Varun Beverages Ltd (VBL) Q4 FY23 Earnings Concall Transcript

Varun Beverages Ltd (NSE:VBL) Q4 FY23 Earnings Concall dated May. 02, 2023.

Corporate Participants:

Anoop Poojari — Investor Relations

Ravi Jaipuria — Chairman

Raj Pal Gandhi — Group Chief Financial Officer and Whole-Time Director

Varun Jaipuria — Executive Vice President & Wholetime Director

Analysts:

Chirag Shah — CLSA India — Analyst

Vivek M — Jefferies — Analyst

Nihal Jham — Nuvama — Analyst

Jaykumar Doshi — Kotak — Analyst

Devanshu Bansal — Emkay Global — Analyst

Percy Panthaki — IIFL — Analyst

Amit Purohit — Elara Capital — Analyst

Sumant Kumar — Motilal Oswal — Analyst

Sanjaya Sathpathy — Ampersand Capital — Analyst

Pritesh Chheda — Lucky Investment Managers — Analyst

Onkar Ghugardare — Shree Investments — Analyst

Renish Shravan — N/A — Analyst

Nikunj Gala — Sundaram Asset Management Company — Analyst

Mitul Shah — Reliance Securities — Analyst

Saket Mehrotra — Tusk Investments — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Varun Beverages Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded.

I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you and over to you.

Anoop Poojari — Investor Relations

Thank you. Good afternoon, everyone, and thank you for joining us on Varun Beverages Q1 CY 2023 earnings conference call. We have with us Mr. Ravi Jaipuria, Chairman of the Company; Mr. Varun Jaipuria, Executive Vice-Chairman and Whole-Time Director; and Mr. Raj Gandhi, Group CFO and Whole-Time Director of the Company. We will initiate the call with opening remarks from the management following which we’ll have the forum opened for a question-and-answer session.

Before we begin, I would like to highlight that some statements made in today’s call may be forward-looking in nature and a disclaimer to this effect has been included in the results presentation shared with you earlier.

I would now request Mr. Ravi Jaipuria to make his opening remarks.

Ravi Jaipuria — Chairman

Good afternoon, everyone, and thank you for joining us on our earnings conference call. I hope all of you had an opportunity to go through our results presentation that provides details of our operational and financial performance for the first quarter ended March 31st, 2023. We are pleased to share that the company achieved remarkable operational and financial performance during the quarter despite weather disruptions in some parts of India in the month of March.

Moving onto our expansion plans, we are happy to report the commissioning of our Greenfield production facility at District Bundi, Rajasthan, and brownfield expansion of six facilities. The additional greenfield plant in Jabalpur, MP is expected to be operational very soon. With regard to our international growth plans, construction of our new production facility in DRC Congo has already started. We expect the facility to be operational by the end of the year.

Our energy drink product has achieved a significant share in our overall mix and has firmly established our leadership position in the category. Our focus now turns towards new performance like value-added dairy, sports drink, juice segments to sustain the growth momentum. These products continue to be well-received by consumers providing us with confidence that these products will fuel the Company’s next leg of growth.

It gives me immense pleasure to announce as approved by shareholders in our Annual General Board meeting, the final dividend of rupees one per share, taking the total dividend payout for the year to the level of INR3.5 per share. Furthermore, the Board recommended the split of existing equity shares of the Company from one equity share having face value of 10 each into two equity shares having face value of five rupees each. This is subject to the approval of equity shareholders of the company. We are also committed to safeguarding our environment and promoting sustainability in our operations. One of the ways we are achieving this is by investing in PET recycling and implementing measures to improve energy and water efficiency. Our goal is to have a net positive impact on the environment.

Overall, we are encouraged by our strong start and remain confident about delivering good performance this year. With our robust on-ground execution capabilities, expanding manufacturing cable capacities. And increasing distribution reach. We believe we are well-positioned to achieve sustainable growth in the medium-to-long term.

I would now invite Mr. Gandhi, to provide highlights of the operation, operational and financial performance. Thank you very much.

Raj Pal Gandhi — Group Chief Financial Officer and Whole-Time Director

Thank you, Mr. Chairman. Good afternoon, and warm welcome to everyone joining us today. Before we start with the update on quarterly performance, I am happy to share that over the last five years, the company has demonstrated strong growth across all key performance indicators. Sales volume has grown at a CAGR of 24% in five years, which is a testament of company’s execution capabilities. Net revenue increased significantly at a CAGR over a period of five years. Two, by 26.7% during the same period of last five years, indicating the Company’s success in expanding the customer base, as well as distribution reach in terms of profitability, the Company has achieved remarkable growth with ebitda and PAT growing at a five-year CAGR of 35.1% and 50.8% respectively.

Now let me provide an overview of the financial performance for the first quarter ended March 31st, 2023, net revenue from operations grew by 37.7% year-on-year in Q1 2023 to the level of 38,009, $29.8 million, driven by robust. Volume growth and increase in net realization. Sales volume grew by 24.7% to the level of 224.1 million cases in one now. Calendar year 2020, from a good level of 179.7 million cases, even Q1 of 2022, driven by strong demand across reasons in India. In one calendar year ’23 net realizations per case, improved by 10.4% to rupees one same 3.7, primarily driven by a price increase taken towards the end of, because spending quarter last year in selected SKUs and continued improvement in the mix of smaller 250 ml SKUs. And on an overall consolidated basis, CSD contributed to 71.2%, do say 7.4% in packaged drinking water. 24% of the total sales volume in Q of CY 2023.

During the quarter, gross — gross margins improved by 89 basis points to the level of 52.4% from 51.5% in CY 2023 driven by marginal savings in raw material prices and improved product mix. Ebitda increased by. 3% to the level of INR798 crores and EBITDA margins improved by 172 basis point to 20.5% in Q1 of calendar year 2023 driven by operational efficiencies on the back of strong revenue growth. Depreciation increased by 31% to the level of 1,721 million in QY -in CY 2023 as compared to INR1,313 million and finance cost increased by 33% in QY1 of calendar year ’23 on account of capitalization of PAT and setting up of new production facilities. PAT increased by 61.8% to the level of $4,385 million in calendar — in the quarter one of calendar year ’23 from INR2710 million in QY — Q1 of calendar year ’22, driven by high growth in revenue from operations improvement in margins and transition to lower tax-rate in India.

As shared by the Chairman, we have successfully commissioned multiple greenfield and brownfield beverage manufacturing lines across regions in India, resulting in an increase in our production capabilities for the peak season. Overall, we are delighted to report a strong start to the year. We are currently witnessing a healthy demand environment and remain excited about our prospects as we enter the peak season with expanded capacities and stronger distribution network.

On that note, I come to an end of the opening remarks and would like to now ask the moderator to open the forum for the questions and suggestions that you may have. Thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]. We have our first question from the line of Chirag Shah from CLSA India. Please go ahead.

Chirag Shah — CLSA India — Analyst

Yeah, hi, good evening, and thank you for taking my question. Mr. Jaipuria, you mentioned that sports drink and value-added dairy would fuel the next leg of growth. Can you please elaborate a bit more on this? And in that context, can you also touch upon how we are positioned to protect our market share in the energy drinks, juices, I understand earlier was restricted due to capacity constraints?

Ravi Jaipuria — Chairman

So, both juices as well as value-added dairy, we were constrained with production constraints and we are putting up two plants which are going to add our capacities in both these categories, which is Tropicana as well as value-added dairy, which is going to be in Maharashtra and UP and that is what is going to for next year, increase our capability because right now we are — we don’t have the capacity to supply.

Chirag Shah — CLSA India — Analyst

And sir, when you say value-added dairy are you, are we looking to further expand our product portfolio in dairy or the products that we have would suffice to — for the national rollout?

Ravi Jaipuria — Chairman

Well, it is a national rollout. We have enough products, but at the moment, since we don’t have capacity we have not looked at expanding it. Once we have the capacity then if we feel there is a need, right now I don’t think we have enough products which are enough to take care of it, but if we need to we can always add more flavors and more products in it.

Chirag Shah — CLSA India — Analyst

Right and just your views on the emerging competitive landscape especially with Campa looking to tie-up with bottlers and packaging partners.

Ravi Jaipuria — Chairman

Well, it’s a big market. We have competition, we have lot of the brands before. So there is always going to be competition, and as the market is going to grow there’ll be more people coming in, Campa and Reliance will be a formidable competition, but I think the Indian market is so large and we’re still scratching the surface, so I think there is enough room for everybody.

Chirag Shah — CLSA India — Analyst

Right. And on the energy drink side, is there a change in strategy to protect our market share over there?

Ravi Jaipuria — Chairman

No, I think we are just increasing our distribution and that is what is required right now. So we have still not as I keep. As I’ve said before, that there is so much room and there are so many more outlets which we can open, which we are adding every year. There is huge scope to keep on adding further the volumes and the number of stores.

Chirag Shah — CLSA India — Analyst

Right. And on that same note…

Ravi Jaipuria — Chairman

[Speech Overlap] I mean know anything else except enhancing our distribution.

Chirag Shah — CLSA India — Analyst

Right. Right. Right. Thanks. And on that note, I mean, of course, we have come a long-run infrastructure on ground. Of course, last year itself has seen a huge ramp-up. What are the plans in terms of the rollout of physical and infrastructure going forward and how do we look at enhancing that capacity?

Ravi Jaipuria — Chairman

So that we will keep on enhancing because as the number of outlets keep growing our busi deployment will also have to keep on-going in parallel to that, and as we want to open more stores, so we will have to keep on adding more busy coolers every year.

Chirag Shah — CLSA India — Analyst

Right. And, Mr Gandhi, can you just give us a sense of the raw-material prices versus the last year and what is the situation of PET inventory and the price that we have locked in for the same?

Raj Pal Gandhi — Group Chief Financial Officer and Whole-Time Director

No, so we normally lock in enough for six months for a season, which we did this — this year also and that’s why our inventory levels go very high during this time, and then they start coming down by end of June, and which we try and maintain because the lowest pricing in Pet is in the off-season.

Ravi Jaipuria — Chairman

And also as the stated gross margin has slightly improved basically because of the commodity prices were under control. Correct. Last question, sir, what is the net debt at the end of the quarter? And any clarity on the capex spend for the year?

Raj Pal Gandhi — Group Chief Financial Officer and Whole-Time Director

Well, capex spend for the year, the guidance stays the same, which was around INR1,500 crore, and out of which a major portion is already spent and which resulted in debt to the level of around INR4,000 crores and going forward in the season, it comes down, June quarter is the lowest and the pre-season, it’s used.

Chirag Shah — CLSA India — Analyst

Right. Thank you very much and all the very best.

Ravi Jaipuria — Chairman

Thank you, Gerard.

Operator

Thank you. We have our next question from the line of Vivek M from Jefferies. Please go ahead.

Vivek M — Jefferies — Analyst

Hi, good evening. First on the Sting, can I get the Sting volume numbers for this quarter?

Ravi Jaipuria — Chairman

Vivek, Sting is doing extremely well and we are in double-digits, but exact numbers we would not like to disclose to be.

Varun Jaipuria — Executive Vice President & Wholetime Director

Vivek here, as management we are keeping in mind the competitive scenario and the sensitivities around, we have decided not to share granular level numbers anymore, but directionally, and overall number and the position capacity etc, anything and everything will always be sharing.

Vivek M — Jefferies — Analyst

Right. So momentum continues to be as strong in Sting.

Ravi Jaipuria — Chairman

Yes, momentum is still very strong.

Vivek M — Jefferies — Analyst

Okay. Mr Jaipuria, you mentioned about the next leg a leg of growth something what Chiraj was also asking about regarding dairy, sports drink, and juices. Is it only because of capacity or is it also because you think that Sting has reached a level where you think that you need the next driver because Sting will start to taper off — the growth will start to taper off as we head into this year because the base certainly moved up quite a bit in the past eight quarters.

Ravi Jaipuria — Chairman

I don’t think Sting should taper off, there is no reason for it because we have still a lot of outlets which we still have to reach but we are not the value-added dairy and juices and our sports drink, we didn’t have capacity so that is what is being ramped up. For ’24, that is what is going to play an additional role for us.

Vivek M — Jefferies — Analyst

Okay, okay, and I — my understanding is that dairy from a return perspective is, is a low-return low turns business, is that understanding correct that you just going to be returned dilutive or how do you think about the economics of dairy business?

Ravi Jaipuria — Chairman

No, we are not in the basic dairy business, we are not selling milk, we are selling value-added dairy. So our margins are as good as our soft drink in our diary business, good dilutive at online.

Vivek M — Jefferies — Analyst

Even for value-added business, you think the returns are as good as it is for the base business.

Ravi Jaipuria — Chairman

Yeah, absolutely and it’s an additional and high-value products. We are not selling out — the selling price of dairy is much higher than our soft drink?

Raj Pal Gandhi — Group Chief Financial Officer and Whole-Time Director

That’s one revenue realization is higher. Secondly, that takes and structuring, as against 40% GST on CST in case of diary it’s 12% and any incremental cost in case of dairy gets compensated based upon the tax structure.

Vivek M — Jefferies — Analyst

Got it, got it. The other thing is, if I look at your the trend in console let’s say gross margins versus standalone versus for the subsidiaries for ebitda margins. So what is the reason, Mr. Gandhi, there is a decline in ebitda margin at a subsidiary level and what is your outlook on subsidiaries?

Raj Pal Gandhi — Group Chief Financial Officer and Whole-Time Director

The subsidiaries are doing well. It’s just that we had some weather issues in one of our territory.

Ravi Jaipuria — Chairman

Vivek, this is currency last quarter depreciation was abnormal, which has affected the results. However, during the current quarter, the currency has started strengthening or at least will remain equal, and instead of spreading that loss to more than one quarter, we have booked a total loss, and, therefore, completely, it’s looking like this, otherwise, the basic model stays intact like earlier periods.

Vivek M — Jefferies — Analyst

Okay and just a follow-up. Mr, Gandhi, on this, the International margins have moved up quite a bit in the last three years. It used to be significantly below India business, what is your expectation on where this margin should settle on the international side?

Raj Pal Gandhi — Group Chief Financial Officer and Whole-Time Director

Let me give you a fundamental shift which has happened from this quarter, earlier in every quarter, we used to discuss about the currency volatility in Africa and we used to justify how Zimbabwe Reserve Bank has put it as by giving the currency for repayment of debt after the debt is repaid and our transactions about 90% of business in Zimbabwe have moved it to dollar in dollar terms, so which in other words, is by 50% of business today in Africa is dollar-based. So instead of currency risk on the negative side going forward is going to be definitely positive. You may notice in the comprehensive income this quarter also it’s in spite of minority interest, comprehensive income to total comprehensive income is higher than the PAT. So these are some structural changes, which we have incorporated, and fundamentally these things are continuing to be strong.

Vivek M — Jefferies — Analyst

Got it. And my last question you growing so strongly for the last several quarters, and I just saw Cook’s comment in the media, where they have said that they have gained market share in India, how is that possible if your growth is so strong and it doesn’t look like industry is growing faster than that.

Ravi Jaipuria — Chairman

You’re all smart people and this will leave it to you to make your own assessment, nothing beyond.

Vivek M — Jefferies — Analyst

Okay, all right. Thanks and wish you all the best. Thanks, Vivek.

Operator

Thank you. We have our next question from the line of Nihal Jham from Nuvama. Please go ahead.

Nihal Jham — Nuvama — Analyst

Yes, thank you so much, and congratulations on the strong performance. My first question was to Mr. Jaipuria. Historically you have mentioned about staying idly being 50% of the market and while we not getting into the exact contribution at least currently, it is more or less there in terms of our portfolio. So would it be fair to say that Sting currently has reached a so-called optimum percentage of the portfolio, are you still see it becoming a much higher proportion going forward?

Ravi Jaipuria — Chairman

Never said Sting is 15% of the portfolio. I’ve said energy drink is becoming a 15% of the portfolio, which is the industry level. So there is still plenty of room for us to grow.

Raj Pal Gandhi — Group Chief Financial Officer and Whole-Time Director

Yeah, this is a comparison between other economies where energy think is launched, India, it’s a new item. And if we have to make an assessment about the industry size, so that’s the benchmarking and it will keep on growing and but also we wanted more horses to ride upon. So, we are increasing simultaneously capacity in the Tropicana, in value-added dairy, in sports drink, etc. So that the momentum continues in many more quarters.

Nihal Jham — Nuvama — Analyst

Understood. Just on that, I will ask quickly it was very highlighted about the new initiatives and I think the big questions earlier that the only aspect about dairy is that given it’s a cooperative-driven business and while I know we are more in the beverage on the value-added side, pricing and margins in that segment or control. Would it be fair for us to believe that maybe the sports and juice would be more priority for us to scale up rather than dairy at this point in time?

Ravi Jaipuria — Chairman

Well, not necessarily because our dairy business is very profitable for us. So it is both, I think the juice, dairy and the advantage we have is the same machines do both the products, so whichever demand comes, we can switch from one to the other overnight.

Nihal Jham — Nuvama — Analyst

So will the gross and the ebitda margins for the dairy be similar to the current portfolio average?

Ravi Jaipuria — Chairman

It is as good or better.

Nihal Jham — Nuvama — Analyst

As good. Just one last bookkeeping question, or for the realization increase that we’ve seen, we — I think the cost price has increased 2% to 3% in the corresponding quarter of last year, and maybe there is a reduction in discounts and plus there has been a product mix, if it’s possible to just give a ballpark bifurcation for that.

Ravi Jaipuria — Chairman

Basically, there has been the main reason has been a very slight increase in price, but mainly because of product mix and our water level has slightly come down, water mix has slightly come down. That helps. Thank you so much. I’ll come back in the queue for further questions.

Operator

Thank you. We have our next question from the line of Jay Doshi from Kotak. Please go ahead.

Jaykumar Doshi — Kotak — Analyst

Hi, congratulations on a good quarter, and thanks for the opportunity. Could you give us some idea in terms of what’s the potential of sports drink in India, the way you had articulated earlier that energy drinks can be potentially 15% of the market when you compare India versus other economies, where does sports drink in Europe? How big can it be?

Ravi Jaipuria — Chairman

We are not sure, to be honest, but sports drink as more-and-more people are becoming health conscious, I think it is a category and we have one of the strongest brands in the world, which is Gatorade, so this — we expect that to be a good momentum once we start focusing on it and we have the capacity to supplying — to supply it.

Jaykumar Doshi — Kotak — Analyst

Any color you can give us in terms of in other market, is it comparable to energy drink, half the size of energy drink or I know it’s too early to put a guess on India but.

Ravi Jaipuria — Chairman

India is still not ready for it, but I think we need to really put it in the market properly, but we’re getting huge demand wherever we are putting it and the growth is it is really exponential, but I think because of our capacity we have not been able to put it. So, hopefully, by this year, we’ll have enough capacity and we will really be able to test it next year.

Jaykumar Doshi — Kotak — Analyst

Understood. And what would be your reach for Gatorade in India today as a percentage of overall reach?

Ravi Jaipuria — Chairman

Reach is there, but it’s very exclusive. So we are only going to the top outlets, which is really not getting us anywhere actually.

Jaykumar Doshi — Kotak — Analyst

Understood. My second question is, how is if you can give some color, how does the summer shaping up this year because we hear from time to time, we hear about some disruptions in the Northern part of India, so just.

Ravi Jaipuria — Chairman

Well, weather always plays a certain percentage of our but it’s like sometimes summer is extended sometime it’s a little earlier. So these things keep on happening, so it can only make a difference of a couple of percentage up and down. So you can never really say what would happen.

Jaykumar Doshi — Kotak — Analyst

Understood. So nothing.

Ravi Jaipuria — Chairman

Everybody.

Jaykumar Doshi — Kotak — Analyst

Got it. Final question is, Mr. Gandhi what should we model in terms of year-end net-debt at the end of this year?

Raj Pal Gandhi — Group Chief Financial Officer and Whole-Time Director

Well we have yet to finalize the plan fully for the next year. On the two plants, we have already stated, one in Maharashtra and other in UP, which are already inaugurated and maybe third one, we will be putting up in Bihar, Orissa sorry, Orissa and in DRC that is yet to be completed. So let’s be ready with the final number. So as stated earlier, the level as of now with more or less completion of these two plants which were planned for this year. With that, is around 4,000 debt level and we can give you a number, maybe after a month or so.

Jaykumar Doshi — Kotak — Analyst

Sure, thank you so much. That’s it from my side.

Ravi Jaipuria — Chairman

Thank you, Jay.

Operator

Thank you. We have our next question from the line of Devanshu Bansal from Emkay Global. Please go ahead.

Devanshu Bansal — Emkay Global — Analyst

Sir, hi, congratulations on a great performance, and thanks for the opportunity. Sir, we have started the year with about 28% volume growth in India. So does this contain any one-off or a favorable base last year or we can expect such trends to continue in coming quarters?

Ravi Jaipuria — Chairman

I don’t know, we’ve always said double-digit growth number is always look decent, but we cannot comment on exact. We had a good year last year also and this year has started well. I hope we can and will also.

Jaykumar Doshi — Kotak — Analyst

Obviously, your last year base was like normal. There was no one-offs etc because of economic factors.

Ravi Jaipuria — Chairman

No-no, it was a normal year.

Devanshu Bansal — Emkay Global — Analyst

Thank you. Typically, sir, what is the revenue salience of this quarter because there has been a change in geography mix also, let’s say, pre-COVID? So typically, Q1 is what percentage of our sales.

Ravi Jaipuria — Chairman

For the year revenue growth. Okay, the first quarter around 24% is of here and there. However, this is always the starting, what we do is one quarter, so 25% and we then keep on building as and when you under the quarters start getting away, but broadly if you see the longer period, it works out to 24 and 61 for the H1 and the balance for H2.

Devanshu Bansal — Emkay Global — Analyst

Got it, sir. Sir, in terms of marketing, PepsiCo, this time around is basically the rest of the season, which has been celebrity endorsements, do we also foresee any margin impact due to this in our P&L.

Ravi Jaipuria — Chairman

No, this is being explained by PepsiCo as not dilutive to our margins.

Devanshu Bansal — Emkay Global — Analyst

Got it, sir. And last question from my end. Typically we have indicated like we will be adding about 70,000, 80,000 coolers. Is it fair to assume that majority would have been added before the season itself?

Ravi Jaipuria — Chairman

Mostly, yes.

Devanshu Bansal — Emkay Global — Analyst

Got it, sir. Thank you.

Ravi Jaipuria — Chairman

Thank you.

Operator

Thank you. We have our next question from the line of Percy Panthaki from IIFL. Please go ahead.

Percy Panthaki — IIFL — Analyst

Hi, sir, just wanted to check the progress on the distribution, the number of retail touch points that we are catering to, currently how much have they gone up to on an all-India basis, and how much is the universe, just for me to understand what is the upside.

Ravi Jaipuria — Chairman

We have already given the last year’s number, actually, this is better not on a very regular basis, periodically we get it from PepsiCo, PepsiCo gets it from their agency. So we have not yet updated, but the guesswork is it might have gone around 10% because we have put about 75,000 80,000 PCs but that’s only guesswork.

Percy Panthaki — IIFL — Analyst

And that is how much, sir in rupee — in number of million of outlets.

Ravi Jaipuria — Chairman

So we had about three million outlets, so you can look at 300,000 to 400,000 more outlets.

Percy Panthaki — IIFL — Analyst

Understood, understood, sir. And out of these, how many would you be directly going to?

Ravi Jaipuria — Chairman

So, we don’t go directly to any outlets. It’s basically our distributors who go and the distributors go to 100% of about outlets directly where we serve.

Percy Panthaki — IIFL — Analyst

Right, sir. So as we understand it in FMCG parlance, it would be called 100% distribution.

Ravi Jaipuria — Chairman

Correct.

Percy Panthaki — IIFL — Analyst

Okay, understood. Secondly, on Gatorade, I mean, do you think it can be a big opportunity given the pricing, I mean, it’s a little bit more niche premium kind of product. So correct me if that understanding is wrong. So given that constraint or do you think that you would be willing to break that constraint and price it sort of more to parity versus portfolio in India?

Ravi Jaipuria — Chairman

We have brought in very close to parity. So we are going to like we brought our energy drink, and we are looking to expand the market in quite a substantial way next year.

Raj Pal Gandhi — Group Chief Financial Officer and Whole-Time Director

See, Percy, earlier Gatorade was available only in the packing of 500 ml at INR50. Now we also have a pack of 200 ml at INR20. If you compare with PepsiCo or other products, It’s very compatible with that.

Percy Panthaki — IIFL — Analyst

Understood, understood. And on dairy, value-added dairy, here what is the game plan. I mean, what do you need to do differently versus your other part of the portfolio, or you think that it can just sort of be one more product and you don’t need to think too differently here?

Ravi Jaipuria — Chairman

So we don’t need to think too differently. The main advantage we have is our distribution and our chilling equipment. All we need to do is make sure that our partners carry it and we place it in our coolers and the product is excellent and wherever we have been able to do that or supply it has done extremely well for us.

Percy Panthaki — IIFL — Analyst

And what is the current market size of this product, industry size?

Ravi Jaipuria — Chairman

The market size is very large. We are very small because we only have one plant, which can produce it. So it’s only being mainly serviced in the North because of our distance in one plant being available only in Pathankote.

Percy Panthaki — IIFL — Analyst

Right. Right, sir. That’s all from me. Thanks and all the best.

Ravi Jaipuria — Chairman

Thank you.

Operator

Thank you. We have our next question is from the line of Amit Purohit from Elara Capital. Please go ahead.

Amit Purohit — Elara Capital — Analyst

Yeah, thank you for the opportunity, sir, congratulations. Sir, just on the distribution side you earlier used to provide some guidance, I mean in terms of our outline the — staying with the rest of the CST has that gap further increased. I remember last for some four lakh more outlets for Sting versus. Has that increased?

Ravi Jaipuria — Chairman

We can’t give you exact numbers but Sting is doing extremely well for us. On distribution, the exclusive 400,000 distributors which were there as secured earlier we get this data on distribution from the agency, once a while, so the earlier data only we can only do a guesswork, and exact data for the latest period is not available. However, the idea like we have given in the past this exclusivity wherever we got reached to a bigger base, we always then try to cross-sell our other products also. And so the ones having come in the fold exclusivity will go away with them carrying our other products also.

Amit Purohit — Elara Capital — Analyst

Sure. And sir, just on Gatorade, would the touch points would be, I mean similar kind of thing because this would be more available in, I mean gyms or currently how it is getting distributed largely when you say class outlets? Is it like a gym or?

Ravi Jaipuria — Chairman

And so we will expand our distribution. Of course, it won’t be exactly like our soft drinks, it will be much less, than our numbers than our soft drinks, but still it is there is enough scope and there is it’s large enough because we brought it to the right price points.

Amit Purohit — Elara Capital — Analyst

Yeah. And sir on the region-wise growth would you be able to, I mean give, at least give qualitatively whether Southwest has done better than North-East or it’s broadly similar?

Ravi Jaipuria — Chairman

So are we are doing well, cloud and across the country, give or take, one small state or better or worse? So we would not like to, but generally, our growth is quite good all across the country.

Amit Purohit — Elara Capital — Analyst

Okay, and lastly, sir, you highlighted a facility in Maharashtra that would be also for dairy as well or then like.

Ravi Jaipuria — Chairman

It will be for dairy and Tropicana.

Amit Purohit — Elara Capital — Analyst

Okay, so and including the CSD and Sting.

Ravi Jaipuria — Chairman

Yes, absolutely.

Amit Purohit — Elara Capital — Analyst

Okay, thanks. Thank you. That’s it.

Ravi Jaipuria — Chairman

Thank you.

Operator

Thank you. We have our next question from the line of Sumant Kumar from Motilal Oswal.. Please go ahead.

Sumant Kumar — Motilal Oswal — Analyst

What is the growth net debt as on date?

Raj Pal Gandhi — Group Chief Financial Officer and Whole-Time Director

It is around 4,000 crore as on 31st March.

Sumant Kumar — Motilal Oswal — Analyst

Okay. Gross debt?

Raj Pal Gandhi — Group Chief Financial Officer and Whole-Time Director

It’s net debt.

Sumant Kumar — Motilal Oswal — Analyst

Okay, and the increasing interest in this quarter is a combination of increase in debt and interest rate.

Raj Pal Gandhi — Group Chief Financial Officer and Whole-Time Director

That’s right. And because in the first quarter these plants have not come to put to use and it increases the borrowing but in the next quarter when borrowings will start coming down. So it just really start coming down, but yes, in the last quarter, the test cost is higher because of these two plants are under implementation and the company had to borrow.

Sumant Kumar — Motilal Oswal — Analyst

Okay. Okay. And can you talk the regular growth momentum compared to urban for [Indecipherable]?

Ravi Jaipuria — Chairman

See, rural has started bouncing back. So our growth in urban and rural is now just about the same now even though rural is slightly going ahead of that now.

Raj Pal Gandhi — Group Chief Financial Officer and Whole-Time Director

Currently, rural is ahead of urban growth.

Ravi Jaipuria — Chairman

Yes.

Sumant Kumar — Motilal Oswal — Analyst

Thank you, sir.

Operator

Thank you. We have our next question from the line of Sanjaya Sathpathy from Ampersand Capital. Please go ahead.

Sanjaya Sathpathy — Ampersand Capital — Analyst

Yeah, hi sir, thanks a lot for the personal injury and fantastic results yet again. Sir, one thing, if you can just tell us that how the weather vagaries affecting your sales performance nowadays that is considering that summer has not been have not really structurally the way it is to be in the past and you have also mentioned in the press release that March was not good in terms of weather. So will that kind of affect your growth plan this year?

Ravi Jaipuria — Chairman

No, it doesn’t affect, but there is always some months which are slightly weather is negative, there are some months where the weather it’s slightly positive. So they are also talking of extended summer but you can’t, but this makes a difference of a couple of percentage up and down. This is not really unless until something really terrible happens or something really positive happens otherwise the percentage every month is a little different than last year that month.

Sanjaya Sathpathy — Ampersand Capital — Analyst

Okay. So the reason why I was asking is that has become a bit of a more lifestyle or something that it is no longer as dependent on weather as it used to be earlier because nowadays talking attritional [Indecipherable].

Ravi Jaipuria — Chairman

What you’re saying, I agree with what you’re saying is changing, but it is changing mainly and more in the urban areas where, if a new start going to rural, it is still climate, partly climate dependent.

Sanjaya Sathpathy — Ampersand Capital — Analyst

Understood. And sir, you mentioned that your next key growth driver will be sports and fruit juices as well as dairy get, which is Gatorade, etc and you are putting up capacity for Tropicana and dairy, but do you have to put some facility for sports drinks or you are fully equipped.

Ravi Jaipuria — Chairman

No, the same plants can make sports drink also.

Sanjaya Sathpathy — Ampersand Capital — Analyst

But the bottling are different, it doesn’t matter.

Ravi Jaipuria — Chairman

No, we can make the sports drink in our bottling plants also.

Sanjaya Sathpathy — Ampersand Capital — Analyst

Understood. Understood. And last thing that I wanted to ask you that, that you were saying that we will be a lot more aggressive on sports, is it, I mean, of course, you mentioned that you changed some pricing but has it got something to do with the fact that the plain, very low beverages are now seeing new entrant and the best way to release, keep doing better, is to have this difference if you probably.

Ravi Jaipuria — Chairman

I don’t think that is, I mean our basic product range will keep growing but we have to keep on adding something to show you guys good growth. So, we unless until we keep on adding some new things how will we grow faster than in the market?

Sanjaya Sathpathy — Ampersand Capital — Analyst

All right, thanks a lot, sir, if you can just highlight that this INR1,500 crore capex that you were talking about, is it cash outgo or it is the because of the cash-out?

Ravi Jaipuria — Chairman

Cash-out go.

Sanjaya Sathpathy — Ampersand Capital — Analyst

Okay. Thanks, sir.

Operator

Thank you. We have our next question from the line of Pritesh Chheda from Lucky Investment Managers. Please go ahead.

Pritesh Chheda — Lucky Investment Managers — Analyst

Yeah. Hello, sir. This is Pritesh. I have a few queries. One, did we mention that the capex is INR1,500 crores and if it is so, then have we changed our policy where the capex is more than depreciation now here onwards. That’s first question. My second question is for the movement in ebitda per piece, which we have seen in the last four-five quarters from let’s say 32 to about 35, 36 today. Lot of it seems to have come from operating, is. So are we at the situation where the assets are fully utilized and this is the upper-end of ebitda per se? And my third question is, if not so, then just wanted to know.

Ravi Jaipuria — Chairman

Pritesh, we can’t hear you properly. There’s too much noise from the background, please.

Pritesh Chheda — Lucky Investment Managers — Analyst

Okay. You heard the first two questions.

Ravi Jaipuria — Chairman

Yeah.

Pritesh Chheda — Lucky Investment Managers — Analyst

You may answer that. Then I will ask the other ones.

Ravi Jaipuria — Chairman

Sure. Sure, Pritesh. Thanks for asking. The first is on the depreciation policies this May are the same but the policy has to be read in totality, that is for getting growth of low-double-digit, 10% to 12%, 12% growth depreciation policy still stays the same. That’s very sector sent but say instead of 12%, if we have growth expectation organically 24% depreciation has to be the capex has to be equal to two years depreciation, this is what actually is happening because we are growing that at that pace as of now. So this the situation policies still stays the same. This is on depreciation.

And your second question was on the ebitda per case. See, the percentage stays the same and the economies of scale start playing, and my realization then goes up due to mix change and the high revenue or bigger or smaller packs where realization is higher. So naturally they contribute higher profit margins. Here, I would like to say that 1% mix of water when changes. We always had been telling water realization is about one-third of fee CSD. So if volume is going, even 1% increase there increases three times revenue extra. So when we divide this by number of cases it’s bound to give you a per case realization, much higher, and if the same percentage is applied or a better percentage is applied to revenue, the profit also, therefore, goes up.

So this is a brief answer to your both questions, Pritesh.

Pritesh Chheda — Lucky Investment Managers — Analyst

Just a follow-up here. Incrementally this will be valid even when the mix now in the period. moving for juices, sports drink, and dairy.

Ravi Jaipuria — Chairman

See, Pritesh, the realization in those two cases, this will continue much faster because the realization is higher than CSD also. If you take whether Gatorade or juices, juices if we sell at INR30 per serving as against INR15 or INR20 in case of CSD and the tax structure is like 12%, so definitely yes to your question.

Pritesh Chheda — Lucky Investment Managers — Analyst

Thank you very much and all the best to you, sir. Thank yo very much.

Ravi Jaipuria — Chairman

Thank you. Thank you.

Operator

Thank you. We have our next question from the line of Onkar Ghugardare with Shree Investments. Please go ahead.

Onkar Ghugardare — Shree Investments — Analyst

Yeah, my question was regarding the targets, which we have set since you are growing this much from last three-four years consistently. Just wanted to know your targets in terms of ROE and ROCE for the next couple of years. That’s the first question.

Ravi Jaipuria — Chairman

Our ROC, so far had been growing anything between 200 to 250 basis point and now we have reached a level around touching 30% ROCE. So our guidance is 100, 225 basis points, still we have a scope to improve for another couple of years.

Onkar Ghugardare — Shree Investments — Analyst

So 100, 225 basis points every year you are saying, right?

Ravi Jaipuria — Chairman

Every year for a few more years, and then we’ll keep on reviewing this target going forward.

Onkar Ghugardare — Shree Investments — Analyst

Okay, so you are expecting around say. 34%, 35% kind of ROCE next three-four years, right?

Ravi Jaipuria — Chairman

It is possible, why are saying this is out of our six territories two-three are already doing even higher than that 35%. So, therefore, we feel it’s achievable, but how much we are able to achieve, how much on the ground that it turns into reality we will keep, we will watch at the appropriate time.

Onkar Ghugardare — Shree Investments — Analyst

Okay. So in terms of distribution rate, you have said that you have 2,400 distributors. Is there any target for say next couple of years, just like the ROC?

Ravi Jaipuria — Chairman

See with the more visits more spreading and going deeper into the market and urbanization this will keep on growing with the economy.

Onkar Ghugardare — Shree Investments — Analyst

Yeah, but internally, you must have set some target, right, that we want to reach at this particular point. No, it is very simple, as we are increasing — looking at increasing 10% to 12% of the outlet base. So we have to keep on increasing our distribution parallelly. So around 10% 12% percent growth you are expecting on the distribution front as well, right, every year.

Ravi Jaipuria — Chairman

Mostly, yes.

Onkar Ghugardare — Shree Investments — Analyst

Okay and if I ask — if I can ask one question, you have said that dairy, sports, and other juices segment. I mean all these products commands same margins as the base category.

Ravi Jaipuria — Chairman

That’s right, if not better.

Onkar Ghugardare — Shree Investments — Analyst

Okay. And what are your plans in terms of debt for say the next couple of years as we will be expanding more and more, and you have been expanding?

Ravi Jaipuria — Chairman

No, sir, it depends what the growth side, it’s all relevant to the growth, if you have growths have been like last year we grew more than 40%, so this type of growth you have to expand if our growth has come down to what we have been seeing in the double-digits which is 10%, 12% then we don’t need debt. And it will depend on where we are and how the growths are happening.

Raj Pal Gandhi — Group Chief Financial Officer and Whole-Time Director

See our debt-to-ebitda is one or a small fraction of more than one, 1.1 or so. So basically if in any year if we are not expanding, I mean, it’s equal to one year’s ebitda.

Onkar Ghugardare — Shree Investments — Analyst

Okay, alright. Another question is I wanted to know is the size of the opportunity in all the business you are doing. And another thing is that, what kind of more products you can launch in these segments, all the segments, you are catering to.

Varun Jaipuria — Executive Vice President & Wholetime Director

I think we have enough products in what have named and there is enough room to grow in these products for the time being, as we keep on growing and expanding one we start getting saturated we will look at more products.

Onkar Ghugardare — Shree Investments — Analyst

And any more products from Pepsi’s front?

Ravi Jaipuria — Chairman

Yeah, it will be mostly from Pepsi front, only the dairy is our own product.

Onkar Ghugardare — Shree Investments — Analyst

Okay, so like for example, just to take into, just to take the example of say the main business of Pepsi. How many products are there and how many products are currently available?

Ravi Jaipuria — Chairman

No, their portfolios in hundreds of products.

Onkar Ghugardare — Shree Investments — Analyst

Correct. All the products are not available here, right. So that’s what I’m asking how like?

Ravi Jaipuria — Chairman

What sorts this market, we can keep picking from their portfolio. There is nothing which stops us.

Onkar Ghugardare — Shree Investments — Analyst

Okay, okay, all right, all right, thank you very much.

Ravi Jaipuria — Chairman

Thank you.

Operator

Thank you. We have a next question from the line of Renish Shravan, an Individual Investor. Please go ahead.

Renish Shravan — N/A — Analyst

Hello, sir, congratulations on a great quarter. So how are you going to compete with the competition in the category of energy drinks compare now seeing that Thumps Up has come up their Charge drink which also cost the same pricing?

Ravi Jaipuria — Chairman

They were always there. So it’s not that they have come up with something new this year they have been there from after we launched String, they have, they launched their product, maybe a year or two years later, so they have been in the market. So they have their share and we will have our share.

Renish Shravan — N/A — Analyst

So on our landed being gaining that customer-base of them has been gaining rapidly.

Ravi Jaipuria — Chairman

Well, I’m sure they’re also gaining and we are gaining both are energy drink is a big market. So there is scope for both of us to gain.

Renish Shravan — N/A — Analyst

Okay, sir. And could you please share some light on how the snacks sector performance in Morocco is going on, considering you started the distribution this year?

Ravi Jaipuria — Chairman

Well, it’s too early because we just started in February, so end of January, early February. And then Ramzan had come and March and then April so I think it’s doing extremely well, but it’s still too early.

Renish Shravan — N/A — Analyst

Okay, sir. Thank you so much.

Ravi Jaipuria — Chairman

Thank you.

Operator

Thank you. We have our next question from the line of Nikunj Gala from Sundaram AMC. Please go ahead.

Nikunj Gala — Sundaram Asset Management Company — Analyst

Yeah, good evening, everyone. My question is on the dairy products. Sir, what was the volume contribution in calendar year ’22 for us from the dairy products?

Ravi Jaipuria — Chairman

It’s still so small that it hasn’t because one plant is what is servicing the whole country practically. So, I think it’s still very small, maybe many million cases maybe. It’s very small. I think we need to wait for next year.

Nikunj Gala — Sundaram Asset Management Company — Analyst

Okay. And in case of aggression here in terms of expansion, how the procurement, like we have tied-up with anyone or like farmers or like how are we looking here, in case of.

Ravi Jaipuria — Chairman

Availability of milk is not a problem because we are not fighting for pennies here. Our product is not selling plain milk, we are fighting for pennies, ours is a value-added product, so even if we get milk one rupee more expensive or cheaper, it really doesn’t impact our overall portfolio. We have no shortage of getting the product.

Nikunj Gala — Sundaram Asset Management Company — Analyst

Okay, Sure. Thank you.

Ravi Jaipuria — Chairman

Thank you.

Operator

Thank you. We have our next question from the line of Mitul Shah from Reliance Securities. Please go ahead.

Mitul Shah — Reliance Securities — Analyst

Thank you for the opportunity, sir. I have question on this media reports on sugar availability being a sugar production this time very low-end prices are also lower. So any direct indirect impact in terms of procurement, as well as on the gross margin side.

Ravi Jaipuria — Chairman

Because of sugar?

Mitul Shah — Reliance Securities — Analyst

Sugar, oil, and sugar production is lower.

Ravi Jaipuria — Chairman

So there is enough sugar in this country. So maybe they will export less this year. Otherwise, the sugar production is still much higher than the consumption in the country. So there is no problem or a shortage. So maybe as a commodity, it can go up by a couple of percent or come down so that much effect it will have.

Mitul Shah — Reliance Securities — Analyst

And so similarly second question is on the pet bottles, price trend during the last quarter, and what is into April and May trend.

Ravi Jaipuria — Chairman

It’s pretty similar if not much different. I mean, very little difference. In fact in both the commodities be it sugar, be it pet, in the last two-three quarters the basis have remained broadly the same. There is not any. No, not any major difference. I mean, minor tweaking it keeps happening.

Mitul Shah — Reliance Securities — Analyst

Sir, lastly on any update on this recycling, which we’re planning and frozen?

Ravi Jaipuria — Chairman

So we are in the process. We are finalizing land, and, hopefully, we are targeting that we should be in production by ’25.

Mitul Shah — Reliance Securities — Analyst

But need permission and approval which we were seeking is, whether we already received it or still it is under process.

Ravi Jaipuria — Chairman

Well, it’s still a national policy, which has to be framed. So right now they not allowing food grade. BT to be produced but it can be exported or you can use still recycle it but not use it for food grade.

Mitul Shah — Reliance Securities — Analyst

Yes, okay, thanks sir, and all the best.

Ravi Jaipuria — Chairman

Thank you.

Operator

Thank you. We have our next question from the line of Saket Mehrotra from Tusk Investments. Please go ahead.

Saket Mehrotra — Tusk Investments — Analyst

Hi. Sir, any, any color on the snack portfolio that we’ve got for the India portfolio? You mentioned about Morocco but the popcorn contract manufacturing, any developments or updates you expect for this year?

Ravi Jaipuria — Chairman

No, we are doing co-packing for Pepsi and we are practically getting complete utilization of our plant, but nothing beyond that. I mean, marketing and selling is PepsiCo’s call. We are just producing for them.

Saket Mehrotra — Tusk Investments — Analyst

Okay and the other question I had, you mentioned about Gatorade scale-up. So just wanted to get a understanding as to what in terms of our strategy is here with this product because it’s been around in our portfolio for quite some time.

Ravi Jaipuria — Chairman

So it was a niche product in our portfolio and it was for only for certain exclusive clubs and all. Now, we want to mark market it and make it available into much more number of outlets, which we plan to do from early next year.

Saket Mehrotra — Tusk Investments — Analyst

Okay, thank you.

Ravi Jaipuria — Chairman

Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments. Over to you, sir.

Ravi Jaipuria — Chairman

Thank you. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarifications or would like to know more about the company, please feel free to contact our Investor Relations team. Thank you once again for your interest and support and for taking the time out to join us on this call. Look forward to interacting with you all soon. Thank you very much.

Operator

[Operator Closing Remarks].