VBL Shares Climb As Q1 Profits Soar 25%: Why Analysts Think There's More To Come

Varun Beverages (VBL) shares soared over 5% on Tuesday morning after the PepsiCo bottler reported a 25% year-on-year (YoY) increase in profit after tax (PAT) for the first quarter.

What Happened: VBL’s PAT reached ₹548 crore compared to ₹438.6 crore in the same period last year. The company attributed this growth to higher sales volume, improved net revenue, and better profit margins.

Net revenue rose 11% YoY to ₹4,317.3 crore, up from ₹3,893 crore in the previous year. The company’s gross margins improved by 385 basis points (bps) to 56.3%, driven by lower PET prices and efforts to reduce sugar content and lighten packaging.

Varun Beverages’ EBITDA climbed 23.9% YoY to ₹988.8 crore from ₹798 crore, with the EBITDA margin increasing by 240 bps to 22.9%. This improvement was despite higher fixed costs from acquiring new territories and setting up new greenfield plants.

The company plans to complete its capital expenditure of ₹3,600 crore, with ₹3,400 crore already spent.

See also: HAL Shares Surge After UBS Maintains ‘Buy’ Call, Sees Growth In Order Book, Revenue

Analyst reactions: Analysts have responded positively to the company's performance. BofA Securities maintained a buy rating and raised the target price to ₹1650, noting that March quarter earnings surpassed expectations and predicting a strong calendar year.

Morgan Stanley kept an ‘Over-weight’ rating with a target price of ₹1701, highlighting 13% higher-than-expected Q1 earnings and management’s optimism about demand trends.

Motilal Oswal reiterated a buy rating with a target price of ₹1720, crediting cost optimization and better realization for driving earnings.

Kotak Securities also maintained a buy rating with a target price of ₹1540, emphasizing the company's growth outlook and increased penetration in new territories.

Price Action: VBL shares were trading 1.88% higher at ₹1,505.05 on Tuesday morning shortly after markets opened for trading.

Read next: Shriram Finance Climbs 2% On Sale Of Housing Finance Arm To U.S. Investment Firm