Shares of Varun Beverages in early trade on Wednesday (December 20) zoomed as much as 18 per cent to notch a fresh 52-week high of Rs 1,380.45 apiece on the BSE. The buying interest in the stock was triggered after the company’s foray into the African market with the acquisition of The Beverage Company was cheered by brokerages.

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

Bevco is engaged in the business of manufacturing and distribution of licenced (PepsiCo Inc.) and own-branded non-alcoholic beverages in South Africa. Bevco has franchise rights from PepsiCo Inc. in South Africa, Lesotho, and Eswatini. Further, it also has distribution rights for Namibia and Botswana.

Brokerages’ View on Varun Beverages

CLSA

Global brokerage CLSA upgraded the stock to ‘Buy’ from the earlier ‘Outperform’ call with a higher target of Rs 1,419 as against the previous Rs 1,070. At 9:43 am, shares of the Pepsico bottler traded over 12 per cent higher at Rs 1,318.15 apiece.

CLSA maintained the company’s acquisition in South Africa as a continuation of its inorganic strategy. It is further said that while South Africa is the largest beverage market in Africa, PepsiCo's share is limited. "We do not incorporate this acquisition into our estimates or valuation given the pendency of approval from the Competition Commission of South Africa and PepsiCo Inc." said the brokerage. Nevertheless, it has upgraded the stock to reflect faster inorganic growth in its DCF assumptions.

Jefferies

Another brokerage, Jefferies, is also bullish on the counter and has maintained its ‘Buy’ call with a target of Rs 1,100. The brokerage said the company’s acquisition of The Beverage Co. is on expected lines given past communication; however, the deal fast-tracks its plans with a ready-capacity network. It noted that the target of Rs 1,100 adds 7–15 per cent to consolidated EBITDA/volume.