Varun Beverages share price

Varun Beverages Rises 4% Ahead of 2:5 Stock Split: What You Need to Know

On September 11, Varun Beverages’ stock price rose by 4% to Rs 1,588 per share, ahead of its 2:5 stock split. The company has set September 12 as the record date to determine which shareholders are eligible for the stock split. This means that shareholders who own shares as of September 12 will benefit from the stock split. After the split, each share with a face value of Rs 5 will be divided into shares with a face value of Rs 2.

This stock split comes after a similar event in June 2023, when the company reduced the face value of its shares from Rs 10 to Rs 5. The latest split further reduces the face value of each share, which is expected to make the stock more accessible to smaller investors and increase liquidity.

Why Companies Initiate Stock Splits

A stock split typically aims to reduce the price per share, making it more affordable for retail investors. While the number of shares increases, the overall value of the company and the investor’s holdings remain unchanged. Stock splits can increase trading volume and improve the liquidity of the stock in the market.

Financial Performance of Varun Beverages

In the June 2023 quarter, Varun Beverages posted strong financial growth:

• Net profit grew by 26% year-on-year (YoY) to Rs 1,262 crore.
• Revenue increased by 28.3% YoY to Rs 7,333 crore.
• The company’s EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) rose by 31.8% YoY to Rs 1,991 crore.
• Margins improved by 74 basis points YoY to 27.7%.

The strong financial performance, coupled with the stock split, has contributed to increased investor confidence.

Analyst Ratings

Analysts at Elara Securities have reiterated an ‘accumulate’ rating, raising their target price to Rs 1,780 per share from Rs 1,590. They attribute this to positive future earnings expectations (FY26E). The key downside risk noted is lower-than-expected volume growth.

Advantages of the Varun Beverages Stock Split

1. Affordability for Retail Investors: The stock split reduces the price per share, making the stock more affordable for smaller investors. This allows a wider range of investors to buy shares.
2. Increased Liquidity: With the stock price lower and more shares in circulation, the stock is expected to see higher trading volume and increased liquidity in the market.
3. Investor Attraction: Stock splits are often seen as a positive signal by the market, indicating that the company is performing well. This can boost investor confidence and attract new investors.
4. Strong Financial Growth: The company’s impressive YoY growth in net profit, revenue, and EBITDA strengthens investor confidence in its long-term performance.
5. Consistent Stock Performance: Varun Beverages’ stock has already surged by 26% this year, outperforming the Nifty 50’s 15% gain. This positive momentum could continue post-split.

Disadvantages of the Varun Beverages Stock Split

1. No Change in Intrinsic Value: While stock splits make shares more accessible, they do not change the fundamental value of the company. The overall market capitalization and investment value for existing shareholders remain the same.
2. Potential for Short-Term Volatility: Following a stock split, there may be increased volatility as a result of higher trading volume. Some investors may take advantage of the lower stock price for short-term gains, leading to fluctuations in the stock price.
3. Risk of Overvaluation: With the stock price already up by 26% this year, there is a potential risk of overvaluation, especially if future volume growth is lower than anticipated, as noted by analysts.
4. Perception vs. Reality: While stock splits can generate positive market sentiment, they do not guarantee better financial performance. Investors should focus on the company’s long-term fundamentals rather than the short-term price effects of a stock split.

Conclusion

The 2:5 stock split of Varun Beverages is expected to increase retail participation and boost liquidity in the stock. With a strong financial performance and positive market sentiment, the company is positioned for continued growth. However, investors should be cautious about short-term volatility and consider the intrinsic value of the company rather than just focusing on the price reduction due to the stock split.

FAQs

1. What is the Varun Beverages stock split ratio?

The stock split ratio is 2:5, meaning each share with a face value of Rs 5 will be split into shares with a face value of Rs 2.

2. When is the record date for the stock split?

The record date for the stock split is September 12, 2023. Only shareholders who own the stock by this date will be eligible for the split.

3. Why does Varun Beverages split its shares?

The company splits its shares to reduce the price per share, making it more accessible for retail investors and boosting liquidity in the market.

4. How does a stock split affect the value of my investment?

A stock split does not change the overall value of your investment. While you will own more shares after the split, the price per share will be lower, keeping the total investment value the same.

5. How has Varun Beverages performed financially?

In the June 2023 quarter, the company saw 26% YoY net profit growth to Rs 1,262 crore and 28.3% revenue growth to Rs 7,333 crore. EBITDA rose 31.8% YoY, with improved margins of 27.7%.

6. What are the risks associated with the stock split?

While stock splits increase accessibility, they also come with risks such as short-term volatility, the potential for overvaluation, and the risk of lower-than-expected volume growth in the future.

Varun Beverages share price

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