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    Varun Beverages Q1 FY26 earnings call

    VBLGood
    Fast Moving Consumer Goods·29 Jul 2025
    Management Summary

    Varun Beverages faced a challenging Q2 with peak summer season disrupted by abnormally early and heavy monsoon rainfall, causing 7.1% India volume decline. However, management demonstrated operational resilience with margin expansion to 28.5% through cost optimization (distributor consolidation, logistics efficiency, renewable energy). International markets grew 15.1% led by South Africa at 16.1%. With 4 new greenfield plants operational and ~70% capacity utilization, the company has significant operating leverage for when volumes recover.

    Highlights

    8

    • Q2 consolidated volumes declined 3% to 389.7 million cases; India down 7.1%, international up 15.1%

    • Revenue declined 2.5% YoY to Rs 70,173 million; H1 revenue up 9.3% to Rs 125,843 million

    • EBITDA margin improved 82bps YoY to 28.5% despite volume decline, driven by cost efficiencies and strong Africa currencies

    • PAT grew 5% to Rs 13,255 million; depreciation up 26.3% from new plant commissioning

    • India business net debt-free; visi-cooler placements up ~15% YoY

    • 4 greenfield India plants commissioned (Prayagraj, Buxar, Damtal, Mendipathar); capacity utilization at ~70%

    • Morocco snacks plant commenced production of Cheetos in June; Zimbabwe snacks plant on track for October

    • International EBITDA growth 45% on 23% sales growth driven by backward integration and favorable currencies

    Concerns

    1

    • Peak summer season severely impacted by early and heavy monsoon; India volumes down 7.1%

    Key financials

    Metrics

    7

    Periods

    2

    Headline

    3
    • H1 Revenue
      1,25,843 Mn
      YoY+9.3%
    • H1 EBITDA
      32,627 Mn
      YoY+9.5%
    • Capacity Utilization
      70%

    Q2

    4
    • Revenue
      70,173 Mn
      YoY-2.5%
    • Volumes
      389.7 Mn
      YoY-3%
    • EBITDA Margin
      28.5%
    • PAT
      13,255 Mn
      YoY+5%

    Segment breakdown

    Q2 Volume Mix
    75% CSD18% Packaged Drinking Water7% NCB
    International Performance
    15.1% Volume Growth16.1% South Africa Volume Growth23% Revenue Growth45% EBITDA Growth
    List

    Guidance & targets

    2
    CategoryTargetPriority
    Margins
    Consolidated EBITDA Margin
    21%+ (formal); delivering well above
    		High
    CAPEX
    India CAPEX
    Rs 600-700 crore for next year
    		High

    Risks & concerns

    6
    RiskSeverity

    Peak summer season severely impacted by early and heavy monsoon; India volumes down 7.1%

    Q2 is the most important quarter for beverages. Abnormally early monsoon onset destroyed peak demand period. — Management acknowledged

    high

    Rising competitive intensity with new player (Campa/Reliance) investing heavily in CAPEX

    Management maintains consumer demand is not a challenge and competition will get its share. Formal margin guidance stays at 21%+. — Analyst downplayed

    medium

    Sting Gold launch getting mixed reception; not performing like Sting Red

    Some markets accepted, some haven't. Want to push it through another season before deciding. — Management acknowledged

    low

    Negative ASP trend in India from water push and distributor support

    India revenue declined 9% vs 7% volume decline. Management gave distributor support and pushed water to maintain route viability. — Analyst acknowledged

    medium

    Areas of Evasion(2)

    • Future international growth rate targets
    • Competition impact quantification

    Q&A highlights

    3

    “We have consolidated distributors for larger load sizes, opened plants closer to markets reducing freight costs, rationalized manpower, newer lines have higher efficiencies, added more renewable energy”

    Margins expanded 82bps despite 3% volume decline, demonstrating structural cost improvements that are sustainable

    asked by Abneesh Roy (Nuvama)

    1 min read4 chapters

    Detailed Narrative

    01

    Peak Season Washed Out but Margins Protected

    India volumes declined 7.1% in the most critical Q2 due to abnormally early and heavy monsoon. However, EBITDA margin expanded 82bps to 28.5% through structural cost savings: distributor consolidation reducing freight costs, newer plants closer to markets with higher efficiency, manpower rationalization, and renewable energy additions. All savings are described as sustainable and recurring.

    02

    International Operations Outperforming

    International volumes grew 15.1% with South Africa leading at 16.1%. International EBITDA grew 45% on 23% revenue growth driven by backward integration benefits in Zambia, DRC, and Morocco, favorable currency movements, and lower sugar prices. Morocco snacks plant commenced Cheetos production in June. Zimbabwe beverage volumes stabilizing after sugar tax impact.

    03

    Capacity Built for Growth

    Four greenfield India plants now operational (Prayagraj, Buxar, Damtal, Mendipathar) bringing capacity utilization to ~70% with 2+ years of headroom. CAPEX capitalized at Rs 25,000 million in H1. India CAPEX guided at only Rs 600-700 crore for next year. JV formed with Everest Cooler for in-house visi-cooler manufacturing. Distribution reaches ~4 million outlets with 10% expansion target.

    04

    Strategic Developments

    Morocco snacks (Cheetos) commenced commercial production. Zimbabwe snacks plant on track for October. 50% equity taken in Everest Cooler's Sri Lankan plant for visi-cooler supply to South and West India. Management actively looking for international acquisitions and territory expansion. India business net debt-free with interest income exceeding costs.

    This is an AI-generated summary of a publicly available earnings call transcript.