Ramp-up in capacity to keep fizz intact for Varun Beverages stock

Higher margins, asset turnover should boost return on equity; Street sees 15-20 per cent upside potential

Strong earnings visibility after the acquisition of PepsciCo India’s franchise rights has helped the Varun Beverages (Varun) stock gain about 20 per cent in the last six months, sharply outperforming the Nifty FMCG index.
 
The latter lost 1 per cent during the same period. On Wednesday, the stock hit its all-time high of Rs 969.9 apiece. Yet, the stock still has 15-20 per cent upside potential on the back of a likely improvement in return on equity (RoE).
 
This was expected, on account of an improvement in asset turnover and profitability, which should improve Varun’s RoE to 18-21