HSBC also anticipates faster expansion in Varun Beverages’ Return on Invested Capital (ROIC) as the company shifts value from debt to equity holders, driving stronger returns for investors.
Varun Beverages stock moved higher after HSBC reaffirmed its Buy rating, setting a target price of Rs 780, indicating an upside potential of about 32 percent from the current market price of Rs 591.90. HSBC is optimistic about the company’s financial health and growth, driven by strategic initiatives.
This follows the Varun Beverages board’s approval on October 9 to raise up to Rs 7,500 crore through a Qualified Institutions Placement (QIP). VBL accounts for 90 percent of PepsiCo’s beverage sales volume in India.
The funds raised will be used by one of the largest franchise bottlers for PepsiCo globally, for making investments in subsidiaries, joint ventures, or associates and to fund the growth of existing businesses, expand the product portfolio, enter new territories, and make strategic acquisitions, the company informed.
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Why is HSBC bullish on the stock?
Varun Beverages plans to issue equity to strengthen its balance sheet as part of a broader strategy aimed at enhancing financial resilience and supporting future growth.
HSBC noted that the Qualified Institutional Placement (QIP) will lead to about 4 percent equity dilution, which may impact shareholders in the short term but is expected to improve the company’s capital structure in the long run.
HSBC also anticipates faster expansion in Varun Beverages’ Return on Invested Capital (ROIC) as the company shifts value from debt to equity holders, driving stronger returns for investors. The brokerage remains confident in the company’s ability to generate shareholder value and sees further growth potential as it bolsters its balance sheet and capital structure.
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At 1:42 pm, Varun Beverages stock was trading flat at Rs 593 on the National Stock Exchange (NSE) in the previous session. The stock has gained around 19 percent so far this year, underperforming Nifty’s returns of 14 percent.
In the past 12 months, the counter has risen around 60 percent. In comparison, Nifty rose 27 percent during this period.
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