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Bonus in June 2022; now 2023 Split 1:2 While Reaching 1 Lakh Cr MktCap; What Next?

Published 23-05-2023, 07:27 am
VARB
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Companies typically issue bonus shares for several key reasons. First, they encourage more retail investor participation in their stock by lowering the price per share and adding liquidity. Second, they provide an alternative to issuing a dividend payment for rewarding investors. And finally, they reflect that the company is in a financially sound position to keep growing and generating shareholder value.

The last year 2022 during the Q4 result season as a part of a case study on stocks with bonus issues announced we covered Varun Beverages Ltd (NS:VARB) (on 29th April 2022) where after delivering a 98% jump in net profit YoY, the company followed with an Announcement on a bonus of 1:2

Company Background:

VBL is PepsiCo’s second largest franchisee (outside the US), possessing rights to manufacture, distribute and sell carbonated soft drinks, fruit juice-based drinks, packaged drinking water, sports drinks, and energy drinks spanning across 6 countries. In India, VBL has a presence in 27 states and 7 Union Territories and accounts for 90 per cent of PepsiCo (NASDAQ:PEP) India’s beverage sales volume in the country.

Saga of How + Why + When:

So how did corporate action of bonus issue help investors add the stock to their portfolio for 1st time? For that, let us walk back in history to visit the events in chronological order and discover the effects of bonuses and results on stock prices.

Phase 1: The Big 'B' (bonus on the table)

The company’s board on Thursday i.e. 28th April 2022 approved the issue of bonus shares in the proportion of 1:2, i.e., 1 equity share for every two shares held by the shareholders as on the record date. The record date was not announced, but the company said that the bonus shares will be issued within two months from the date of approval. This issue is subject to shareholders’ approval.

Point to remember: The shares of Varun Beverages Limited continued their rally and climbed to a fresh 52-week high of ₹ 1153.95 apiece on Friday’s early trades. The share price of the company increased by 8.90% as compared to the previous close of ₹ 1059.60 on Thursday 28th April 2022. (initial investment date for new investors)

Phase 2: The Ex D

The Ex-Date of 1:2 bonus was 6th June 2022 as per the company records. Point to remember: The shares of Varun Beverages Ltd were trading at ₹ 743, up 1.37% on the bonus record date I.e. 7th June 2022. This means our portfolio value had increased by 40.2% and the stock is providing good returns since phase 1 (initial investment date)

Phase 3: The Peak Season of the DD Curve:

On 1st August 2022, Varun Beverages Results witnessed a Consolidated PAT at Rs 802 cr. The company, which follows January-December financial year, had posted a two-fold rise in consolidated profit after tax at Rs 802.01 crore for the June quarter on growth in revenue from operations and improvement in margins. Total sales volumes were up 96.9 percent year-on-year at 300 million cases in Q2/2022 as compared to 152 million cases in Q2/2021, primarily on account of the strong demand during the peak season and return to normalcy post covid 19.

Point to remember: Shares of Varun Beverages Ltd were trading at 928, up 5.08% after the results. This means our portfolio value had increased by 75% and the stock providing handsome returns since phase 1 (initial investment date)

Phase 4: The Tax Man Effect with Expansion Possibilities

On 1st November 2022 during the result season, Varun Beverages' profit went up 53% to Rs 395.48 crore in the September quarter one of the key factors being the transition to a lower tax rate in India along with improvement in margins.

Furthermore, In a separate filing, VBL said its board has approved the proposal to enter into an agreement by Varun Beverages Morocco SA, a wholly-owned subsidiary of the company to distribute and sell Lays, Doritos, and Cheetos for PepsiCo’s wholly-owned subsidiaries in the territory of Morocco with effect from January 2023.

Point to remember: The Shares of Varun Beverages Ltd were trading on BSE at 1106.75, up 5.39% after the results. This means our portfolio value had (doubled) increased by 109% and the stock was on the verge of becoming a multi-bagger since phase 1.

Phase 5: Multi-bagger status is achieved

On 6th Feb 2023, VBL reported once again a more than twofold jump in its consolidated net profit to Rs 81.52 crore for the quarter that ended December 31, 2022, led by volume growth and improved net realizations.

Point to remember: The Shares of VBL were trading at Rs 1,233.60 on BSE, up 6.25 percent from the previous close, on Monday i.e. 6th Feb 2023. This means our portfolio value had increased by 133% and the stock has become a multi-bagger since phase 1.

Phase 6: End of the Phases and Beginning of ERA

On 2nd May 2023, VBL reported a stellar 400% rise in the PAT as it increased from Rs 82 crores to Rs 439 crores. Furthermore, the Board recommended the split of existing equity shares of the Company from One equity share having a face value of Rs 10 each into Two equity shares having a face value of Rs 5 each. This is subject to the approval of equity shareholders of the Company. The main rationale for the stock split is to boost liquidity and make stock "more attractive" to small investors.

Point to remember: The Shares of VBL were trading at Rs 1515 on the day of results. This means our portfolio value had increased by 186% and the stock has successfully achieved the status of multi-bagger since phase 1.

Conclusion:

Demand for cold drinks has risen in recent months as India recorded its hottest February on record in 2023 and sales at restaurants and bars improved amid a broader post-pandemic recovery.

The company is in the process of further expanding its capacities to meet the higher demand expectations.

VBL is diversifying its portfolio by periodically launching innovative products in select markets in line with changing consumer Preferences. for example, the Launch of new products such as the energy drink ‘Sting’ performed well across various geographical regions and recent launches in the value-added dairy segment have received positive consumer responses.

Overall post the approval of the stock split by the shareholders we can witness the cycle (phases as discovered above) being repeated and marking the beginning of an ERA with significant growth opportunity as Varun Beverages continues to benefit from its relationship with PepsiCo, pan-India distribution network, backward integration, and increased in-home consumption

Disclaimer: The above article is for self-educational purposes. The analysis was conducted by the following students: G10 & Deepsy for learning purposes.

“Investing involves substantial risk. Neither the author nor the publisher, nor any of their respective affiliates make any guarantee or other promise as to any result that may be obtained from using the research/report. While past performance may be analyzed in the research, past performance should not be considered indicative of future performance. No reader should make any investment decision without first consulting his or her own personal financial and/or investment advisor and conducting his or her research and due diligence, including carefully considering whether it is suitable for your particular circumstances, as this research/report does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendation appropriate for you. In the event, that any information, commentary, analysis, opinions, advice, and/or recommendations in the research/report prove to be inaccurate, incomplete, or unreliable or result in any investment or other losses, the author, the publisher, and their respective affiliates disclaim any and all liability to the maximum extent permitted by law.

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