Varun Beverages Ltd:Annual Report 2023-24 Analysis

Varun Beverages Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

Varun Beverages Ltd. (VBL) was established in the 1990s and became a franchisee of PepsiCo in 1996. The company is part of the RJ Corp group, a diversified conglomerate headed by Ravi Jaipuria.

Headquarters Location and Global Presence #

The headquarters of Varun Beverages Ltd. is located in Gurugram, Haryana, India. The company has a significant presence in India and also operates in Sri Lanka, Nepal, Morocco, Zambia, and Zimbabwe.

Company Vision and Mission #

While the specific official vision and mission statements may not be publicly available, Varun Beverages operates with the implied vision of becoming a leading bottling partner for PepsiCo in its operational territories and fulfilling customer demand. Their implied mission focuses on efficiently manufacturing and distributing PepsiCo beverages while maintaining high quality and operational excellence.

Key Milestones in Their Growth Journey #

• 1996: Became a franchisee of PepsiCo.
• Expansion over the years: Grew its operational footprint across India and internationally through strategic acquisitions and expansions.
• Successful IPO: Listed on the Indian stock exchanges, providing access to capital for further growth.
• Increased Market Share: Continuously increased its share in the Indian beverage market.

Stock Exchange Listing Details and Market Capitalization #

Varun Beverages Ltd. is listed on the National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE). The stock symbol is VBL. (Note: Market capitalization fluctuates daily. Please refer to current market data sources.)

Recent Financial Performance Highlights #

(Note: Financial data should be sourced from VBL’s official investor relations website and financial news outlets. Insert recent annual and quarterly revenue, profit, and growth figures.)

Management Team and Leadership Structure #

• Chairman: Ravi Jaipuria
• Vice-Chairman: Varun Jaipuria
• CEO: Kapil Agarwal

The company has a structured management team with experienced professionals heading various functions such as operations, finance, marketing, and sales.

Notable Awards or Recognitions #

(Note: Awards and recognition are dependent on the time. Please refer to VBL’s official website or press releases.)

Their Products #

Complete Product Portfolio with Categories #

Varun Beverages manufactures, bottles, and distributes a wide range of PepsiCo products, including:

• Carbonated Soft Drinks (CSD): Pepsi, Diet Pepsi, 7 UP, Mirinda, Mountain Dew, Sting.
• Non-Carbonated Drinks: Tropicana (Juices), Slice (Mango Drink), Lipton Ice Tea, Gatorade (Sports Drink), Aquafina (Packaged Drinking Water).

Flagship or Signature Product Lines #

• Pepsi: The flagship brand.
• Mountain Dew: A popular CSD brand.
• Tropicana: Well known juice brand.
• Aquafina: A significant player in the packaged drinking water segment.

Manufacturing Facilities and Production Capacity #

VBL operates a significant number of manufacturing facilities strategically located across its operational territories. The specific number and capacity details are available in their investor presentations.

Quality Certifications and Standards #

Varun Beverages adheres to stringent quality standards and holds relevant certifications, including those related to food safety and hygiene. These certifications ensure the quality and safety of their products.

Recent Product Launches or R&D Initiatives #

(Note: This section requires up-to-date information from press releases and company statements. Include information on any recent product launches, flavor variations, or packaging innovations.)

Primary Customers #

Geographic Markets (Domestic vs. International) #

VBL has a strong presence in the Indian domestic market and also operates in international markets such as Sri Lanka, Nepal, Morocco, Zambia, and Zimbabwe. The revenue split between domestic and international markets is available in their financial reports.

Distribution Network and Sales Channels #

Varun Beverages has a well-established distribution network comprising:

• Direct Distribution: Servicing retailers directly.
• Indirect Distribution: Using wholesalers and distributors to reach a wider customer base.
• Institutional Channels: Supplying to restaurants, hotels, and other institutional clients.

Major Competitors #

Direct Competitors in India and Globally #

• Hindustan Coca-Cola Beverages Pvt. Ltd.: Coca-Cola’s bottling partner in India.
• Other regional and local beverage manufacturers.

Competitive Advantages and Disadvantages #

• Advantages: Strong relationship with PepsiCo, established distribution network, economies of scale.
• Disadvantages: Dependence on PepsiCo for product portfolio, competition from other major beverage players.

Market Positioning Strategy #

VBL positions itself as a reliable and efficient bottling partner for PepsiCo, focusing on operational excellence, cost efficiency, and expanding its market reach.

Future Outlook #

Expansion Plans or Growth Strategy #

• Geographic Expansion: Continuing to explore opportunities in new and existing markets.
• Capacity Expansion: Increasing production capacity to meet growing demand.
• Product Portfolio Expansion: Potentially adding new products to their portfolio.

Sustainability Initiatives or ESG Commitments #

(Note: Refer to VBL’s official reports for information on their ESG commitments, water conservation efforts, waste management programs, and other sustainability initiatives.)

Industry Trends Affecting Their Business #

• Growing demand for beverages: Increasing disposable incomes and changing consumer preferences.
• Health and wellness trends: Increasing demand for healthier beverage options (e.g., low-sugar, natural juices).
• Focus on sustainability: Pressure to reduce environmental impact and promote sustainable practices.

Varun Beverages Limited (VBL) Performance Overview #

3-Year Financial Trend Analysis #

A look at VBL’s key financial metrics from CY 2022 to CY 2024 (Consolidated, in Millions of INR, except per share data):

*Adjusted for stock splits in 2023 and 2024.

Key Observations:

• Consistent Growth: Strong growth in revenue, EBITDA, and net profit.
• Margin Improvement: Steady improvement in EBITDA margins.
• High Capital Expenditure: Significant investment indicating expansion and new plant commissioning.
• EPS: Impacted by stock splits in 2023 and 2024.

Business Segment Performance #

Geographical Segments #

• India: Primary revenue driver (approximately 72% of net operational revenues in CY 2024). India volumes grew by 11.4% in CY2024.
• International: Rapid growth (+23.2% in consolidated volumes), driven by expansion in the African Market.

Product Segments (Based on CY 2024 Sales Volume) #

• Carbonated Soft Drinks (CSDs): 74.2% of total sales volume (Pepsi, Mountain Dew, 7UP, Mirinda, Sting).
• Non-Carbonated Beverages (NCBs): Packaged drinking water (Aquafina, 19.6% of volume), juice-based drinks (Tropicana, Slice, 6.2% of volume).

Major Strategic Initiatives and Their Progress #

Geographic Expansion (Africa) #

• Acquisition of BevCo (South Africa): Completed in March 2024.
• Acquisition of Businesses in Tanzania and Ghana: Agreements signed, pending regulatory approvals.
• DRC Facility: Achieved 100% utilization; planning backward integration and a second facility.

Domestic (India) Expansion #

• Greenfield Facilities: Three new plants commissioned in Supa (Maharashtra), Gorakhpur (Uttar Pradesh), and Khordha (Odisha).
• Distribution Network Enhancement: Continuous expansion to deepen market penetration.

Product Portfolio Diversification #

• Snacks Segment: Agreements to manufacture and package Cheetos in Morocco, and Simba Munchiez in Zimbabwe and Zambia. Distribution in Zimbabwe and Zambia started February 2025. Manufacturing set to commence by October 2025, and April 2026 for Zimbabwe and Zambia, repectively.
• Value-Added Dairy: Continued focus on expanding the dairy-based beverage segment (Cream Bell).
• Backward Integration: Continued investment across 17 production plants.

Risk Landscape Changes #

• Increased Geopolitical Risk: Expansion into new African markets increases exposure to political and economic instability.
• Currency Risk: Increased exposure to foreign currency fluctuations. Increased unrealized foreign exchange losses reported.
• Regulatory Risk: Increasing scrutiny regarding health concerns (sugar content) and environmental impact (plastic waste).
• Climate risk: Increasing water scarcity, rising temperatures impacting the supply and prices of input raw materials.
• Competition: Increasing competition in the beverage market.

ESG Initiatives and Metrics #

Environmental #

• Water Stewardship: Achieved a water usage ratio of 1.56 liters of water per liter of beverage produced. Recharged 15.54 billion liters of water against 7.27 billion liters consumed. Maintained 192 water bodies.
• Plastic Waste Management: Recycled 88% of used PET bottles, progressing towards the 100% recycling target by 2025.
• Renewable Energy: Increased renewable energy mix to ~16% of total energy consumption.
• Carbon Footprint Reduction: Committed to net-zero GHG emissions by 2050.
• CDP A List 2024: Achieved an ‘A’ for Climate and ‘A-’ for Water Security.

Social #

• Workforce Diversity: Targeted a 10% diversity mix by 2025. Achieved 7.2% diversity in CY 2024.
• Employee Health and Safety: Implemented safety programs in collaboration with DuPont Safety Solutions.
• Community Engagement: CSR initiatives focused on education (Shiksha Kendra School), healthcare (AARU Clinics), and skill development (Pravah).

Governance #

• ESG Committee: Board-level committee overseeing ESG strategy and initiatives.
• ESG-Linked Incentives: Incentive programs linked to ESG performance for employees, including KMPs and Board members.
• Code of Conduct: Adherence to the VBL Code of Conduct and PepsiCo’s Global Supplier Code of Conduct.
• Transparency: Detailed disclosures in the Business Responsibility and Sustainability Report (BRSR).
• Tax practice VBL actively engage with stakeholders, enabling sustainable action.
• Information System VBL adopted and implemented an Information Security Management System (ISMS) in accordance with ISO/IEC 27001.

Management Outlook #

• Positive Outlook: Optimistic about future growth, driven by organic volume expansion and strategic acquisitions.
• Focus on Africa: Significant emphasis on consolidating and expanding the African footprint.
• Continued Investment: Ongoing investment in manufacturing capacity, distribution infrastructure, and backward integration.
• Sustainability Commitment: A clear commitment to achieving ambitious ESG targets.
• Innovation: Continued focus on product innovation, including low-sugar/no-sugar options and expansion into new categories like snacks.
• Cautious approach: The Company maintains a dynamic approach on regulatory changes, water conservation, sustainable practices, and supply chain.

Detailed Analysis #

Financial Analysis of Varun Beverages Limited (VBL) #

Balance Sheet Analysis #

3-Year Comparative Analysis of Assets, Liabilities, and Equity (Consolidated) #

(₹ in million)

Significant Changes in Major Line Items (>10% YoY) #

(Based on Consolidated Figures)

• Non-Current Assets: Increased significantly (39.84%) primarily due to increase in Property, plant and equipment, Capital Work-in-Progress, and Other Intangible assets.
• Current Assets: Increased significantly (84.93%) due to large increases of cash and cash equivalents, inventories, and other financial assets.
• Total Assets: Increased by 52.44%.
• Non-Current Liabilities: Decreased significantly (52.27%), primarily due to a large drop of Borrowings, resulting from loan repayment using proceeds from the QIP.
• Current Liabilities: Increased moderately (9.15%).
• Total Liabilities: Decreased significantly (20.58%).
• Other Equity: Experienced substantial growth(154.14%), primarily due to issuance of share through QIP.
• Total Equity: Increased very substantially(137.85%).
• Total Equity and Liabilities: Increased by 52.44% (Same as total assets increase).

Working Capital Trends (Consolidated) #

(₹ in million)

• Trend: VBL’s working capital has increased very drastically, shifting from a relatively small positive working capital to a very large positive working capital. This indicates a build-up of current assets (like inventories and cash) and a significant reduction of short-term debt.

Asset Quality Metrics (Consolidated) #

• Inventory Turnover: (Cost of Goods Sold / Average Inventory). We need the detailed cost of goods sold (excluding depreciation, etc.) for an accurate calculation. The report provides the data under different line items.
• Fixed Asset Turnover: It is (revenue from operations/Net Block) which gives 1.26 and 1.64 for the current and previous years respectively.
• Receivables Turnover: (Revenue from Operations / Average Trade Receivables). This gives an indication of how quickly VBL collects its receivables.
  • Calculation: 204,210.63 / ((8,597.74 + 3,732.18)/2) = 33.32 times, for CY2023, the number is 43.22 times. It shows a little slow down.
• Non-Performing Assets (NPAs): This is typically not applicable to a beverage company. VBL, does provide for “expected credit loss” on receivables, which is a related concept. The numbers are low relatively.

Debt Structure and Maturity Profile (Consolidated) #

(₹ in million)

• Structure: VBL’s debt consists of both long-term (non-current) and short-term (current) borrowings, as well as lease liabilities. A major shift is the substantial reduction in non-current borrowings.
• Maturity: The specific maturity dates are not provided in a consolidated form, but can be found in detail in Note 21E and the cash flow impacts in 21F. The most important takeaway is that a much larger portion of VBL’s debt became short-term. This was temporary effect and changed substantially by end of CY2024.

Off-Balance Sheet Items (Consolidated) #

• Contingent Liabilities: ₹8,917.31 million (31 Dec 2023: ₹5,473.73 million). These are potential obligations that depend on the outcome of future events (e.g., lawsuits, tax disputes). These are significant and growing.
• Commitments: ₹26,343.54 million (31 Dec 2023: ₹30,857.76 million) for capital expenditures. These represent contractual obligations for future spending. These remain very high.
• Guarantees issued to third party by subsidiaries for business purposes : 761.71M in CY2023, jumped to 19,076.77 in CY2024.
• Operating Leases (as lessor): The company receives lease income, but the details are not broken out separately in a way that makes calculating a total off-balance sheet amount possible.

Key Observations and Potential Discussion Points #

• Major Shift in Financing: The massive increase in equity (due to the QIP) and corresponding decrease in debt is the most significant change. This suggests a strategic shift towards a less leveraged capital structure.
• Growth and Expansion: The increase in non-current assets, particularly Property, Plant & Equipment, and Capital Work-in-Progress, coupled with the acquisitions, clearly demonstrates VBL’s aggressive growth strategy. The investment in international markets is notable.
• Working Capital Increase: The substantial increase in working capital needs further investigation. Is this due to inventory build-up for new product launches or expansion? Or is it related to less efficient receivables collection?
• Contingent Liabilities: A significant increase and needs to be investigated.

Financial Analysis of Varun Beverages Limited (VBL) #

Revenue Breakdown #

Segment #

• Manufacturing of Beverages: 99.2% of consolidated turnover in CY2024.
• Product Categories (Volume %):
  • Carbonated Soft Drinks (CSD): 74.2% (CY2024)
  • Fruit Pulp/Juice-based Drinks: 6.2% (CY2024)
  • Packaged Drinking Water: 19.6% (CY2024)
  • Low/No Sugar: 53% consolidated, 44% India, 100% South Africa, 100% DRC, 89% Morocco, 69% Sri Lanka, 65% Zimbabwe, 29% Zambia, 4% Nepal.

Geography #

• India: Contributed approximately 72% of net operational revenues in CY2024. Volume grew 11.4%.
• International: Contributed approximately 28% of net operational revenues in CY2024.
  • Franchise rights: Nepal, Sri Lanka, Morocco, Zambia, Zimbabwe, South Africa, Lesotho, Eswatini, DRC.
  • Distribution rights: Namibia, Botswana, Mozambique, Madagascar.
  • Consolidated volumes increased by 23.2%, driven by new territories. Organic volume growth in international markets was 6.3%.

Cost Structure Analysis #

• Cost of Materials Consumed: 41.3% of net revenue (CY2024), increased by 18% Y-o-Y. Key materials are PET chips and sugar. VBL is working on backward integration to control these costs.
• Employee Benefits Expense: Increased by 30.3% Y-o-Y, representing 9.4% of net revenue. Reflects workforce expansion.
• Other Expenses: Increased by 25.8% Y-o-Y, representing 22.8% of net revenue. Includes power & fuel, repairs, freight, advertising, and other overhead costs.
• Excise Duty: Increased significantly, 70%.
• Purchase of Stock-in-Trade: Rose 48.2%
• Changes in Inventories: Decrease of 11%

Margin Analysis #

• Gross Margin: Improved by 165 basis points Y-o-Y to 55.5% in CY2024, driven by PET chip price benefits and reduced sugar content.
• EBITDA Margin: Increased by 105 basis points to 23.5% in CY2024. EBITDA grew by 30.5% Y-o-Y.
• Net Profit Margin: Increased to 13.16% in CY2024 from 13.10% in CY2023. Net Profit grew by 25.3% Y-o-Y.
• 6 year CAGR: Revenue: 22.9%, EBITDA: 26.6%, PAT: 37.9%.

Operating Leverage #

• The company has significant operating leverage due to its fixed cost base. Volume growth will contribute disproportionately to profit growth.
• Commissioning of Greenfield Facilities and 100% utilization of DRC facility indicate VBL’s proactive growth approach.

Non-Recurring Items #

• Acquisition of BevCo and its subsidiaries.

EPS Analysis #

• Basic EPS (CY2024): INR7.76
• Diluted EPS (CY2024): INR7.75 *The shares were subdivided.
• Growth rates: Net profit growth was 25.3%.

Varun Beverages Limited (VBL) Financial Analysis: Cash Flow and Liquidity #

Operating Cash Flow (OCF) Components #

• Net Profit: Increased from ₹21,018.13 million in 2023 to ₹26,342.85 million in 2024.
• Depreciation and Amortization: Increased from ₹6,806.85 million to ₹9,464.41 million in 2024.
• Finance Costs: ₹4,693.97 million in 2024.
• Working Capital Adjustments:
  • Increase in Inventories: (₹4,596.70) million.
  • Increase in Trade Receivables: (₹1,173.06) million.
  • Increase in other current and non-current financial assets and other assets: (₹5,374.18) million.
• Income Tax Paid: (₹7,988.04) million.

Investing Cash Flow (ICF) Components #

• Purchase of Property, Plant, and Equipment (PP&E): (₹37,637.08) million.
• Proceeds from the sale of PPE: minimal inflow
• Acquisition under business combination : -4037.26

Financing Cash Flow (FCF) Components #

• Proceeds from Long-Term Borrowings: ₹17,816.03 million.
• Repayment of Long-Term Borrowings: (₹55,336.98) million.
• Proceeds from Short-Term Borrowings (Net): ₹1,831.72 million.
• Proceeds from Issuance of Equity Shares (Including QIP): ₹75,000 million.
• Interest Paid: outflow.
• Dividends Paid: (₹3,265.00) million.

Working Capital Management Efficiency #

• Inventory Turnover Ratio:
  • 2024: 7.2 times
  • 2023: 7.4 times
• Trade Receivables Turnover Ratio:
  • 2024: 33 times
  • 2023: 51.4 times
• Trade Payables Turnover Ratio:
  • 2024: 15.2 Times
  • 2023: 24.8 Times
• Working capital days improved to approximately 31 days in 2024 from 34 days in 2023.

Analysis: A decrease in trade receivables and trade payable turnover suggests a lessening of efficiency in working capital management.

Capex Analysis #

• Significant investments in India (₹32,000 million for three new greenfield facilities) and ₹8,000 million in international markets.

Dividend and Share Buyback Trends #

• Dividends:
  • An interim dividend of ₹1.25 per share (face value of ₹5) was declared in July 2024.
  • A final dividend of ₹0.50 per share (face value of ₹2) was recommended for 2024.
  • The dividend payout policy targets a 10-30% payout ratio.
• Share Buybacks: No buybacks during the last five years.
• Share Splits: The shares were split 2:1, going from FV of 5 INR to 2 INR.

Debt Service Coverage Ratio (DSCR) #

• DSCR 2024 = 3
• DSCR 2023 = 2.7

Analysis: The ratio means the ability to repay debt is good.

Liquidity Position and Cash Conversion Cycle #

• Liquidity Position: VBL significantly strengthened its liquidity position in 2024 due to QIP. The company went from a net debt position to a net debt-free position.
  • Current Ratio 2024: 1.73
  • Current Ratio 2023: 1.03
• Cash Conversion Cycle (CCC): Specific data required for precise calculation.

Free Cash Flow Yield Trends #

Free Cash Flow (FCF) = Operating Cash Flow - Capital Expenditures FCF = 33,987 - 37,637 = -3,650 (Million)

Financial Analysis of Varun Beverages Limited (VBL) #

Profitability Ratios (3-Year Trends) #

Calculations: #

• ROE: (Net Income / Average of Beginning and Ending Equity) * 100
• ROA: (Net Income / Average of Beginning and Ending Total Assets) * 100.
• ROIC: (Net Profit * (1-Tax Rate)/(Total Debt+Total Equirty-Cash&Cash Equivalents).
• Margins: (Respective Profit / Revenue) * 100.

Liquidity Metrics (Point-in-Time) #

Efficiency Ratios (Turnover Ratios) #

Leverage Metrics #

Key Observations and Analysis Points: #

• Decreasing Trend in ROE, ROA, ROIC: Although profitable, there’s a noticeable decreasing trend in ROE, ROA and ROIC over the three years. It could be due to increase in equity base due to QIP and repayment of debt.
• Improving Margins: VBL Consistently improving gross, EBITDA, and operating profit margins over the three years, demonstrating better cost management and operational efficiency.
• Strong Liquidity Improvement: VBL’s liquidity position has drastically improved in 2024.
• Asset Utilization: The asset turnover ratio has decreased, meaning the firm is using its assets less effectively to create revenue.
• Inventory Management: The inventory turnover ratio increase in 2024.
• Receivables Management: The receivables turnover ratio has declined over the three years.
• Leverage: VBL has significantly reduced its debt, as evidenced by the sharp decline in the Debt-to-Equity ratio. This indicates a much lower financial risk. The interest coverage ratio remains very strong.
• Net Profit Ratio: The increase in the Net profit ratio.
• BRSR impact on Net Profit Margin: This has impacted the NP ratio.

Varun Beverages Limited (VBL) Financial Analysis #

Revenue and Profitability Metrics #

• Revenue:
  • CY 2024: ₹200,077 million
  • CY 2023: ₹160,426 million
  • Year-over-Year (YoY) Growth: 24.7%
  • 6-year CAGR: 22.9%
• EBITDA:
  • CY 2024: ₹47,111 million
  • CY 2023: ₹36,095 million
  • YoY Growth: 30.5%
  • 6-year CAGR: 26.6%
• EBITDA Margin:
  • CY2024: 23.5%
  • CY 2023: 22.5%
  • YOY Growth: 105 bps
• Net Profit (PAT):
  • CY 2024: ₹26,343 million
  • CY 2023: ₹21,018 million
  • YoY Growth: 25.3%
  • 6-year CAGR: 37.9%

Analysis #

VBL demonstrated strong financial performance in CY 2024, with significant growth in revenue, EBITDA, and net profit. The double-digit growth rates across all key financial metrics indicate robust business expansion and improved operational efficiency.

Market Share and Competitive Position #

• Market Share: VBL accounts for over 90% of PepsiCo’s sales volumes in India.
• Competitive Position: VBL is the second-largest franchisee of PepsiCo globally (outside the US). The symbiotic relationship and over three decades of association with PepsiCo makes VBL a key player. VBL has expanded geographically into various international markets, including the recent acquisition of BevCo in South Africa.

Analysis #

VBL holds a dominant market position within the PepsiCo ecosystem in India and is strategically expanding its international footprint. It is a leader in the beverage industry.

Key Products/Services Performance #

• Product Portfolio:
  • Carbonated Soft Drinks (CSDs): Pepsi, Mountain Dew, 7UP, Mirinda, etc.
  • Fruit Pulp/Juice-based Drinks: Slice, Tropicana, etc.
  • Sports Drinks: Gatorade.
  • Energy Drinks: Sting, Rockstar.
  • Packaged Drinking Water: Aquafina, Aquavess.
• Segment Wise Sales Volume (CY 2024):
  • Carbonated Soft Drinks: 74.2%
  • Juice Based Drinks: 6.2%
  • Packaged Drinking Water: 19.6%
• Low Sugar/No Sugar Volume Mix: 53% (Consolidated)
• New Products/Segments:
  • Exclusive snacks franchising rights secured for PepsiCo brands in Morocco, Zimbabwe, and Zambia.
  • Manufacturing of Kurkure Puffcorn in India.

Analysis #

CSDs are the major revenue contributors. The company is focusing on diversifying its portfolio into high-growth product lines, such as low sugar/no sugar beverages.

Geographic Distribution and Market Penetration #

• India:
  • Primary revenue driver (approximately 72% of net operational revenues in CY 2024).
  • Franchise rights across 26 states and 6 union territories.
  • Focus on deepening penetration in under-penetrated markets.
• International:
  • Operations in 9 countries with franchise rights (Nepal, Sri Lanka, Morocco, Zambia, Zimbabwe, South Africa, Lesotho, Eswatini & DRC).
  • Distribution rights in 4 countries (Namibia, Botswana, Mozambique, and Madagascar).
  • Acquisition of BevCo in South Africa, strengthening presence in the African market.
  • Pending acquisitions in Tanzania and Ghana to further expand African footprint.

Analysis #

India remains the core market, but VBL is aggressively expanding in international markets, particularly in Africa, to diversify its revenue streams.

Capital Expenditure (CAPEX) #

• Total Capex (CY 2024): Approximately ₹45,000 million.
• CY 2023 Capex: Approximately ₹24,000 million (allocated to greenfield facilities, backward integration, and international markets).
• Investments in India:
  • Three Greenfield facilities: Supa (Maharastra), Gorakhpur(Uttar Pradesh), and Khordha(Odisha).
• DRC Facility: Full capacity utilization.

These investments are expected to contribute positively to future revenue and profitability.

Operational Efficiency Metrics #

• Water Usage Ratio (WUR): 1.56 Liters of water per 1 liter of final product for beverage production in 2024. (Steady state WUR was 1.54 times in 2023 and 1.50 times in 2024, the differential is on account of stabilization of 2 new greenfield plants in 2023 and 3 new greenfield plants in 2024)
• Water Recharge Ratio: 2.14 times (CY 2024), indicating water positivity (recharging more water than consumed).
• Renewable Energy Mix: Approximately 16% in 2024, showing a 3% points increase
• PET Recycling: 88% of used PET bottles recycled in CY 2024
• Working Capital Days: Improved to approximately 31 days as of December 31, 2024, from 34 days in the previous year.

Analysis #

VBL demonstrates a strong commitment to operational efficiency and sustainability, particularly in water conservation and waste management.

Growth Initiatives and Challenges #

• Growth Initiatives:
  • Geographic Expansion: Acquisitions and expansions in Africa (South Africa, DRC, Tanzania, Ghana) and other international markets.
  • Product Portfolio Diversification: Expanding into snacks segment in collaboration with PepsiCo.
  • Capacity Expansion: Commissioning of new greenfield facilities in India.
  • Distribution Network Strengthening: Deepening penetration in existing and under-penetrated markets.
  • Sustainability Initiatives: Focus on water positivity, PET recycling, and renewable energy.
  • Backward Integration: 17 production plants that have commenced backward integration for producing preforms, closures, corrugated boxes, plastic crates, and shrink wrap films.
• Challenges:
  • Demand Risk: Potential slowdown in target markets due to cyclical downturns or unexpected weather events.
  • Business Agreement Risk: Dependence on strategic relationship and agreements with PepsiCo.
  • Regulatory Risk: New and evolving regulations on consumer health, discriminatory taxes, and packaging waste.
  • Consumer Preference Risk: Adapting to evolving consumer health trends and preferences.
  • Raw Material Risk: Interruption in the supply or significant price increases of raw materials.
  • Climate risks: such as higher temperatures and water availability.

Overall Analysis #

Varun Beverages Limited demonstrates a robust financial and operational profile. The company is experiencing strong growth, driven by both organic expansion and strategic acquisitions. It has a dominant position in the Indian beverage market and is successfully expanding its international footprint. VBL is actively managing its operational risks and has a clear focus on sustainability. However, it faces challenges related to market demand, regulatory changes, and commodity price fluctuations. The company’s strategic initiatives, particularly its focus on geographic and product portfolio diversification, position it well for continued future growth.

Varun Beverages Limited (VBL) - Risk Profile Analysis (Financial Year Ended December 31, 2024) #

This analysis assesses VBL’s risk profile across five key categories: Strategic, Operational, Financial, Compliance/Regulatory, and Emerging risks. Each category includes an analysis of severity, likelihood, trend, mitigation, control effectiveness, and potential financial impact, incorporating quantitative metrics where available.

Strategic Risks #

Business Agreement Risk/Partnership Concentration (Dependence on PepsiCo) #

• Severity: High
• Likelihood: Medium
• Trend: Stable
• Mitigation Strategies:
  • Diversification of product portfolio (expanding into snacks and own brands).
  • Expansion into new geographies (acquisitions in South Africa, agreements in Tanzania and Ghana).
  • Maintain strong operational performance and relationship management with PepsiCo.
• Control Effectiveness: Partially Effective
• Potential Financial Impact: High

Business Viability Risk (Integration of New Acquisitions) #

• Severity: Medium to High
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies:
  • Detailed integration plans.
  • Leveraging existing expertise and infrastructure where possible.
  • Investing in local talent and management.
• Control Effectiveness: Partially Effective
• Potential Financial Impact: Medium to High

Demand Risk (Cyclical downturns or slow down in target markets) #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable
• Mitigation Strategies:
  • Strategic approach to provide the right brand at the right price, and right channels.
  • Extensive product portfolio to cater to varying tastes.
  • Presence in underpenetrated markets.
• Control Effectiveness: Effective
• Potential Financial Impact: Medium

Operational Risks #

Supply Chain Disruptions (Raw Materials) #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable to Increasing
• Mitigation Strategies:
  • Backward integration (preforms, closures, corrugated boxes, etc.).
  • Consolidated procurement.
  • Strategic partnerships with key suppliers (PepsiCo, Reliance Industries for PET resin, Triveni Engineering for sugar).
  • Supplier Code of Conduct (PepsiCo’s Global Supplier Code).
• Control Effectiveness: Moderately Effective
• Potential Financial Impact: Medium

Water Usage and Replenishment #

• Severity: Medium to High
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies:
  • Water conservation initiatives (reducing water usage ratio, wastewater management, process improvements).
  • Rainwater harvesting and groundwater recharge projects.
  • Adoption and maintenance of ponds and check dams.
  • Rejuvenation of Water Bodies (RWB) program.
  • Basin Leader for the Yamuna Basin under the India River Basins Collective Action Program.
• Control Effectiveness: Good
• Potential Financial Impact: Medium to High

Climate Change #

• Severity: Medium to High
• Likelihood: High
• Trend: Increasing
• Mitigation Strategies:
  • Commitment to net-zero greenhouse gas emissions by 2050.
  • Increased investment in renewable energy sources (solar power).
  • Energy efficiency
  • Reduction in usage of energy through adoption of adiabatic cooling towers, energy-efficient motors, direct-coupled high-pressure compressors, optimized preform blow moulding, and more.
  • Use of electric vehicle fleets.
  • Tree plantation
• Control Effectiveness: Moderately effective
• Potential Financial Impact: Medium to High

Financial Risks #

Foreign Exchange Risk #

• Severity: Medium
• Likelihood: High
• Trend: Stable
• Mitigation Strategies:
  • Natural hedging (to a limited extent).
  • Monitoring of non-INR cash flows.
  • Hedging contracts, where necessary.
• Control Effectiveness: Partially Effective
• Potential Financial Impact: Medium

Interest Rate Risk #

• Severity: Medium
• Likelihood: High
• Trend: Fluctuating
• Mitigation Strategies:
  • Managing operational cost.
• Control Effectiveness: Effective
• Potential Financial Impact: Medium

Commodity Price Risk (Sugar, PET) #

• Severity: Medium
• Likelihood: High
• Trend: Fluctuating
• Mitigation Strategies:
  • Strategic procurement and storage.
  • Advance purchase contracts.
• Control Effectiveness: Moderately Effective
• Potential Financial Impact: Medium

Liquidity Risk #

• Severity: Low
• Likelihood: Low
• Trend: Stable
• Mitigation Strategies:
  • Maintaining sufficient cash and cash equivalents.
  • Access to committed credit facilities.
• Control Effectiveness: Good
• Potential Financial Impact: Low

Compliance/Regulatory Risks #

Changes in Tax Laws / Regulatory Compliance #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable to Increasing
• Mitigation Strategies:
  • Monitoring of regulatory developments.
  • Engagement with government and regulatory authorities.
  • Compliance with all applicable laws and regulations.
  • Internal controls and audit processes.
• Control Effectiveness: Good
• Potential Financial Impact: Medium

Regulatory Risk (Consumer Health) #

• Severity: High
• Likelihood: Medium
• Trend: Stable
• Mitigation Strategies:
  • Collaborate with regulatory bodies.
  • Address issues related to packaging waste recovery/recycling.
• Control Effectiveness: Effective
• Potential Financial Impact: High

Emerging Risks #

Cybersecurity Threats #

• Severity: High
• Likelihood: Increasing
• Trend: Increasing
• Mitigation Strategies:
  • Information Security Management System (ISMS) in place.
  • Regular risk assessments and vulnerability testing.
  • Employee training and awareness programs.
  • Board approved Risk Management Policy.
  • Cyber security processes are under evaluation of management and Board.
• Control Effectiveness: Unknown
• Potential Financial Impact: High

Changing Consumer Preferences #

• Severity: Medium
• Likelihood: High
• Trend: Stable
• Mitigation Strategies:
  • Close collaboration with PepsiCo
  • Product innovation
• Control Effectiveness: Moderate
• Potential Financial Impact: Revenue Decline

Overall Risk Assessment Summary #

Key Observations and Recommendations #

• Concentration Risk: VBL needs to continue its efforts to diversify its revenue streams and reduce its dependence on PepsiCo.
• Operational Efficiency: Continued focus on water conservation, waste management, and energy efficiency is critical.
• Financial Risk Management: Hedging strategies and strong financial controls are essential to manage currency, interest rate, and commodity price risks.
• Cybersecurity: Given the increasing threat, VBL should prioritize investments in robust cybersecurity measures and data protection.
• Regular Monitoring: The risk profile should be reviewed and updated regularly to reflect changing market conditions and emerging threats.
• Quantitative Metrics Improvement: While some quantitative data is present, the report would be strengthened by including more specific metrics for tracking risk trends (e.g., year-over-year changes in water usage ratio across all plants, percentage of energy from renewable sources, number of cybersecurity incidents, etc.).

Strategic Analysis of Varun Beverages Limited (VBL) #

Long-Term Strategic Goals and Progress #

• Net-Zero Emissions: Committed to net-zero GHG emissions across the value chain by 2050, validated by SBTi. Achieved a 16% renewable energy mix in 2024.
• Water Positivity: Aims to replenish more water than used. Achieved a water recharge ratio of 2.14 times in 2024, exceeding the 2025 target.
• PET Recycling: Aims for 100% recycling of used PET bottles by 2025. Achieved 88% recycling in 2024.
• Geographic Expansion: Expanding footprint, particularly in Africa, through acquisitions in South Africa, Tanzania, and Ghana. Also expanding in Morocco, Zimbabwe, etc.
• Product Diversification: Expanding into the snacks segment, leveraging partnerships with PepsiCo.

Competitive Advantages and Market Positioning #

• Strong PepsiCo Partnership: PepsiCo’s second-largest franchisee outside the US, accounting for over 90% of PepsiCo’s sales volume in India.
• Extensive Distribution Network: Reaching over 4.0 million retail outlets, with a strong presence in both urban and rural India.
• Geographic Diversification: Operations in 14 countries (and distribution rights in another four) provide diversification.
• Backward Integration: 17 production plants are backwardly integrated, enhancing efficiency and cost control.
• Manufacturing Footprint: Commissioned multiple greenfield facilities across India and Africa.

Innovation Initiatives and R&D Effectiveness #

• Product Portfolio Expansion: Focusing on high-growth products aligned with consumer trends, including low/no-sugar beverages (Pepsi Zero, Sting, Gatorade) and expansion into the snacks category.
• Sustainability-Focused Innovation: Investing in energy-efficient technologies, renewable energy, water conservation, and PET light-weighting and recycling.
• Partnership with PepsiCo: Leveraging PepsiCo’s R&D capabilities for product and packaging innovation.

M&A Strategy and Execution #

• Strategic Acquisitions: Acquisition of BevCo in South Africa significantly expanded its African presence. Agreements to acquire businesses in Tanzania and Ghana demonstrate a continued focus on strategic expansion.
• Integration Capabilities: Successful integration of BevCo and the rapid scaling of the DRC facility, suggesting strong integration capabilities.
• Snacks Market Expansion: Partnership with Pepsi on manufacturing, distribution in select markets.

Management’s Track Record in Execution #

• Consistent Financial Performance: Demonstrated consistent revenue, EBITDA, and PAT growth over a 6-year period (CAGR provided).
• Operational Excellence: The rapid scaling of the DRC facility to 100% utilization, along with the commissioning of new greenfield facilities in India, points to strong operational capabilities.
• Sustainability Achievements: Made substantial progress on its ESG goals, including water positivity and PET recycling.
• Successful QIP: The successful Qualified Institutional Placement (QIP) in 2024, raising ‘75,000 Million, indicates investor confidence in management’s execution.

Capital Allocation Strategy #

• Growth Investments: A significant portion of capital expenditure is directed towards geographic expansion (new facilities, acquisitions) and strengthening the distribution network.
• Debt Reduction: Proceeds from the QIP were used to repay debt, strengthening the financial position and indicating prudent capital management.
• Shareholder Returns: Has a formal dividend distribution policy and has declared both interim and final dividends. A share split was also executed to increase accessibility for investors.
• Sustainability Investments: Investments in renewable energy, water conservation, and waste management demonstrate a commitment to long-term sustainability.

ESG Framework: Varun Beverages Limited Analysis #

Environmental Metrics and Targets #

Water Stewardship #

• Metrics:
  • Water Usage Ratio (WUR): 1.56 liters of water per liter of beverage produced in CY 2024, 1.57 times in 2023 (steady state 1.50 and 1.54 times, including greenfield plants).
  • Water Recharge Ratio: 2.14 times in CY 2024. 2.00 times in 2023.
  • Water Recharged: 15.54 billion liters recharged in CY 2024, against 7.27 billion liters consumed.
  • Water Bodies Adopted and Maintained: 192.
• Targets:
  • Sustain water recharge ratio above 2.00x by 2025.
  • Reduce Water Usage Ratio (WUR) from 1.92x (2020) to 1.40x by 2025.
  • 19% reduction in water usage per liter of beverage production from the base year CY 2020.
  • Community Led Rejuvenation of water bodies (RWB) program, adding 0.6 Billion litres of water capture capacity.
  • Basin Leader for Yamuna Basin under the India River Basins Collective Action Program (UNCEO Water Mandate).

Waste Management (Primarily Plastic) #

• Metrics:
  • PET Bottle Recycling: 88% of used PET bottles recycled in CY 2024, 5.86 lakh MT of used PET bottles recycled till CY2024 since 2019.
  • Weight Reduction: 10-20% weight reduction of pre-forms (600ml to 2.25L packs), 20-25% weight reduction of closures (CSD/Juices/Waters).
• Targets:
  • 100% recycling of used PET bottles by 2025.
  • 30% r-PET utilization in total PET packaging by 2025.
  • Partnership with GEM Enviro Management Ltd. for PET recycling.

Energy Consumption & Renewable Energy #

• Metrics:
  • Renewable Energy Mix: ~16% in CY 2024, up from 13% in 2023.
  • Renewable Energy Generated: 79 million kWh in CY 2024.
  • Solar Power capacity added in many plants.
• Targets:
  • Increase Renewable Energy contribution to 30% by 2030 (vs. 7% in 2020).
  • Deployment of over 2000 electric vehicles for last mile delivery.

Carbon Footprint & Emissions #

• Metrics:
  • Validated Net-Zero targets by the Science Based Targets initiative (SBTi).
  • GHG Emissions Intensity (per liter of production): 0.24 kgCO2e/Liter in CY 2024, an increase YOY due to inorganic acquisitions.
  • Tree Plantation: ~128,000 saplings planted in 2024 (~377,000 total plantation till date, aiming to negate 9,400+ MT of carbon emissions).
• Targets:
  • Net-Zero greenhouse gas emissions across the value chain by 2050.
  • Near-term SBTi validated target: reduce absolute Scope 1 and 2 GHG emissions by 60% by 2033 from a 2023 baseline; 60% reduction in absolute Scope 3 emissions.
  • CDP A List 2024 score.

Social Responsibility Programs #

Workforce #

• Diversity & Inclusion:
  • Targeting 10% diversity mix by 2025.
  • CY 2024 diversity: 6.2% permanent, 7.7% other than permanent, 7.2% overall.
  • Hiring initiatives for transgender community members. First all female distribution centre.
• Training & Development:
  • 100% of employees covered for career development.
  • 597,032 Manhours of training in 2024 (Health & Safety, Skill Upgradation, Others).
  • Focus on upskilling/reskilling.
• Employee Well-being:
  • Comprehensive medical check-ups, consultations, and access to the “Visit Health App.”
  • Mental health and wellness programs.
  • Compliance with Factories and Food Safety Acts.
  • Provident fund, Employee State Insurance (ESI), gratuity, and leave policies.
  • Health and accidental insurance for all employees and workers.

Community Engagement #

• Shiksha Kendra: Education for underprivileged children (~34,000 students benefited since 2003).
• AARU Clinics: Free healthcare services in rural areas (340,000+ patients benefited in CY 2024 across 11 operational clinics in India and Nepal).
• Pravah Skill Development Centre: Skill development and job assistance for unemployed youth (17,000+ youth empowered).
• Water Distribution Programme: 5.7 Million Liters of drinking water distributed in CY2024.
• CSR Spend: INR 317.9 million

Governance Structure and Effectiveness #

• Board Composition: Diverse board with expertise in various fields (finance, law, marketing, operations). Includes independent directors.
• ESG Committee: Dedicated ESG Committee constituted by the Board, overseen by the Vice-Chairman.
  • Steering committee reporting to the ESG committee.
• Policies: Comprehensive set of policies covering:
  • Remuneration
  • Anti-Bribery
  • Risk Management
  • Vigil Mechanism/Whistleblower
  • Diversity
  • Code of Conduct
  • CSR
  • ESG
  • Ethical Business conduct
• Compliance: Adherence to all applicable laws and regulations, including SEBI (LODR) Regulations.
• Transparency: Regular disclosures and reporting on ESG performance.

Sustainability Investments and ROI #

• Specific ROI figures for sustainability investments are not directly provided. However, VBL made significant investments that align with their commitment.
  • Capex was ~INR 45,000 million in 2024.
  • Investment in renewable energy (solar power installations).
  • Investment in water conservation and recharge projects.
  • Investment in PET recycling initiatives.
  • CSR spending (~INR 317.9 million in CY 2024).
• Implicit ROI includes:
  • Reduced operational costs (energy and water efficiency).
  • Enhanced brand reputation and consumer loyalty.
  • Compliance with regulations and avoidance of penalties.
  • Improved employee engagement and retention.

ESG Ratings and Peer Comparison #

• CDP A List: VBL received an ‘A’ for Climate and ‘A-’ for Water Security in the 2024 CDP scores. This is a significant achievement.
• Other Awards: Received numerous awards for corporate governance, sustainability, and being a “Best Bottler” within the PepsiCo system.
• Peer Comparison: The report does not explicitly benchmark VBL against peers, but the CDP score and awards suggest a strong position within the beverage industry.

Regulatory Compliance and Future Preparations #

• Compliance: VBL demonstrates a strong commitment to compliance with relevant laws and regulations, including:
  • Companies Act, 2013
  • SEBI (LODR) Regulations
  • Environmental regulations (water, waste, emissions)
  • Labor laws
  • Food safety standards
  • Tax laws
  • Compliance of the provisions of the Corporate and other Applicable laws, rules, regulations, standards.
• Future Preparations:
  • Net-Zero targets validated by SBTi, indicating a long-term commitment to decarbonization.
  • Continued focus on water positivity and PET recycling.
  • Expansion of renewable energy use.
  • Investment in new technologies and process improvements for efficiency.
  • Strengthening of ESG governance and reporting.
  • Adaptation to evolving consumer preferences for healthier and more sustainable products.
  • Exclusive Snacks Franchising Appointment with PepsiCo for Morocco, Zimbabwe and Zambia.

Varun Beverages Limited (VBL) Financial Analysis: Future Outlook #

Management Guidance and Assumptions #

• Overall Guidance: Management presents a positive outlook, emphasizing “Future-ready with Sustainable and Consistent Growth.” They highlight strong operational and financial performance, expansion (both geographically and product-wise), and a commitment to sustainability (ESG) initiatives.
• Key Assumptions:
  • Continued Demand Growth: Sustained demand for beverages, driven by India’s demographics, urbanization, and increasing disposable income. International expansion also assumes significant untapped market potential, especially in Africa.
  • PepsiCo Partnership: A continued strong and symbiotic relationship with PepsiCo is assumed, including access to brands, R&D, and marketing support.
  • Operational Efficiency: Continued improvement in operational efficiency through backward integration, technology adoption, and process optimization. This is crucial for margin expansion.
  • Regulatory Stability: The guidance implicitly assumes no major adverse regulatory changes.
  • Sustainability Goals are Achievable: Management is confident in achieving Net-Zero emissions by 2050, 100% PET recycling by 2025, and other ambitious ESG targets.

Market Growth Forecasts #

• India: The report cites the IMF’s forecast of 6.5% GDP growth for India in FY2026 and FY2027.
• Soft Drinks Market Drivers:
  • Urbanization and Rising Middle Class
  • Young Demographics
  • Rural Market Penetration
  • Climate
  • Product Innvoations
• International Markets: Strong growth is anticipated, particularly in Africa, driven by the BevCo acquisition and expansion into new territories (Tanzania, Ghana).

Planned Strategic Initiatives #

• Geographic Expansion:
  • Africa: Consolidation of BevCo in South Africa, acquisition of PepsiCo’s business in Tanzania and Ghana, and expansion in the Democratic Republic of Congo (DRC).
  • India: Continued expansion into underpenetrated markets.
• Product Portfolio Diversification:
  • Snacks: Exclusive agreements to manufacture and/or distribute PepsiCo’s snack brands (Cheetos, Simba Munchiez) in Morocco, Zimbabwe, and Zambia.
  • Value-Added Beverages: Continued focus on expanding the portfolio beyond carbonated soft drinks.
• Operational Excellence:
  • Backward Integration: Continued investment in backward integration across production plants.
  • Distribution Network: Expansion and enhancement of the distribution network and chilling infrastructure.
  • Technology Adoption: Implementation of new technologies for energy efficiency, waste reduction, and water conservation.
• Sustainability Initiatives: PET recycling, PET light-weighting, energy-efficient manufacturing, increasing renewable energy, and water conservation.
• Sustainability:
  • Net-Zero Targets: Commitment to net-zero GHG emissions by 2050 (validated by SBTi).
  • Water Positivity: Replenishing more water than used.
  • Renewable Energy: Increasing the contribution of renewable energy to 30% by 2030.
  • PET Recycling: Achieving 100% PET bottle recycling by 2025.
  • Community Development Initiatives: Supporting initiatives that enhance local livelihoods, promote education, and foster social development.

Capital Expenditure Plans #

• CY 2024: Capex of approximately ‘45,000 million, including:
  • ‘32,000 million for three greenfield facilities in India (Supa, Gorakhpur, Khordha) and one in the DRC.
  • ‘8,000 million for international markets, including backward integration.
  • Remaining capex for future years’ needs.
• Future Capex: Approximately ‘16,500 million of CWIP and capital advances as of December 31, 2024, primarily for new greenfield facilities. An estimated ‘16,000 million in additional capex is required, including investments in the snacks segment internationally and brownfield expansions in India.

Efficiency Improvement Targets #

• Water Usage Ratio (WUR): Target of 1.40x by 2025 (down from 1.92x in 2020 and 1.56x in 2024).
• Renewable Energy Mix: Target of 30% by 2030 (up from 7% in 2020 and ~16% in 2024).
• Plastic Waste Recycling: Target of 100% recycling of used PET bottles by 2025 (88% achieved in 2024).
• Carbon Footprint Reduction: Goal of net-zero GHG emissions across the value chain by 2050. Near-term SBTi-validated targets include a 60% reduction in Scope 1 and 2 emissions by 2033 (from a 2023 baseline) and a 60% reduction in Scope 3 emissions.
• Margin Expansion: A focus on improving gross margins and EBITDA margins through cost optimization and operational efficiencies.

Potential Challenges and Opportunities #

• Challenges:
  • Economic Slowdown
  • Regulatory Changes
  • Competition
  • Input Cost Volatility
  • Supply Chain Disruptions
  • Water Scarcity
  • Consumer Preferences
  • Weather
• Opportunities:
  • Market Growth
  • Product Diversification
  • Geographic Expansion
  • Operational Efficiency
  • Sustainability
  • Partnerships

Scenario Analysis and Sensitivity to Key Assumptions #

• Scenario 1: Strong Growth (Base Case): Assumes continued economic growth, successful execution of expansion plans, stable regulatory environment, and achievement of efficiency targets.
• Scenario 2: Moderate Growth: Assumes slower economic growth, some delays in expansion projects, and moderate regulatory headwinds.
• Scenario 3: Adverse Conditions: Assumes a significant economic downturn, major regulatory changes, severe supply chain disruptions, or a significant shift in consumer preferences.
• Sensitivity Analysis:
  • Raw Material Prices
  • Energy Prices
  • Interest Rates
  • Currency Fluctuations
  • Water Usage Ratio
  • PET Recycling
  • GHG Emission

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• Opinion: The auditors (J.C. Bhalla & Co. and O.P. Bagla & Co. LLP) issued an unmodified (clean) opinion on both the consolidated and standalone financial statements. This signifies that the financial statements present a true and fair view of VBL’s financial position, performance, and cash flows in accordance with Indian Accounting Standards (Ind AS).
• Qualifications: The auditor’s report for the Financial Year 2024 does not contain any qualifications.
• Material uncertainty: They also confirmed no material uncertainty that may impact going concern basis of accounting.

Key Accounting Policies and Changes #

• Consistency: The accounting policies have been applied consistently across all periods presented, indicating a stable reporting framework, except for certain areas within the business where a change has been indicated.
• Key Policies: The report highlights significant accounting policies related to:
  • Revenue recognition (upon transfer of control of goods/services)
  • Inventory valuation (lower of cost or net realizable value)
  • Property, plant, and equipment (at cost, less depreciation and impairment)
  • Intangible assets (amortized over useful lives, with goodwill and certain franchise rights tested annually for impairment)
  • Employee benefits (defined contribution and benefit plans, actuarial valuations)
  • Leases (recognition of right-of-use assets and lease liabilities)
  • Foreign currency transactions (translation at prevailing exchange rates)
  • Business combinations (acquisition method)
  • Financial instruments (fair value measurement and impairment assessment)
  • Taxation (current and deferred tax)

Internal Control Effectiveness #

• Auditor’s Opinion: The auditors issued an unmodified opinion on the adequacy and operating effectiveness of the Company’s internal financial controls over financial reporting. This is a positive indicator of the Company’s control environment.
• Material Weakness: No material weaknesses were reported in the internal control.
• Audit Trail: One area of noted weakness was that one accounting software of the holding company and that of one subsidiary and joint venture did not have audit trail enabled at database level. Also that of two associates had audit trail facility not enabled for a certain period.

Regulatory Compliance Status #

• General Compliance: The Company states it is in regular compliance with applicable provisions of the Companies Act, 2013, SEBI (LODR) Regulations, and Secretarial Standards.
• Specific Compliances:
  • Complied with provisions related to related party transactions (Sections 177, 188 of the Act, Regulation 23 of SEBI LODR).
  • Complied with provisions of Sections 108, 110 of the Act in the issuance of postal ballot.
  • Complied with provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, SEBI (LODR) Regulations, and Sections 42 & 62 of the Act, with respect to Qualified Institutions Placement (QIP) during the year.
  • Implemented an Employee Stock Option Scheme (ESOS 2016) in compliance with SEBI regulations.
  • Maintains a Vigil Mechanism/Whistle Blower Policy.
  • Adheres to a Code of Conduct for Board of Directors and Senior Management.
  • Has not accepted any public deposits.
• Tax Compliance: Compliant with tax laws, with timely payment of statutory dues, though there have been some minor delays.

Legal Proceedings and Their Potential Impact #

• Contingent Liabilities: The Company discloses contingent liabilities related to various tax and regulatory matters. The total amount of contingent liabilities related to claims is considerable ( ’ 317.29 million related to plastic waste management).
• Impact: The outcome of these proceedings is uncertain, but the Company has made provisions where appropriate. It’s important to monitor these ongoing disputes as their resolution could have a financial impact.

Related Party Transactions #

• Disclosure: The Company discloses transactions with related parties as required by Ind AS 24. These transactions include:
  • Transactions with subsidiaries (loans, guarantees, purchases, sales, guarantee commission, etc.)
  • Transactions with associates and joint ventures.
  • Transactions with key management personnel (remuneration, benefits, dividends).
  • Transactions with entities controlled by key management personnel or their relatives.
• Arm’s Length: The Company states that all related party transactions are in the ordinary course of business and on an arm’s length basis.

Subsequent Events #

• The Company, post balance sheet date on 02 Jan 2025, has invested in the equity shares of one of its subsidiaries amounting to ’ 4,128.04 million.
• Dividend Declaration: The Board of Directors has proposed a final dividend of ’ 0.50 per equity share, subject to shareholder approval.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality:
  • High: The unmodified audit opinion, consistent application of accounting policies, and detailed disclosures indicate a high quality of financial reporting.
  • Areas for Monitoring: The reliance on management estimates (e.g., useful lives of assets, impairment assessments, provisions) requires careful scrutiny. The outcome of pending legal and tax disputes needs to be monitored.
• Regulatory Risk Assessment:
  • Moderate: The Company appears to be generally compliant with major regulations. However, the contingent liabilities related to tax and other regulatory matters represent a moderate level of risk. The outcomes of these disputes could lead to financial penalties or adjustments.
  • One area of compliance gap noted during audit trail review.

Key Points for Further Analysis #

• Detail and monitor the progress of all legal disputes and proceedings.
• Assess the reason for and impact of accounting software change, ensuring changes are documented.
• Ensure regular follow up and collection against the receivables.