Varun Beverages: Q3 & 9M CY2024 Earnings Call Highlights
Strong performance in Q3 CY2024. Driven by operational efficiency & strategic expansions. Acknowledges competitive pressures. Confident to capitalise on domestic & international opportunities.
varunbeverages.com | NSE: VBL
1. Key Takeaways
1.1 TLDR
Overall, VBL demonstrated strong performance in Q3 CY2024, driven by operational efficiency, strategic expansions, and a commitment to long-term growth.
The company acknowledges competitive pressures but remains confident in its ability to navigate the market and capitalise on opportunities both domestically and internationally.
1.2 Operational Highlights:
Despite challenges posed by excessive rainfall in India, VBL reported strong Q3 performance with 24.1% consolidated revenue growth (including BevCo) and 21.9% consolidated sales volume growth.
The company remains focused on sustaining healthy growth in both Indian and international markets.
Successful commissioning of Greenfield facility in DRC: Already operating at 100% utilization on a three-shift basis, highlighting strong demand. Expansion plans are underway, including backward integration and a second facility expected to commence operations next year.
Progress on new facilities across India: On track to be commissioned before the key season next year, further strengthening VBL's domestic footprint.
Integration of BevCo and expansion in South Africa: Focused on driving presence in the South African market, with efforts underway to improve go-to-market strategy and enhance operational efficiencies.
1.3 Key Themes:
Financial Performance:
Revenue growth driven by expanded distribution network, increased product penetration, and favorable demand trends.
Gross margins improved marginally by 22 basis points to 55.5%, reflecting continued focus on cost management.
Enhanced operating efficiencies resulted in 117 basis points improvement in EBITDA margins, leading to a 30.5% growth in EBITDA and a 22.3% growth in PAT.
Finance costs increased due to new CAPEX, BevCo acquisition, and higher borrowing costs.
Other income in India more than doubled due to dividend received from Sri Lanka subsidiary.
Growth Initiatives:
Board approval for a QIP of up to Rs. 7,500 crore: Subject to shareholder approval, this will support growth plans including expansion into new territories, potential strategic acquisitions, debt reduction, and balance sheet strengthening.
Potential expansion into snack business in Africa: Recognising significant potential in the African market.
Competition:
Campa Cola recognised as a formidable competitor: Management believes there is enough room for all players to grow in the large Indian market. VBL is focused on improving its go-to-market strategy and expanding its reach to new outlets.
VBL is not currently engaged in a price war with Campa Cola: Prices remain consistent with previous periods, and the focus is on expanding the overall market.
Exploring opportunities in the Jeera Masala Soda category: In discussions with PepsiCo to develop and launch a product in this growing segment.
Varun Beverages Limited (VBL) Q3 & 9M CY2024 Earnings Conference Call FAQ
1. How did VBL perform in Q3 CY2024 despite challenges like excessive rainfall in India?
VBL achieved a consolidated revenue growth of 24.1%, including contributions from its South Africa and DRC markets (BevCo acquisition). This was driven by an expanded distribution network, increased product penetration, and favourable demand trends. Despite heavy rainfall impacting the Indian market, enhanced operating efficiencies led to an EBITDA margin improvement of 117 basis points, resulting in a 30.5% growth in EBITDA and a healthy 22.3% growth in PAT for the quarter.
2. What are VBL's expansion plans, both domestically and internationally?
VBL has successfully commissioned a Greenfield facility in the Democratic Republic of Congo (DRC) and plans to further expand with backward integration and a second facility in the next calendar year. In India, new facilities are on track to be commissioned before the next peak season. To support these growth plans, the Board has approved a proposal to raise funds up to Rs 7,500 crore through a QIP, subject to shareholder approval.
3. How did the heavy rainfall in India impact VBL’s volume growth in Q3 CY2024?
The heavy rainfall primarily affected rural markets, leading to a slowdown in volume growth. While Q2 saw robust growth, Q3 growth was 5.7% due to the impact of the rains. However, management believes the two quarters should be viewed together as rainfall can shift between them.
4. What is VBL’s strategy to address competition from new entrants like Campa Cola in the Indian market?
VBL acknowledges Campa Cola as a formidable competitor but believes there is ample room for growth in the Indian market. VBL’s strategy is to focus on expanding its reach, improving its go-to-market strategy, and potentially developing a product range that competes on pricing if necessary.
5. How is VBL’s expansion into South Africa progressing?
VBL has been focusing on improving its backend infrastructure and go-to-market strategy in South Africa. While initial efforts were concentrated on fixing the backend during the off-season, VBL expects reasonable growth in the coming peak season (October to March) and has already seen improvements, with September volume growth reaching 20%.
6. How does VBL plan to utilise the funds raised through the proposed QIP?
The funds from the QIP will be used for debt reduction, expansion into new territories, potential strategic acquisitions, and strengthening the balance sheet. This will enable VBL to pursue growth opportunities efficiently and maintain a healthy debt-to-equity ratio.
7. What is VBL's approach to the food and snacks business, particularly in Africa?
VBL has secured the rights to manufacture and distribute PepsiCo's snack food portfolio in several African countries where PepsiCo does not have a presence. VBL plans to establish three plants in Zimbabwe, Zambia, and Morocco in the next year, with a potential to generate around $100 million in revenue. This expansion leverages VBL’s existing infrastructure and expertise in these markets.
8. What is VBL’s outlook on profitability and margin improvement?
While VBL acknowledges the potential impact of fluctuating input costs like sugar and oil prices, it maintains a focus on cost management and operational efficiency. VBL expects to sustain healthy margins in the range of 21-22%, driven by initiatives like backward integration, the use of lighter bottles, and increasing the share of low-sugar products in its portfolio.
Source: Link to Earning Call Transcripts
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