JM Financial sees 38% upside in Varun Beverages, says correction overdone, reaffirms Buy rating

JM Financial has reiterated its 'Buy' rating on Varun Beverages with a target price of Rs 675, implying 38% upside from the previous day's closing price. The brokerage believes the recent 30% correction in the stock is overdone, citing strong growth drivers in both domestic and international markets.

The Indian beverage market, with an estimated size of 2.4 billion cases, is largely a duopoly, with Coca-Cola and PepsiCo holding a combined market share of around 80-90%. However, competitive intensity has increased following the relaunch of Campa by Reliance Consumer Products in March 2023.

According to JM Financial, Campa has been targeting price-sensitive consumers in states like Tamil Nadu, Andhra Pradesh, Telangana, Uttar Pradesh, and West Bengal. “Campa has focused on the mass-end consumer through aggressive pricing, offering PET bottles at a 30-40% discount compared to Coca-Cola and PepsiCo,” the brokerage noted. While Campa has gained visibility in smaller stock-keeping units (SKUs) for out-of-home consumption, larger SKUs for home consumption continue to see strong preference for PepsiCo and Coca-Cola.

JM Financial highlighted that the impact of Campa’s push is likely to be more pronounced in packaged water and soda segments, where pricing and shelf availability matter more than brand loyalty.

Despite the rising competition, JM Financial believes PepsiCo and Coca-Cola have taken the right steps to counter Campa’s challenge. Both companies have introduced promotional offers, such as reduced prices for