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Varun Beverages, a prominent beverage company, experienced a significant stock surge on September 11, rising 4% to reach Rs 1,588 per share. This upward trend was driven by the anticipation surrounding the company's upcoming stock split, with September 12 designated as the record date. From September 12 onward, the stock will be traded on an ex-split basis, meaning that the split will be reflected in the stock's price.
The stock split, approved by the board of directors, will involve a 2:5 ratio. This translates to each existing share, currently valued at Rs 5, being divided into shares with a face value of Rs 2. It's worth noting that this is the second split for Varun Beverages this year. In June 2023, the company executed a split that reduced the face value from Rs 10 to Rs 5.
Stock splits are often implemented by companies as a means to make their shares more accessible to a wider range of investors, particularly those with limited capital. By reducing the price per share, companies can make their stock more attractive to smaller investors. Importantly, a stock split does not alter the overall value of the company or the individual investor's holdings. Instead, it simply increases the number of shares available at a lower price, potentially stimulating trading volume and liquidity.
The recent financial performance of Varun Beverages has been particularly impressive. In the June quarter, the company achieved a remarkable 26 percent year-on-year (YoY) growth in revenue, reaching Rs 1,262 crore. This growth was fueled by robust volume expansion and enhanced margins. The company's overall revenue surged 28.3 percent YoY to Rs 7,333 crore. Furthermore, EBITDA (earnings before interest, taxes, depreciation, and amortization) witnessed a substantial 31.8 percent YoY increase, reaching Rs 1,991 crore, with margins improving by 74 basis points YoY to 27.7 percent.
Analysts at Elara Securities have maintained an 'accumulate' rating for Varun Beverages, while simultaneously increasing their target price to Rs 1,780 per share from Rs 1,590. This upward adjustment is based on a projected P/E (price-to-earnings ratio) of 55x for FY26E, with the projection period extended to September 2026E. The primary downside risk identified by the analysts is the potential for lower-than-anticipated volume growth.
Varun Beverages has experienced a substantial surge in its stock price this year, rising 26 percent. This outperforms the Nifty 50's 15 percent surge, highlighting the positive investor sentiment surrounding the company. As the company navigates its stock split and continues its strong financial performance, investors will be closely watching to see how its stock price evolves in the coming months.
Source: Varun Beverages rises 4% ahead of 2:5 stock split record date