Why did the stock of Varun Beverages rally so sharply in the last few days?

Bottling player, Varun Beverages, just scaled a new high of Rs.1,153 as the stock spiked by 9% on Friday. This was after the board of Varun Beverages recommended bonus shares in the proportion of 1:2 i.e. 1 equity share for 2 equity shares held. IN addition, the quarterly numbers were also very strong. For instance, for the Mar-22 quarter, the sales grew 26.2%, largely supported by 19% volumes growth in this period.

Volume growth for Varun Beverages is normal with the early onset of summer in India, which leads to a high demand for beverages. Varun had to put up with spike in input costs, but despite that the EBITDA margins improved by 175 bps to 18.8% in the quarter. PAT for the quarter was up 98% yoy at Rs.271 crore. There was a lowering of finance costs leading to better net profit margins.

On the demand front, Varun is seeing a strong uptick in consumption. The strong recovery is likely to continue going forward and is expected to be led by out-of-home consumption, which is a fast growing segment. Also, improved refrigeration in rural and semi urban areas has helped a good deal. The company has also raised its full year earnings guidance by 7%.