Nuvama Lowers Price Target for Varun Beverages but Retains Buy Rating: Key Risks and Outlook

Varun Beverages, the key bottling partner for PepsiCo in India and several international markets, is once again in the spotlight. After reporting its quarterly results for the April to June period, the company saw its share price rise over four percent in intraday trade to reach Rs 534.20 on the National Stock Exchange. Over the past five sessions, the stock has gained seven percent, supported by operational improvements and investor optimism around long-term expansion. However, analysts at Nuvama Institutional Equities have taken a slightly more cautious near-term view.

While Nuvama retained its ‘Buy’ rating on the stock, it lowered the target price to Rs 606. The revised outlook reflects emerging risks in the second half of the calendar year, particularly the impact of heavy monsoon rainfall on domestic beverage consumption. The brokerage has trimmed its earnings per share estimate for the year 2026 by six percent following a weaker-than-expected performance in the most recent quarter. That said, the EPS estimate for 2027 remains unchanged, indicating continued confidence in Varun Beverages’ medium-term prospects.

Despite a decline in total volume, the company showed strength in operational execution. The EBITDA margin for the quarter expanded by 82 basis points on a year-on-year basis and over 570 basis points sequentially. This significant improvement in margin was largely driven by higher efficiency and better cost control. International markets played a critical role, with overseas volumes rising by more than fifteen percent. South Africa, in particular, delivered strong growth, helping offset the volume weakness seen in the domestic market.

The Indian market, however, presented challenges. Overall consolidated volume declined by three percent year-on-year, and India-specific volume fell by more than seven percent. This was attributed to an unusually weak summer season and the high base effect from last year’s strong performance. There was also a shift in product mix, with increased sales of water impacting overall pricing. As a result, India’s average realisation per case fell by two percent, although international markets continued to offer pricing support with a marginal increase in net realisation overall.

One of the defining aspects of Varun Beverages’ strategy this year has been its aggressive capital expenditure. In the first half of the calendar year 2025 alone, the company invested around Rs 2,500 crore. This included significant spending on four new greenfield plants in Uttar Pradesh, Bihar, Himachal Pradesh, and Meghalaya. It also expanded its existing facility in Sricity and made key investments in overseas projects across South Africa, Morocco, and the Democratic Republic of Congo. Additionally, Varun Beverages acquired a 50 percent stake in Everest Industrial Lanka, a move aimed at strengthening its backward integration capabilities in the manufacturing of visi-coolers.

The stock’s performance has been a mixed bag. While it has gained fourteen percent in the past month and seven percent in just five days, it remains down nearly four percent over the last six months and has lost over seventeen percent in the past one year. The recent uptick reflects investor appreciation for the company’s resilience in a tough macro environment, but the broader trend shows that sentiment remains cautious amid rising costs and uneven domestic demand.

Going forward, analysts believe that while short-term pressures may persist, the company’s strong fundamentals, deep distribution network, and expanding global presence offer meaningful upside. However, much will depend on weather-related demand trends, consumer spending patterns, and how effectively the company integrates its ongoing expansions.

For investors eyeing long-term opportunities in the FMCG and consumer discretionary space, Varun Beverages continues to offer an interesting growth story. But near-term volatility may require patience and a close watch on operating margins, volume trends, and capital efficiency.

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