Varun Beverages Stock Rebounds Amid Market Volatility: What’s Next for VBL?

Summary:
• Varun Beverages stock rebounds from a 52-week low, but cash flow concerns linger. Can VBL sustain its recovery, or is more volatility ahead?

Varun Beverages Limited (NSE: VBL), a key PepsiCo bottler in India, has recently experienced significant market fluctuations. The stock hit a 52-week low of ₹454.10 before rebounding to ₹499.95 today. This volatility comes despite the company’s strong Q4 CY24 performance, which saw net profit rise by 36% year-over-year to ₹195 crore and revenue increase by 38% to ₹3,689 crore. The board also declared a final dividend of ₹0.50 per share.

Varun Beverages Stock Drivers

Varun Beverages stock has been under pressure, recently hitting a 52-week low of ₹454.1 before rebounding to ₹477.55. Despite the decline, the company reported strong Q3 earnings, with net profit rising 36% YoY to ₹196 crore and revenue growing 38% YoY to ₹3,689 crore. The board also declared a final dividend of ₹0.5 per share, which could support investor sentiment. While the stock remains down 14% in the past month, today’s bounce suggests that buyers may be stepping in at lower levels.

Technical Analysis – Can VBL Extend Its Rebound?

Resistance Levels:

• ₹511.50: Immediate hurdle; a break above could signal bullish momentum.
• ₹536.90: Key level to confirm a trend reversal.
• ₹564.75: Major resistance zone; surpassing this could lead to new highs.

Support Levels:

• ₹475.90: Current support; holding above this suggests buyer interest.
• ₹454.10: 52-week low and crucial demand zone; a drop below may trigger further declines.

Technical Indicators:

• RSI: At 41.26, indicating the stock is approaching oversold territory, which may precede a price increase.
• MACD: At -25.66, suggesting bearish momentum; however, a positive crossover could indicate a potential reversal.

Fundamental Insights: Earnings and Cash Flow Concerns

Despite robust earnings, some analysts express caution. A recent analysis highlighted that Varun Beverages’ accrual ratio stands at 0.21, indicating that free cash flow fell short of covering its statutory profit. Over the past year, the company reported negative free cash flow of ₹4.0 billion against a profit of ₹25.9 billion. This discrepancy suggests that the impressive earnings may not fully reflect the company’s underlying financial health.

Market Outlook: Balancing Growth and Risks

Varun Beverages’ recent stock performance reflects a complex interplay between strong earnings reports and underlying cash flow concerns. The rebound from the 52-week low indicates potential investor confidence, yet the cash flow issues warrant cautious optimism. Investors should closely monitor upcoming financial disclosures and market trends to assess whether the current momentum is sustainable or if further volatility lies ahead.