Varun Beverages Ltd Q3CY22
Revenue from operations grew by 32.5% YoY to Rs. 31,766 million, on account of robust volume growth over last year and higher realization on a consolidated basis.
Net realization per case improved by 6.8% to Rs. 167 per case in Q3 CY2022, driven by a higher mix of smaller SKUs (250ml) especially the energy drink - Sting which has a higher net realization, and its mix is increasing in the sales volume.
Sales volumes in India grew by 22.1% in Q3 CY2022 to 148 million cases and in international markets grew by 31.3% to 42 million cases. Total volume for the quarter 190 million cases. Revenue from operations (net of excise / GST) grew 54.6% YoY to Rs. 109,589 million in 9M CY2022 as compared to Rs. 70,889 million 9M CY2021.
EBITDA increased by 41.3% to Rs. 6,990 million from Rs. 4,947 million. Gross margins for Q3 CY2022 increased by 90 bps to 53.7% from 52.8% in Q3 CY2021, despite the inflationary raw material environment.
EBITDA margins stood healthy at 22% in Q3 CY2022, led by the higher realization and operating leverage from increased sales volume. EBITDA increased by 71.4% to Rs. 24,806 million in 9M CY2022 from Rs. 14,471 million in 9M CY2021.
PAT increased by 53.3% to Rs. 3,955 million from Rs. 2,579 million in Q3 CY2021, driven by high growth in revenue from operations, improvement in margins, and transition to a lower tax rate in India. PAT was higher by 105.8% to Rs. 14,686 million in 9M CY2022 from Rs. 7,135 million in 9M CY2021
Mr. Ravi Jaipuria, Chairman, of Varun Beverages Limited said, “We are pleased to report yet another strong quarter, delivering net revenue growth of 32% and a PAT growth of 53% YoY.”
Their India business has delivered a solid organic volume growth of 22% led by a favorable demand environment and the strong performance of their energy drink - Sting. In addition, healthy double-digit sales volume growth of 31% in their key international markets further assisted performance during the quarter.
Post-Covid-related setbacks over the last two years, they are now increasingly improving their presence by expanding their distribution reach across markets. This will help us gain a larger share of the growing market. On the product portfolio front, they are pleased to share that Sting continues to perform exceedingly well across geographies.
Similarly, their launches in the value-added Dairy segment are seeing healthy consumer response and they remain confident of improving contribution from these new launches, going ahead.
Overall, the demand environment for the beverage industry has been robust and they are witnessing a healthy offtake in India as well as in their international markets. The festive season in Q4 is expected to further aid consumption trends in this calendar year. The company is confident that it can sustainably deliver healthy volume growth across all product categories going forward and further strengthen its market position in the beverage industry.
Company has entered into an agreement by Varun Beverages Morocco SA (a wholly owned subsidiary of the Company) to distribute & sell “Lays, Doritos, and Cheetos” for PepsiCo wholly owned subsidiaries in the territory of Morocco with effect from January 2023.
Sting drove volume growth for Varun in India. The revenue contribution of Sting increased to 12% in Q3CY22.
Dairy and juice products are also performing well. The company has started trial production of Kurkure Puffcorn in Kosi, UP.
Sting continued its strong growth during the quarter across geographies. The realization of the product is 65% higher than that for other soft drinks.
Sting contributed 8.5% of the total revenues in 9MCY22 and 12% in Q3CY22.
Varun has increased the reach of Sting to 2mn outlets. It is one of the highest-penetrated products of the company. Total India dealer reaches – There are 11mn outlets and the company has reached 2-3mn outlets and company plans to grow 6-10% every year.
While Tropicana continues to do well, the company highlighted it is not able to service at least 15% off Tropicana selling outlets due to supply constraints from the Pathankot factory.
Management indicated overall demand in the beverage market continues to be robust with increasing out-of-home consumption and the festive season.
The company’s products are in both domestic and international markets. Management guided for strong volume growth across categories going forward as well.
Both Coke and PepsiCo have differently positioned energy drinks in different parts of the globe. Sting has done quite well in India and Pakistan.
Management guided for Rs12bn-13bn CAPEX by Feb’23, which will be equally divided between greenfield and brownfield expansions.
The expansions will increase the company’s overall capacity by 20%. However, the management is uncertain about completing the capacity expansion projects by Feb’23.
Capacities for Sting and other soft drinks are interchangeable.
Management expects not to take any price hikes till next quarter.
The company does not plan to do any private label business.
The company is adding chilling Equipment
The company has reduced its debt from 3100 cr to 2300 cr
There is competition (from coke) coming in, but the company will get the first-mover advantage and there is enough room for growth for both the company and its competitors as well.
The company is focusing on expanding to new territories with varied product lines like Dairy, Tropicana, snacks, and CSD.
As management mentioned next quarter is the weakest quarter in the entire year yet the company is confident to maintain the same growth trajectory. Given the seasonality in the business, a significant portion of the revenues and profits are realized in the Apr-June quarter.