Varun Beverages extends fall on profit booking; stock slips 10% in 3 days

Any increase in GST/cess could adversely impact the consumption of carbonated drinks and other beverages, said ICICI Securities

Shares of Varun Beverages (VBL) were down for a third straight day, falling 4 per cent to Rs 1,177 on the BSE in Thursday's intra-day trade, amid heavy volumes. In the past three trading days, the stock of the beverages' company has fallen 10 per cent. In comparison, the S&P BSE Sensex was down 0.43 per cent at 59,849 at 10:27 AM.

Average trading volumes on the counter more-than-doubled today with a combined 1.6 million shares having changed hands on the NSE and BSE till the time of writing of this report.

With the past three days' decline, the stock price of VBL has corrected 18 per cent from its record high level of Rs 1,432.05, touched on December 12, 2022. However, despite this, VBL has rallied nearly 40 per cent in the past three months as compared to 11 per cent rise in the S&P BSE Sensex. Further, in the past one year, it has zoomed 95 per cent, as against 2 per cent decline in the benchmark index.

VBL is a key player in the beverage industry, and one of the largest franchisees of PepsiCo in the world (outside USA). The company produces and distributes a wide range of carbonated soft drinks (CSDs) as well as large selection of non-carbonated beverages (NCBs), including packaged drinking water sold under the trademark of PepsiCo.

According to media reports, the World Health Organization (WHO) has issued guidelines to increase the taxation of sugar sweetened beverages. WHO says that a 10 per cent tax induced price hike could reduce the purchase of sugar sweetened beverages by 16 per cent.

Draft guidelines released by the WHO a few weeks ago, asking governments for a tax induced price increase on a range of beverages to reduce their consumption and promote a “healthy diet”, have raised serious concerns among soft drink companies. CLICK HERE FOR FULL DETAILS

Any increase in GST/cess could adversely impact the consumption of carbonated drinks and other beverages. It is important to note that 40 per cent tax is already levied on carbonated soft drinks, ICICI Securities said in a note.

Meanwhile, for the July-September quarter (Q3FY23), VBL's India business had delivered a solid organic volume growth of 22 per cent led by a favorable demand environment and strong performance of energy drink - Sting. In addition, healthy double-digit sales volume growth of 31 per cent in key international markets further assisted performance during the quarter.

Post Covid related setbacks over the last two years, the company is now increasingly improving its presence by expanding distribution reach across markets. This will help us gain a larger share in the growing market, the management said.

Overall, the demand environment for the beverage industry has been robust and the management said it is witnessing a healthy offtake in India as well as in international markets.

"The festive season in Q4 is expected to further aid consumption trends in this calendar year. We are confident that we can sustainably deliver healthy volume growth across all product categories going forward and further strengthen our market position in the beverage industry," the management said while announcing Q3 results on November 1.