Varun Beverages’ entry into South African market sparks rally – Republic World

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Varun Beverages zooms

Varun Beverages zooms | Image:Varun Beverages

Varun Beverages in focus: Shares of Varun Beverages zoomed as much as 17.78 per cent to hit a fresh 52-week high of Rs 1,380.45 per share on Wednesday. The boost came after the company announced its strategic move into the South African market through the acquisition of The Beverage Company (BevCo) South Africa and its wholly-owned subsidiaries for an enterprise value (EV) of South African Rand 3 billion or Rs 132 crore.

The company, via an exchange filing, said, “The Board of Directors of the Company at their meeting held today inter-alia considered and approved to acquire 100 per cent stake in the business conducted by The Beverage Company (Proprietary) Limited, South Africa along-with its wholly-owned subsidiaries (hereinafter referred as “Bevco”) with an option to accept minority co-investment from large equity fund subject to regulatory and other approvals (if any) including but not limited to PepsiCo Inc and Competition Commission South Africa.” 

The acquisition will be completed before July 31, 2024, the company said.

BevCo is a key player in the African market, boasting a diversified portfolio that includes popular brands like Refreshhh, Reboost, Coo-ee, and JiVE. BevCo achieved a sales volume of approximately 117 million cases in FY23, with PepsiCo products contributing to around 15 per cent of total volumes.

Operating through five manufacturing facilities with a peak monthly capacity of approximately 22 million cases, BevCo’s presence aligns well with the growth prospects of the South African soft drink market. 

South Africa is the largest soft drink market in Africa, with an industry volume of approximately 1,186 million cases in CY22. The market is anticipated to reach around 1,537 million cases by CY27, with a projected CAGR of approximately 5.3 per cent over CY22-27E, Motilal Oswal said in a note. 

Varun Beverages views the acquisition as earnings per share (EPS)-accretive, offering an attractive valuation and a substantial improvement in its presence within the African sub-continent.

Analysts expect a robust CAGR of 17 per cent, 20 per cent, and 26 per cent in revenue, EBITDA, and PAT, respectively, for Varun Beverages over CY22-25. Motilal Oswal has a ‘Buy’ call on Varun beverages for target price of Rs 1,285.

As of 10:09 am, shares of Varun Beverages were trading over 10 per cent higher at Rs 1,292 per share.

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