Varun Beverages Ltd - Feb 2025 Earnings Call Transcript Analysis

February 17, 2025 · 5 min read

Earnings Call Transcript Analysis Report #

Key Financial Metrics:
- Revenue: Rs. 200,076.5 million (CY2024)
- Sales Volume: 1,124.4 million cases (CY2024)
- Net Realization per Case: Rs. 177.9 (CY2024)
- EBITDA: Rs. 47,110 million (CY2024)
- PAT: Rs. 26,342.8 million (CY2024)
- Gross Margin: 55.5% (CY2024)
- EBITDA Margin: 23.5% (CY2024)
Comparison with Previous Periods:
- Revenue increased by 24.7% YoY (CY2024).
- Sales volume grew 23.2% YoY (CY2024).
- Net realization per case increased by 1.3% YoY.
- EBITDA increased by 30.5% YoY.
- PAT grew by 25.3% YoY.
- Gross margin expanded by 165 basis points YoY.
- EBITDA margin improved 105 basis points YoY.
- Q4 CY2024 sales volume increased by 38.1%.
Revised Guidance/Forecasts:
- Management reiterated confidence in “double-digit growth.”
- CAPEX of CY2025 projected 31,000 million.
Areas of Growth/Decline:
- Growth: India volumes grew 11.4%. Consolidated volumes increased by 23.2%. South Africa sales volume grew by 12.5% in the first year.
- Decline: International organic growth was 6.3%, “restricted by the transition to a zero-sugar portfolio following the implementation of a sugar tax in Zimbabwe.”

Major Strategic Announcements:
- Geographical expansion into South Africa, Namibia, Botswana, Mozambique, and Madagascar.
- Greenfield operations in the Democratic Republic of Congo (DRC).
- Share purchase agreement to acquire PepsiCo’s business in Tanzania and Ghana.
- Foray into the snack foods business with PepsiCo in Morocco, Zimbabwe, and Zambia.
- Successful Rs. 75,000 million Qualified Institutional Placement (QIP).
- Recommendation of a final dividend of Rs. 0.50 per equity share.
New Products/Services/Markets:
- New territories mentioned above.
- Planned launch of “Sting Gold” energy drink.
- Working on a “Jeera drink” for the upcoming season.
Operational Changes:
- Focus on reducing reliance on modern trade and enhancing distribution in general trade in South Africa.
- Backward integration plans for South Africa.
- Commissioned new Greenfield facilities in India and DRC.
Ongoing or Completed Projects:
- Four Greenfield facilities in Supa, Gorakhpur, Khorda and DRC.
- Brownfield expansion in Nepal, Morocco and Zimbabwe.
- Backward intergration at Morocco, Zambia and Zimbabwe.
- Greenfield facilities at Prayagraj, Damtal, HP, Buxar and Meghalaya.
- Snack Manufacturing facilities in international territories.
- Brownfield expansion in India, Sricity.
- rPET facilities in India.
- Expansion in DRC.

Industry Trends:
- Soft drink industry is expanding faster than other FMCG categories.
- Shift towards low-sugar and no-sugar products: Low sugar, no sugar products increased to 53% of consolidated sales volume from 42% in CY2023.
Competitive Positioning:
- Management downplayed the threat from competitor Campa, believing there is room for everyone to grow.
- Focus on expanding market reach: Serving only about 4 million outlets out of the 12 million FMCG outlets.
- PepsiCo is market leader in Tanzania.
Market Challenges/Opportunities:
- Opportunity: Significant untapped market in India.
- Opportunity: Growing energy drink market in India.
- Opportunity: Expansion in general trade in South Africa offers better margins.
Market Share/Positioning:
- Market shares extremely low in South Africa.

Concerns/Challenges:
- Transition to a zero-sugar portfolio in Zimbabwe impacted growth.
- South Africa has lower margins than India, requiring backward integration and a shift to general trade to improve.
Regulatory Issues:
- Mention of a sugar tax in Zimbabwe impacting growth.
Operational Constraints:
- South African margins are lower due to 80% mix of own brands and fixed costs associated with new CAPEX which are yet to be fully utilized.
Market Uncertainties:
- Currency Volatility Risk in African Countries.

Outlook & Projections:
- Consistent expectation of “double-digit growth” in both Indian and international markets.
- Expectation of improved margins in South Africa with backward integration and general trade expansion.
Commitments/Targets:
- Sustaining healthy growth through market penetration, capacity expansion, and investments in technology and sustainability.
- Confident in delivering annual growth in double digits.
Planned Investments/Priorities:
- Significant CAPEX investments in Greenfield and brownfield expansions.
- Focus on strengthening last-mile distribution and deploying visi-coolers.
- Backward integration in South Africa.
- Projected CAPEX at Rs. 31,000 million for CY2025 Season.
Sentiment:
- “We are confident in our ability to drive long term value creation for our stakeholders in the years to come.”

Most Pressing Analyst Questions:
- Concerns about potential slowdown in urban India.
- Impact of competition from Campa.
- Strategy and growth expectations for South Africa, Ghana, and Tanzania.
- Details on capacity expansion plans.
- Margin outlook and sustainability.
- Status of the recycled PET project.
- Currency Volatility
Management Responses:
- Emphasized the large untapped market and their focus on expansion.
- Reiterated confidence in double-digit growth.
- Provided details on South Africa strategy (general trade focus, backward integration).
- Confirmed capacity expansion plans and timelines.
- Expressed confidence in sustaining margins in India and improving them internationally.
- Confirmed the recycled PET project is on track.
Questions Evaded/Answered Indirectly:
- No direct answers regarding specific market share numbers.
- Some level of generality in responses to questions of 100% capacity utilization.
New Information:
- Details on the mix of CSD, non-carbonated beverages, and packaged drinking water in their sales volume.
- Specifics on which products have low-sugar or no-sugar options.
- Confirmation of the “Sting Gold” launch and its long-term nature.
- Timeline for the recycled PET project (early third quarter).
- Revenue expectations for the food business in Morocco (USD 25-30 million).

Overall Tone: Confident and optimistic.
Areas of Confidence: Growth prospects in India and Africa, ability to sustain margins, expansion strategy.
Areas of Concern: Implicit awareness of challenges in new markets (South Africa margins, Zimbabwe sugar tax). Management appears more focused on opportunities than risks.

Strong Financial Performance driven by volume growth and improved margins.
Aggressive Expansion in Africa with heavy investment in new production capacity.
Focus on Market Penetration to expand reach to more outlets.
Confident Outlook on achieving double-digit growth and sustaining profitability.
Strategic Diversification with new products and expansion into the snack foods business.
Sustainability Focus investing in recycled PET production.
South Africa a Key Focus representing a significant growth opportunity.

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