Top Stock Picks for the Week (March 17, 2025): HPCL & Varun Beverages

According to Motilal Oswal Financial Services, HPCL and Varun Beverages (VBL) are top stock picks for the week. HPCL (₹324 | Target: ₹490 | Upside: 51%) delivered strong Q3FY25 results, driven by high refining margins and strong sales. Key growth drivers include LPG under-recovery compensation, the Rajasthan refinery launch, and a major refinery upgrade in Q4FY25. Despite reduced Russian crude imports, HPCL’s marketing margins remain solid, and its debt-to-equity ratio is expected to improve to 1.1x by FY26. Trading at 1.3x FY26E P/B with a 17.3% RoE, analysts maintain a BUY rating due to its attractive valuation.

Meanwhile, Varun Beverages (₹488 | Target: ₹680 | Upside: 39%) reported 38% YoY revenue growth in Q4, driven by strong international sales, particularly in South Africa and Congo. Organic volume sales grew 5% YoY, while net profit surged 40% YoY to ₹12.5 billion, supported by stable margins. VBL anticipates double-digit growth in India and even higher expansion internationally, fueled by market penetration, strong domestic demand, and a growing distribution network. The company is expanding outlets by 10% annually and increasing refrigeration in rural areas to boost sales. Analysts project 12% revenue CAGR and 17% PAT CAGR over 2024-2026, reinforcing VBL’s strong long-term investment potential. Both stocks show promising growth opportunities, making them attractive picks for investors this week.

Top Stock Picks for the Week (March 17, 2025): HPCL & Varun Beverages

This week, Motilal Oswal Financial Services has highlighted two stocks with strong growth potential: Hindustan Petroleum Corporation Ltd. (HPCL) and Varun Beverages (VBL). Here’s a simplified breakdown of why these stocks are worth considering.

HPCL (Current Price: ₹324 | Target: ₹490 | Potential Upside: 51%)

HPCL has shown impressive performance in the third quarter of FY25, surpassing expectations due to strong refining margins and high sales volumes. Several factors are contributing to its growth:

1. Compensation for LPG Under-Recovery: The company is receiving compensation for losses incurred from selling LPG at lower prices, improving its financial health.
2. Rajasthan Refinery Launch: The new refinery in Rajasthan is expected to enhance production capacity and efficiency.
3. Refinery Upgrade Completion: A major upgrade of one of its refineries is set to be completed in the fourth quarter of FY25, further improving operations.

Although reduced imports of Russian crude oil may pose some challenges, HPCL’s refining margins remain stable. Additionally, strong marketing profits and reduced capital spending are expected to lower the company’s debt-to-equity ratio to 1.1x by FY26. Currently, the stock is trading at 1.3x its estimated price-to-book (P/B) value for FY26, with a return on equity (RoE) of 17.3%. Analysts have given HPCL a BUY rating, expecting further growth as its operations continue to improve.

Varun Beverages (Current Price: ₹488 | Target: ₹680 | Potential Upside: 39%)

Varun Beverages has also delivered strong results, with a 38% year-on-year (YoY) revenue growth in the fourth quarter, driven by high demand in South Africa and Congo. The company’s organic volume sales grew by 5% YoY, and its net profit (PAT) surged by 40% YoY to ₹12.5 billion, supported by increased sales and stable profit margins.

The company is optimistic about maintaining double-digit growth in the Indian market, with even higher growth expected in international markets. Despite increasing competition, VBL is expanding its presence in India’s largely untapped beverage industry. Key factors driving its growth include:

1. Expansion into New African Markets: VBL is entering new markets in Africa, expected to boost its international revenue.
2. Strong Domestic Demand: The demand for beverages in India remains robust, providing a steady revenue stream.
3. Growing Distribution Network: The company is adding 10% more outlets annually, expanding its reach and market penetration.
4. Increasing Refrigeration in Rural Areas: Improved refrigeration availability in rural areas is helping VBL expand its customer base.

Analysts predict a 12% compound annual growth rate (CAGR) in revenue and a 17% CAGR in net profit (PAT) from 2024 to 2026. This makes Varun Beverages a strong candidate for long-term investment.

Conclusion

Both HPCL and Varun Beverages are positioned for significant growth, driven by strong operational performance and strategic expansions. HPCL’s stable refining margins and improved financial health make it a solid choice, while Varun Beverages’ robust domestic and international growth prospects highlight its potential. Investors looking for promising stocks this week may find these two companies worth considering.