Varun Beverages Q1 Results: Revenue rises 11%, gross margin improves further

Varun Beverages Ltd. earned ₹4,398 crore in revenue for the quarter ending in March, representing an 11% increase in sales year over year. The organization uses a January–December calendar year.

Notwithstanding the 17-day postponement of the Holi festival, which caused a postponed seasonality cycle, the management said that overall operational and financial performance for the quarter was solid.

The period’s net profit of ₹537.2 crore saw a 25% growth. Profits Before Interest, Tax, Depreciation, and Amortization (EBITDA) rose by 24% to ₹990 crore, and the EBITDA margin climbed by 230 basis points to 22.5% from 20.2% during the previous year.

According to the company’s press release, the company’s realization per case climbed by 3.5% during the quarter compared to the same period last year. This gain was attributed to an improved product mix in India and larger contributions from overseas markets. Varun Beverages stated that reducing the amount of sugar in their goods is a priority. Low- or no-sugar goods accounted for about 46% of the company’s total sales volume.

Another area the firm is focusing on is the removal of corrugated pads from packaging and the use of lightweight packaging materials, which have increased the company’s gross margin from 52.4% to 56.3% by 385 basis points. In order to fulfil the growing demand for beverages and maintain its long-term development trajectory, Varun Beverages has started construction on three new greenfield facilities in Maharashtra, Uttar Pradesh, and Odisha, with a capital expenditure of ₹1,000 crore, ₹1,100 crore, and ₹700 crore, respectively, for the core Indian market.

Additionally, Varun Beverages finalized the strategic purchase of South Africa’s The Beverage Company (BevCo) during the quarter. Varun Beverages Morocco SA, a wholly-owned subsidiary, has entered into an exclusive snacks appointment agreement to manufacture and package Cheetos in Morocco by May 2025. The combined regions of South Africa, comprising Lesotho, Eswatini, Namibia, Botswana, Mozambique, and Madagascar, are the three growth engines that Varun Beverages has identified for its global company. In the Democratic Republic of the Congo, where PepsiCo is not present, the business will also expand.

The largest PepsiCo franchise outside of the United States, Varun Beverages, has also authorized the establishment of Varun Foods (Zimbabwe) Pvt. Ltd. to conduct food product operations. Following the results announcement, Varun Beverages’ shares are now trading 1% lower at ₹1,449.8. As of now in 2024, the stock has gained 17%.

Varun Beverages Q1 Profit Surged by 25% to Rs.547.9 Crores

The stock price of Varun Beverages, the PepsiCo bottler, saw a sharp increase, rising more than 5% in early trade on Tuesday. The company’s strong Q1 earnings reports were followed by this rise. From the previous finish of Rs 1,477.80 on the BSE, the FMCG stock increased by 5.45% to Rs 1,558.45. As late as February 26, 2024, the stock reached its highest point of Rs 1,560.30.

From Rs 438.95 crore in the same quarter of the previous fiscal year to Rs 547.9 crore in the first quarter of this year, the company’s net profit increased by 25%. As to the regulatory filing, Varun Beverages had a robust 11.2% gain in sales, amounting to Rs 4,397.9 crore. It is noteworthy that the organization adheres to the January–December fiscal year.

A total of 1.26 lakh shares of the company changed hands, translating into a turnover of Rs 19.33 crore on the BSE, which is indicative of the outstanding performance. Varun Beverages achieved an astounding Rs 1.98 lakh billion in market capitalization. The stock has increased dramatically during the last two years by 316%, and in only three years by an astounding 603.38%.

The stock has a target price of Rs 1,720 set by Motilal Oswal analysts in response to the Q1 results. They highlighted better EBITDA margins, which rose by 240 basis points annually, propelled by higher gross margins (up 390 basis points annually) as a result of lower PET pricing.

Initiatives to reduce sugar content and the use of lighter packing materials. Nuvama has increased its price objective for Varun Beverages from Rs 1,492 to Rs 1,690, noting the company’s capacity to perform at a high level in the industry and comparing it to Nestle’s value of 70x. With a PE multiple of 60x (compared to an earlier 55x), they anticipate that values will be steady as rural demand increases.

Varun Beverages’ relative strength index (RSI) is at 53.8, suggesting that the stock is not in an overbought or oversold area. The moving averages of five, ten, twenty, thirty, fifty, hundred, 150, and 200 days are all being exceeded by the stock’s current trading price.

Varun Beverages’ recovery is on, with strong margins in Q4

With better-than-expected December quarter earnings, Varun Beverages Ltd (VBL) closed 2020 on a positive note. From 9.5% in the same time last year to 12.9% in Q4, VBL’s consolidated Ebitda margin increased. EBITDA, or profits before interest, tax, depreciation, and amortization, increased to ₹172 crore, over 50% more than the previous year. This is in addition to the 17% Ebitda increase in the September quarter, and it represents a respectable comeback from the 53% Ebitda decline in the June quarter during the shutdown period. VBL has a January through December fiscal year.

Certain cost-cutting measures put in place during the pandemic were maintained by VBL, PepsiCo’s second-largest bottling subsidiary outside of the US. Due to a drop in raw material costs in Q4, the gross profit margin increased significantly. Moreover, the growth of the Ebitda margin was supported by a reduced rate of rise in staff costs. According to a client note from analysts at Emkay worldwide Financial Services, “Ebitda margin improved further, aided by favourable raw material costs, unprofitable plant closures, and a noticeable increase in the profitability of global operations.

Additionally, the margin forecast is favourable. According to Jefferies analysts, “the management expects the higher margins to sustain as some cost-optimization measures are likely to stay. According to Emkay’s analysts, there may be potential margin upsides if operations in India return to normal and if worldwide operations continue to be profitable. The 5.7% gain in sales volume and the 2.8% increase in blended realisations drove the 9% year-over-year increase in VBL’s revenues during the most recent quarter. Volume performance was improved by a rise in carbonated soft drink consumption at home.

From 49th Most Valued to Top 4 FMCGs in About Two Weeks, Varun Beverages Briefly Surpasses Britannia

The fourth-largest FMCG business in India, Varun Beverages Limited, momentarily overtook Britannia Industries on Friday to take the second position in the globe for bottling PepsiCo beverages. After ITC, Nestle India, and Hindustan Unilever.

With a 1.11 lakh crore market value, Varun Beverages outperformed Britannia Industries by Rs 25 crore. by INR 1,09,915 crore, Britannia, however, had surpassed the bottling firm by the time this piece was published. In fact, at INR 1,05,076 crore, Varun Beverages is currently worth less than Godrej Consumer Products (INR 1,05,277 crore).

According to BSE records, the firm was formed in 1995 and became the 48th largest market ranking when it joined the INR One Lakh crore club on May 10. In India and six other nations, the corporation manufactures and sells bottled drinking water, juices, and fizzy drinks. Pepsi, Slice, Sting, Mirinda, Mountain Dew, Seven-Up, Nimbooz, and Aquafina are just a handful of the brands that PepsiCo produces under their umbrella.

Devanshu Bansal and Bhavika Choudhary of Emkay Global Financial Services analysts retain a “BUY” rating on VBL, saying, “Sting is a huge success, with about 500 bps of incremental contribution to calendar years 2019 through 2022 at a compound growth rate of 23 per cent.” New items with a similar level of traction may positively surprise. Out of the 20 analysts that follow the company, 90% suggest buying the stock. The expert rating for the buy suggestion on Groww, a stock and mutual fund investing platform, is 87%.

While Britannia’s net profit for FY 23 increased at a slower rate of 52%, VBL’s net profit more than quadrupled to INR 1,497 crore in 2022 (January-December calendar year). In a similar vein, the shares of VBL have more than quadrupled over the past year, while Britannia’s shares have gained 30% within the same time frame.

They also announced an 11% year-over-year increase in realizations to INR 174 per unit, and they experienced a solid improvement in both volumes and realizations during the March quarter. An enhanced product mix and cost savings on raw materials resulted in a 90-basis point increase in gross margin year over year.

Sipping on Success: An Insider Look at Varun Beverages

PepsiCo’s activities in India are not entirely under its control. Rather, it has Varun Beverages Ltd (VBL), a dependable partner that has worked with the business for almost 30 years. Packing PepsiCo’s drinks for sale and distribution is VBL’s main duty. PepsiCo mainly supplies VBL with its brand name and the concentrate needed to create its drinks. The corporation also invests over ₹350 crores a year in marketing initiatives, such as celebrity sponsorships. PepsiCo does not want to build production plants in every area and would rather keep its asset level modest.

The American company PepsiCo does not directly place the bottles of Pepsi that you see in your neighbourhood grocery shop. Instead, their partner Varun Beverages most certainly transported and stocked it. There wasn’t much fanfare when Varun Beverages went public in 2016 because the stock fell 6% on the day of listing. Due to its reported losses and mounting debt, several expressed doubts about its capacity to maintain its financial stability. But these concerns are no longer relevant. With a 100% increase in share price over the last year and a 500% profit for investors who made their first investment in the firm five years ago, the stock has fared very well.

Varun Beverages did not hold the top spot in PepsiCo’s Indian business a few years ago. It made up just 26% of PepsiCo’s beverage sales in India in 2011. By 2021, though, things had drastically shifted, with VBL accounting for an astounding 85% of PepsiCo India’s beverage sales. VBL’s ability to persuade PepsiCo that it was the ideal partner for their operations in India is responsible for this achievement. In the western and southern parts of India, PepsiCo oversaw its own bottling and distribution activities till 2019. But eventually, PepsiCo realized that VBL could handle these activities more skilfully, so it gave its reliable partner the reins. As a result, VBL is now present in 27 Indian states as well as 7 union territories.

Put otherwise, there exists a mutual dependence between PepsiCo and Varun Beverages. With time, Tropicana Slice, Gatorade, and Aquafina are just a few of the many PepsiCo beverages that VBL has acquired the rights to bottle and market. Furthermore, VBL has expanded its line of products to include the energy drink “Sting,” which is priced at half the price of Red Bull and already makes up 8% of total sales. Furthermore, VBL and PepsiCo’s collaboration may involve more than merely bottling and delivering drinks. VBL secured a contract in March to produce Kurkure Puffcorn, a popular snack brand owned by PepsiCo, in India. The company may also handle other food brands like Lay’s and Doritos, which would diversify its sources of income.

Retailers’ operations would be made simpler if a single organization was in charge of a wider range of items, since they wouldn’t have to coordinate with several businesses for distinct product lines. PepsiCo would probably gain from this as it may improve VBL’s connection with the retailers and result in greater shelf space and possibly better sales. Varun Beverages Ltd (VBL) goods are available in just 3 million of India’s almost 10 million retail locations, indicating a large room for expansion. As India’s electrification initiative moves forward, the problem of many retail stores being unable to supply visi-coolers because of electrical constraints might be resolved.

Additionally, the corporation has a great chance to boost sales by persuading people to drink more in areas like Bihar, where the average per capita consumption of carbonated beverages is barely 30%. Already, VBL is expanding its production capacity in these underserved areas. Due to Varun Beverages’ 2039 deal to bottle Pepsi in India, it is doubtful that another company would enter the market. Additionally, there is a great deal of room for expansion in Africa, where PepsiCo presently only operates in 13 nations while rival Coca-Cola has operations in 50. Having gone from having a little market share to controlling 50% of the market, VBL is already making progress in Zimbabwe.

Varun Beverages to expand capacities of juices, value-added dairy items in 2024

As per the most recent annual report of the company, Varun Beverages, a prominent bottler of PepsiCo’s beverage division, is planning to increase its production capacities in the segments of juices and value-added dairy products by 2024. Additionally, the promoter and non-executive chairman of Varun Beverages Ltd (VBL), Ravi Jaipuria, informed shareholders that the company is fortifying its distribution network and chilling infrastructure in order to improve its presence in the underserved sectors.

The ongoing development of production facilities, with an emphasis on reacting to changing customer tastes and market trends, is at the core of our expansion strategy for CY 2024. We are focusing especially on boosting our production capabilities in the dairy products with added value and juices categories,” he stated. The business has operations in six nations. In 2023, three African nations Morocco, Zambia, and Zimbabwe contributed the remainder 17% of its net sales, with three markets on the Indian Subcontinent India, Sri Lanka, and Nepal making up the remaining 83%.

In India, VBL is responsible for over 90% of PepsiCo’s beverage sales volume. Carbonated soft drinks, carbonated juice-based drinks, energy drinks, sports drinks, and packaged drinking water are among the items that PepsiCo owns and that it produces, promotes, and distributes.

VBL predicts that India’s soft drink industry would rise significantly due to a number of variables, including younger demographics, faster urbanization and economic development, higher household spending, rural advances, and improved electricity. The industry maintained a stable development trajectory by deftly adapting to changing customer tastes.

According to the annual report, “this resilience was especially evident in the energy drinks segment, which continued its expansion through 2023 after emerging as a growth category in 2022.”

The soft drink market as a whole, which includes bottled water, carbonates, and juices, continued to rise in 2023, a year that the beverage industry described as “challenging yet progressive.” The growing middle class population and changing demographics drove industry expansion. Higher demand was sparked by these demographic changes and a rise in disposable income, the report added.

Another important factor was urbanization, as more people moved into cities, increasing exposure to and demand for a wider variety of soft drink alternatives. Vbl, whose fiscal year coincides with the calendar, reported net sales of rs 16,042.58 crore in 2023, an increase of 21.8%. It has been connected to pepsico for more than thirty years. In order to grow its company, it is expanding the number of licensed territories and sub-territories. With an enterprise value of rs 1,320 crore, the firm announced in December that it would acquire beverage firm (bevco), situated in south Africa, together with its wholly-owned subsidiaries. This purchase would enable the company to increase its market share in Africa.
PepsiCo’s franchise rights in south Africa, Lesotho, and Eswatini are owned by bevco. Over 1.4 billion clients are now being served by vbl as a whole. Nonetheless, its India business accounts for a sizable portion of its income, which is 79% of total sales.

Varun Beverages Spike 6% on Stock Split Ex-date

On Thursday, the stock of Varun Beverages experienced a 6% increase in value as it reached the ex-date of a planned split. At 03:15 pm, Varun Beverages’ shares were trading at Rs 827.10 on the NSE, up 2.87% from the previous close. The June 15th date was set by Varun Beverages’ Board of Directors as the “Record Date” for the 1:2 split of the company’s current equity shares. The corporation made the decision to exchange one share with a face value of Rs 10 for two equity shares having a face value of Rs 5.

The firm recorded a 69% year-over-year (YoY) increase to Rs 429 crore for the quarter ending March 2023. The firm had a 37.7% YoY increase in sales to Rs 3,893 crore, and a 50.3% YoY gain in EBITDA with 20.5% margins. One of the biggest PepsiCo franchisees worldwide, Varun Beverages makes and sells carbonated beverages, juices, and packaged drinking water in six nations, including India. Value-added dairy, juice, and energy drinks like Gatorade and Sting are the company’s main areas of concentration.

On Wednesday, the shares closed at Rs 1614.54 (not adjusted for stock split). The shares jumped 6.8% from the previous closing price of Rs 807.25 on the BSE to an intraday high of Rs 862 on the ex-date.

Concerning Varun Beverages Ltd.

One of the biggest PepsiCo franchisees worldwide (apart from the United States) is Varun Beverages Limited (“VBL” or the “Company”), a significant participant in the beverage business.

Since the 1990s, VBL has maintained a business relationship with PepsiCo. Over the course of the last 25 years, the company has expanded its licensed territories and sub territories, produced and distributed a greater variety of PepsiCo beverages, added new SKUs to its portfolio, and strengthened its distribution network.

The Company produces, markets, and sells a broad variety of carbonated soft drinks (CSDs) and non-carbonated beverages (NCBs), including packaged drinking water marketed under PepsiCo-owned brands.

Pepsi, Pepsi Black, Mountain Dew, Sting, Seven-Up, Mirinda Orange, Seven-Up Nimbooz Masala Soda, and Evervess are among the PepsiCo CSD brands that VBL produces and distributes. Tropicana Slice, Tropicana Juices (100% and Delight), Seven-Up Nimbooz, Gatorade, and bottled drinking water under the Aquafina name are among the PepsiCo NCB products that the company produces and sells.

VBL, which accounts for over 90% of PepsiCo India’s beverage sales volume, has been awarded franchises for a number of PepsiCo goods across 27 States and 7 Union Territories in India. The franchise for the countries of Nepal, Sri Lanka, Morocco, Zambia, and Zimbabwe has also been awarded to VBL. India accounted for over 80% of the net sales from operations in Fiscal 2022, making it the biggest market.