Juiced up

At the Q2CY19 investor call, Varun Beverages’ chairman Ravi Jaipuria asserted that his company had taken “several business strengthening” steps over the past 12 months — from setting up a new plant in Pathankot for Tropicana production to the acquiring PepsiCo franchise rights in the South and West in India. “All this has been achieved while maintaining a strong balance sheet position, and significant proportion has been funded through internal accruals,” stated Jaipuria proudly.

This enthusiasm showed by the promoter is also reflecting among market participants. The stock of one of the largest franchisee of PepsiCo is trading at Rs 640, up by 40% from a 52-week low of Rs 455 on December 14 last year. In the first half of CY19, net sales and profit rose by 31.45% and 36.38% to Rs 42.32 billion and Rs 4.42 billion respectively. Increased penetration and an extended summer helped the company deliver strong results over the first two quarters of CY19.

As strong financials boosted market sentiment for the stock, promoters decided to book profit. Ravi Jaipuria-led two entities sold shares worth Rs 2.52 billion on September 25. While RJ Corp’s stake fell from 29% to 28.07%, Ravi Kant Jaipuria And Sons HUF’s stake dropped by 0.45% to 19.91%. Overall, promoter holding has remained unchanged at 73.56% between January and June 2019.

Even as the promoters are cashing in, analysts believe there is further upside to the stock. An Emkay Global report states that the new franchise rights will help Varun Beverages to consolidate its presence in India and expand market share. “These (South and West) are the tropical regions with low seasonality and should result in better asset utilisation and sustainable growth,” adds the report. Also, with capacity utilisation at 70% currently, there surely is scope for improvement.

Like analysts, mutual funds are also bullish about Varun Beverages’ prospects. Over the last two quarters, they have increased their stake from 5.72% to 6.40%. Sundaram MF and Tata MF have upped their stake from 1.13% and 0.41% to 1.93% and 0.78% respectively. Foreign Portfolio Investors (FPIs) have also raised their holding from 13.02% to 14.21%. Stichting Depositary APG Emerging Markets Equity Pool – the second-largest FPI in Varun Beverages — has increased its stake from 1.79% to 1.99% in the same period.