Varun Beverages shares soar 17% to a 52-week high on acquiring South Africa's Bevco

On 20 December, Varun Beverages shares rallied over 17% to a fresh 52-week high of ₹1,380.45. This surge was fueled by the company's announcement of acquiring South Africa’s Bevco, a move analysts see as a promising value creation opportunity. Year-to-date, Varun Beverages' shares have surged by over 95%, reflecting positive market sentiment.

Acquisition Details

Varun Beverages' board approved the acquisition of a 100% stake in South Africa’s beverage Company (BevCo) for ZAR 3 billion (₹1,320 crore). Funding for this strategic move involves a co-investment from a private equity fund and additional financing through debt. BevCo, a PepsiCo-franchised company, specializes in the manufacturing and distribution of licensed/non-alcoholic beverages in South Africa, Lesotho, Eswatini, Namibia, and Botswana.

This acquisition positions Varun Beverages strategically granting access to 10 African nations, including South Africa. With a presence in southern Africa, the company is set to capitalize on the region's growth potential. South Africa, being the largest soft drink market in Africa, presents a promising market with an expected 5.3% CAGR from CY22 to CY27.

Analyst Recommendations

Jefferies maintains a 'buy' rating with a target price of ₹1,100 per share, which has already been surpassed. CLSA mentioned that although South Africa has the biggest beverage market in Africa, PepsiCo has a small presence. Right now, Coca-Cola dominates the South African beverage industry with about half of the market share, holding a position. CLSA upgraded Varun Beverages to 'buy,' setting a new target price of ₹1,419. Nuvama Institutional Equities and Motilal Oswal retain their 'buy' calls, with price targets of ₹1,031 and ₹1,285, respectively. However, Emkay takes a more conservative stance with a 'reduce' rating, considering the recent stock surge.

Despite concerns about potential risks such as a category growth slowdown, increased competition, and rises in input prices, the positive outlook for Varun Beverages is underlined by its strong growth trajectory. The company's valuation, though at a premium compared to consumer staple companies.

Final Words

Varun Beverages' strategic acquisition of BevCo and its subsequent market performance highlights the company's commitment to geographical expansion and value creation, positioning it as a key player in the competitive African beverage market. Certainly! Here's a human-written version:

Varun Beverages Limited (VBL) has seen a remarkable surge in its share price, with a 21% increase in the past month and a 54% surge over the past 6 months. Over one year, the stock surged by 95%, including today’s gains. Extending our analysis to a five-year time frame reveals an extraordinary performance, delivering an astounding 1,664% return to its investors.