Foreign brokerage firm CLSA believes that the recent forecast by Indian Meteorological Department of a warmer-than-usual summer in March to May period bodes well for Varun Beverages.
The brokerage has a ‘buy’ rating and target price of Rs 885. Shares of Varun Beverages ended down 0.2 per cent at Rs 631.95 on the BSE on Friday.
“Seasonality plays an important role for VBL as it typically derives 45+ per cent of volumes and 60 per cent of Ebitda during Mar-May. The recent forecast of a warmer than usual summer thus augurs well for the company,” said CLSA.
IMD expects mean temperatures to be 1.5 degrees higher than usual in states like Rajasthan, Punjab, Himachal Pradesh, Uttaranchal, Uttar Pradesh and Delhi. Temperatures are forecast to be higher than normal in states like Bihar, Jharkhand and Chhattisgarh. “All these states are important markets for VBL and, hence, it should benefit,” the brokerage said.
CLSA said the recent acquisition of five new territories improves near-term volume growth visibility for Varun Beverages.
CLSA expects Varun Beverages to report 18 per cent year-on-year growth in earnings before interest, tax, depreciation and amortisation (EBITDA), that should translate into 35 per cent plus earnings per share growth in 2018.
