Varun Beverages Ltd, PepsiCo’s largest bottling partner in India, in its Q4 earnings call highlighting strong double-digit volume growth in energy drinks (Sting) and hydration products (Nimbus), with near 100% growth, while new launches like Sting Gold and lower-priced Gatorade await market feedback. India margins improved to 25% (above 21% guidance) due to backward integration and larger plants, whereas South Africa margins rose from 10% to 14% after discontinuing unprofitable lines. VBL is expanding its reach to 4 million of India’s 12 million FMCG outlets, supported by increased chilling equipment and go-to-market investments, particularly in South Africa. Internationally, operations in the Democratic Republic of Congo are nascent, and Zimbabwe is recovering from sugar tax impacts. New plants in Bihar and Meghalaya are set for commissioning in May 2025, reinforcing VBL’s market leadership despite growing competition, which management views as expanding the overall beverage market.
Varun Beverages delivered a stellar Q4 FY25 with a 33.4% year-over-year net profit surge and a 29.2% revenue increase, fueled by a 30.1% volume growth to 312 million cases, including 15.5% organic growth in India and 13% in South Africa. EBITDA rose 27.8%, with India margins improving by 111 basis points due to operational efficiencies. In the quarter, VBL expanded its global footprint by securing distribution rights in Namibia, Botswana, Mozambique, and Madagascar, initiating greenfield operations in the Democratic Republic of Congo, and commissioning a new Prayagraj facility. The company raised INR7,500 crore via a QIP to achieve net debt-free status.
Continue Reading: Unearth the Vital Insights from Varun Beverages Ltd’s Earnings Call!
Financial/Operational Metrics:
- Revenue: INR5,567 crores, up 29% YoY.
- Net Income: INR731 crores, up 33% YoY.
- EPS: INR2.15, up 30% YoY.
- Operating Profit: INR1,263 crore, up 28%.
Outlook:
- Greenfield Facility Launches: Upcoming sites in Bihar and Meghalaya on schedule for next year.
Analyst Crossfire:
- Summer Demand & Margin Outlook, India vs International Margin Shift (IIFL Analyst, Darshit Vora – Asit C Mehta): Double-digit growth remains intact regardless of monthly fluctuations. Despite current 25% margins in India, VBL conservatively guides for 21% long-term. India margins have improved due to backward integration and larger plants, while temporary headwinds like Ramadan and sugar tax affected Morocco and Zimbabwe. South Africa still ramping up, with low-margin products being phased out (Ravi Jaipuria – Chairman).
- South Africa Progress vs Base Case, and Brand Mix (Jay Doshi – Kotak, Vismaya Agarwal – Citi): Non-profitable SKUs phased out, growth from profitable packs higher than reported 13%. Aim to stabilize and maintain ~14% margin, up from 10% at acquisition. PepsiCo product share increased to ~20% (from 15%). Homegrown brands still dominate but PepsiCo portfolio growing faster (Ravi Jaipuria – Chairman).
- PepsiCo Health & Wellness Strategy, DRC Ramp-Up (Nitin Shakdher – Green Capital, Mrunmayee Jogalekar – Asit C Mehta): Energy (Sting) and hydration (Nimbooz) categories are growing ~100%. India remains mid-cal oriented; zero-sugar is still niche. Volumes are still maturing, facing some operational challenges. Expect meaningful visibility in 1–2 quarters (Ravi Jaipuria – Chairman).
- Competitive Landscape & Market Share Trends, Input Cost Inflation Outlook (Prashant Poddar – Equirus): Increased competition from Coca-Cola and Campa Cola is expanding the overall soft drink market; both players grew in FY24, but India remains underpenetrated. Raw material costs are stable; packaging materials are flat to lower due to stable oil prices, while sugar has risen marginally, but cost pressures remain manageable (Ravi Jaipuria – Chairman).
- Product Innovation & ATL/BTL Strategy (Sheela Rathi – Morgan Stanley): Company accelerating go-to-market and chilling equipment deployment, with new product introductions (e.g., Sting malt variant). ATL/BTL spends aligned to volume and pre-agreed with PepsiCo; no change in spend levels despite competitor aggression (Ravi Jaipuria – Chairman).
- Zimbabwe Growth Outlook, Growth & Weather Impact Outlook (Devanshu Bansal – Emkay Global, Devesh Advani – Reliance): Sugar tax impact now absorbed; expect volumes to normalize, though significant upside is limited due to already high market share (>70%). Double-digit growth remains feasible for CY25; increased competition and chilling infrastructure investment will accelerate industry growth, though seasonal weather remains a variable (Ravi Jaipuria – Chairman).
