Why Varun Beverages Share Price is Falling

Long-term investment may change your life if you acquire and hold remarkable businesses.

Although not all stocks perform well, when they do, investors can make significant gains. For instance, the share price of Varun Beverages Limited has increased by a staggering 498% over the past five years, providing long-term investors with a multibagger return. It has given positive return every year since its IPO in 2016.

These returns highlight the value-generation potential of companies. Additionally, the 21% growth over the previous three months was also appealing to shareholders.

However, after delivering such returns, shares of Varun Beverage has fallen over 7% in the last five days.

Here is what led to this sudden change in share price momentum.

#1 Profit booking

Shares of Varun Beverages rose over 120% in 2022, touching their 52-week high in December 2022. The stock outperformed the Nifty FMCG index, which gained 14% in 2022.

The rally in the stock was on the back of strong earnings momentum, higher acceptance of newly launched products and increased penetration in the newly acquired territories of South and West India.

It was further supported by PepsiCo's focus on ramping up manufacturing capacity in India by investing US$1 bn to expand manufacturing capacity by 30-40% till March 2023.

The rally got further support when the company announced a 25% interim dividend of Rs 2.5 per share for the financial year 2023.

On the back of this ongoing rally, the FMCG stock has been trading at a higher valuation, driving the Price to Earnings (PE) multiple of Varun Beverages to 61.8x.

This PE is higher than the FMCG industry PE multiple of 46x, making it overvalued on the PE front.

Therefore, the recent correction could be a temporary dip due to profit booking.

#2 WHO's call to raise tax on soft drinks

World Health Organization (WHO) released its first-ever global tax manual for sugar-sweetened beverages a few days ago.

In its manual, the organization issued guidelines to increase the tax on sugar-sweetened beverages by 10%, driving the tax on carbonated soft drinks higher than the current tax of 40%. The tax upsurge is to reduce the demand for this unhealthy consumption by 16%.

These draft guidelines released by the World Health Organization (WHO) asking governments for a tax-induced price increase on a range of beverages have raised serious concerns among soft drink companies.

Any increase in GST/cess could adversely impact the consumption of carbonated drinks and other beverages.

This also created negative sentiments for beverage companies, further driving the stock down.

How Varun Beverages shares have performed recently

Varun Beverage has declined over 7% in the last five days and more than 8% in the month gone by.

The company touched its 52-week high of Rs 1,432.5 on 12 December 2022 and its 52-week low of Rs 559.4 on 1 November 2022.

The stock's promoter holding stands strong at 63.9% of the company. FIIs have steadily increased their exposure to the stock. FII ownership stood at 29.5% in September 2022. This has increased to 29.9% in December 2022 quarter.

About Varun Beverages

Varun Beverages is a large-cap company in India's FMCG sector. With a market capitalization of Rs 777.5 bn, it is the sixth largest FMCG giant in India.

It is one of the largest PepsiCo franchisees outside of the United States.

The company has been associated with PepsiCo since the 1990s.

It is a Part of RJ Corp group, a diversified business conglomerate with interests in beverages, quick-service restaurants, dairy and healthcare.

The company produces and sells a wide range of carbonated soft drinks (CSDs) and non-carbonated beverages (NCBs).

The company operates 31 manufacturing plants in India and six abroad, including two in Nepal and one each in Zimbabwe, Sri Lanka, Morocco, and Zambia.

To know more about company, check out the Varun Beverages company fact sheet and quarterly results on our website.

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