Varun Beverages: Frothy valuations belie weak fundamentals

Even after recent correction, stock trades at an unjustifiable premium to the FMCG sector

The Varun Beverages scrip has fallen 14.2% since its listing on the bourses on November 8 as against a 3.6% fall in the S&P BSE Sensex in this period. Varun produces and distributes Pepsico’s carbonated soft drinks and non-carbonated beverages in North and East India. 

The sharp fall in its stock price can be attributed to multiple factors such as rich IPO valuations, weak fundamentals and overall weak market sentiment after demonetisation. 

The stock’s current valuations appear stretched and has few legs to stand on. “Varun Beverages does not seem a value buy as it trades at 60 times December