Shares of Varun Beverages surged by 4% to Rs 1,588 per share on September 11, ahead of its scheduled 2:5 stock split, boosting investor sentiment. The record date, which is set for September 12, will determine the shareholders eligible for the stock split. This move is expected to make the stock more accessible to smaller investors, as the face value of each share will be reduced from Rs 5 to Rs 2, following a previous split from Rs 10 to Rs 5 in June 2023.

A stock split typically aims to make shares more affordable for retail investors by lowering the price per share while increasing the number of shares available. Despite the reduction in price, the overall market value of the company and an investor's stake remain unchanged. This corporate action often improves liquidity and trading volume, providing better entry points for new investors and potentially encouraging more active trading.

In addition to the stock split, Varun Beverages has demonstrated solid performance. For the June 2023 quarter, the company reported a significant 26% year-on-year (YoY) growth in its net profit, reaching Rs 1,262 crore. Its revenue surged by 28.3% YoY, amounting to Rs 7,333 crore, driven by volume expansion and improved margins. On the operating front, the company’s EBITDA increased by 31.8% YoY to Rs 1,991 crore, and margins improved by 74 basis points to 27.7%. This robust performance highlights Varun Beverages' operational efficiency and strategic market positioning.

Analysts at Elara Securities have reiterated their ‘accumulate’ rating on the stock and raised the target price from Rs 1,590 to Rs 1,780 per share based on a 55x FY26E P/E. They continue to view the stock favorably due to its strong growth trajectory, although there is some downside risk if volume growth does not meet expectations.

So far in 2023, Varun Beverages has outpaced broader market indices. Its stock has surged by 26%, significantly outperforming the Nifty 50's 15% rise. This sustained performance reflects the company’s robust business fundamentals and the confidence of its shareholders.

Varun Beverages’ stock split is also expected to attract more retail participation, increasing the stock’s liquidity and visibility in the market. By reducing the face value from Rs 5 to Rs 2, the company aims to make its shares more accessible to a larger investor base, further boosting interest in its stock.

Stock splits are generally viewed as investor-friendly actions, particularly for those looking to enter the market at lower price points. However, while stock splits increase the number of shares available, they do not inherently change the company’s valuation. The total market capitalization remains the same, as does the value of an investor’s holdings.

In recent years, Varun Beverages has established itself as a key player in the Indian beverage market, enjoying strong demand for its PepsiCo-licensed products. The company's strategic initiatives, such as expanding its manufacturing capacity and optimizing distribution networks, have further bolstered its position.

The company’s consistent financial performance and its ability to capture market share make it an attractive stock for long-term investors. Its focus on driving volume growth, improving operational efficiency, and expanding its product range has resulted in steady revenue growth.

In the near term, analysts believe that Varun Beverages will continue to benefit from the growing demand for beverages in India, particularly during the summer months, and its commitment to product innovation.

As Varun Beverages moves ahead with its 2:5 stock split, investors are likely to keep a close eye on how the stock performs post-split. The company’s track record of solid earnings growth and operational success suggests that it could continue to outperform the broader market, making it a compelling investment for those looking to gain exposure to India’s booming FMCG sector.

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