African beverage industry, manufacturing and distributing licensed PepsiCo Inc. and own-branded non-alcoholic beverages. It holds PepsiCo's franchise rights in South Africa, Lesotho, and Eswatini, along with distribution rights for Namibia and Botswana. The transaction is expected to be finalized on or before July 31, 2024, marking a significant milestone for Varun Beverages in expanding its global footprint.
Foreign research firm CLSA upgraded Varun Beverages' stock to a "buy" rating and raised the target price to Rs 1,419 from Rs 1,070 per share. This endorsement reflects the positive sentiment and potential growth anticipated by market analysts. The acquisition aligns with Varun Beverages' inorganic strategy, valued at 0.83x FY23 EV/sales, providing a strategic entry into the South African market. With Coca-Cola dominating the South African beverage industry with a market share of approximately 50%, this acquisition positions Varun Beverages as a formidable player in the region.
Jefferies maintained a "buy" rating with a target of Rs 1,100, emphasizing the expected focus on PepsiCo brands and the potential for margin accretion. The acquisition is seen as a logical step, in line with past communications, and is expected to contribute positively to consolidated EBITDA and volumes, with a projected increase of 7-15%.
Motilal Oswal echoed a positive outlook, considering the acquisition of BevCo as EPS-accretive and representing an attractive valuation. This move is anticipated to enhance Varun Beverages' presence in Africa, consolidating its position in a key market. Motilal Oswal reiterated a "buy" call on the stock, maintaining the target price at Rs 1,285.
In addition to the South African acquisition, Varun Beverages has been actively expanding its operations. In November, the company announced the establishment of a subsidiary, VBL Mozambique, in Mozambique, further strengthening its international presence. On the domestic front, Varun Beverages 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, Varun Beverages reported robust financial performance, with a nearly 30% increase in net profit to Rs 514.05 crore and a 21% rise in revenue to Rs 3,937.75 crore. This strong financial performance, coupled with strategic acquisitions and expansion initiatives, positions Varun Beverages as a dynamic and growth-oriented player in the global beverage industry.
