Varun Beverages downgraded to 'Sell' by MarketsMOJO due to flat results and high valuation

Varun Beverages, a leading player in the breweries and distilleries industry, has recently been downgraded to a 'Sell' by MarketsMOJO on November 4th, 2024. This decision was based on the company's flat results in September 2024, with an interest growth of 66.10% at Rs 341.39 crore. Additionally, the company's ROCE (Return on Capital Employed) for the half-year was at its lowest at 23.42%, while its debt-equity ratio was at its highest at 0.79 times.
Furthermore, Varun Beverages has a very expensive valuation with a ROCE of 23.5 and an enterprise value to capital employed ratio of 13.3. However, the stock is currently trading at a discount compared to its average historical valuations. In the past year, the stock has generated a return of 55.89%, while its profits have only risen by 27.2%. This gives the company a PEG ratio of 2.8.

On the positive side, Varun Beverages has shown high management efficiency with a ROCE of 16.50%. It also has a healthy long-term growth rate, with net sales growing at an annual rate of 23.18% and operating profit at 36.62%. However, the technical trend for the stock is currently sideways, indicating no clear price momentum. The trend has improved from mildly bearish on November 4th, 2024, and has generated a return of -2.4% since then.

Another factor to consider is the high institutional holdings of 29.16% in Varun Beverages. These investors have better capabilities and resources to analyze the fundamentals of companies compared to most retail investors. Additionally, the company has consistently generated returns over the last three years, outperforming the BSE 500 index in each of the last three annual periods.

With a market cap of Rs 1,94,921 crore, Varun Beverages is the largest company in the sector, constituting 47.39% of the entire industry. Its annual sales of Rs 18,986.54 crore also make up 34.09% of the industry. While the company may have some challenges to overcome, it remains a significant player in the industry with potential for growth.