Varun Beverages Shares Trade Up 1.6% as Brokerages Retain Buy Ratings Despite Margin Pressures

Shares of Varun Beverages traded at ₹398.30, marking an increase of 1.61 per cent or ₹6.30 as of 11:40 AM on Monday. The stock touched an intraday high of ₹404.35 before paring its gains, having opened at ₹395.80 against its previous close of ₹392.00. Total turnover stood at ₹181 crore on a traded volume of 45.37 lakh shares, with selling pressure slightly higher at 52.33 per cent compared to 47.67 per cent on the buy side.

The market movement follows the Q3CY26 financial results reported by the PepsiCo bottler on October 30. The stock continues to trade well below its 52-week high of ₹555.80 recorded in June, reflecting a decline of about 19 per cent on a year-to-date basis.

Despite margin concerns, major brokerages largely retained their buy ratings on the counter, though several institutions adjusted their target prices downward. HSBC maintained a Buy rating with a target price of ₹540. JM Financial kept its Buy call but lowered its target to ₹485 from ₹505, pointing to increased depreciation and interest expenses arising from the Twizza acquisition. Motilal Oswal reiterated a Buy recommendation at ₹510.

Choice Institutional Equities maintained its Buy stance while reducing its target price to ₹460 from ₹550, alongside a lower multiple revision to 35x Sep-28E EPS due to raw material concerns. Meanwhile, Elara Securities held an Accumulate rating with a target of ₹470, down from ₹490, and trimmed its CY27E EPS estimates by 3.4 per cent.

Financial notes from brokerages highlight a consistent trend of strong volume growth countered by rising cost pressures. Consolidated revenue for Q3CY26 rose 33.2 per cent year-on-year to ₹66,076 million. This growth was underpinned by a 29 per cent increase in overall volume to 354 million cases, comprising a 22.5 per cent growth in India and 39.9 per cent internationally, partly supported by the Twizza integration. Realization per case also showed a marginal improvement of 2.2 per cent year-on-year.

On the profitability front, gross margin contracted by 334 basis points year-on-year to 53.1 per cent. This compression was driven by higher packaging costs, preforms, shrink film, closures, and cans, exacerbated by geopolitical supply disruptions that added approximately 300 basis points of pressure. Additionally, the sale of low-margin non-beverage products introduced a 100-basis-point drag on India margins. Consequently, the EBITDA margin declined by 140 basis points to 21.6 per cent. Company management has indicated that gross margins have likely bottomed out in the current quarter, barring any unforeseen macroeconomic shocks.

"The financial performance of Varun Beverages highlights a common business challenge: scaling top-line revenue through strong volume growth while managing sudden cost pressures on raw materials and supply chains. While top-line expansion and strategic acquisitions like Twizza are driving strong revenue growth, external cost headwinds can temporarily compress margins. For growing enterprises, balancing aggressive market expansion with cost discipline is crucial to maintaining long-term profitability and protecting investor value during volatile macroeconomic cycles." — Dr. Shishir Gupta, Founder & CEO, StartupLanes