Varun Beverages Q1 FY27 earnings call

Varun Beverages Limited reported a robust Q2 CY2026, with consolidated sales volume growing by 19.8% to 466.7 million cases. This translated into a 20.4% increase in net revenue from operations, reaching Rs. 84,512.3 million. EBITDA for the quarter rose by 17.2% to Rs. 23,430.4 million, while Profit After Tax (PAT) saw a 15.1% increase, amounting to Rs. 15,253.6 million. The company's strong performance was supported by healthy volume growth across both Indian and international markets.

In India, VBL experienced a 14.4% volume growth for the quarter, excluding April which was flat due to the El Nino effect. The international business maintained strong momentum, with volumes increasing by 38.4%, including 11.8 million cases contributed by Twizza in South Africa. Management noted that all African countries, except Zambia, are now 'firing' and contributing significantly to growth, highlighting the vast opportunity in the African continent.

Gross margin improved by 44 basis points year-on-year to 55%, supported by a higher mix of international business and early stocking of raw materials in India. However, the EBITDA margin declined by 76 basis points year-on-year to 27.7%, primarily due to the consolidation of the Twizza business, which operates at lower margins. Management expressed confidence in maintaining margins going forward^⏳, despite geopolitical issues impacting raw material costs, by averaging out pricing and cost impacts.

VBL extended its exclusive bottling and trademark license agreement with PepsiCo in India until April 2049, enhancing operational flexibility. The company also entered a strategic alliance with Asahi Group Holdings to introduce the CALPIS brand, marking its entry into the value-added fermented dairy beverage category. Furthermore, an agreement to acquire Devyani Food Industries (Kenya) Limited will provide ready market access in Kenya for carbonated soft drinks and energy drinks. Value-added dairy (VAD) and Nimbooz categories are growing over 40% and 30% respectively, contributing to a diversified portfolio.

Net capitalized capex for H1 2026 amounted to ~Rs. 9,500 million, allocated towards brownfield expansion in India (including a VAD line), a snack manufacturing plant in Zimbabwe, and market infrastructure. Capital work-in-progress stood at ~Rs. 4,900 million as of June 30, 2026, related to expansion in South Africa and a CSD line in Kenya. Inorganic capex of Rs. 11,314 million was incurred for the Twizza acquisition. VBL India remains net debt-free with ~Rs. 14,941 million in surplus cash, while consolidated net debt stood at ~Rs. 3,730 million, mainly due to the Twizza acquisition.

VBL is not significantly scaling the Rs. 10 price point, deeming it a non-profitable category, and is content with achieving 20%+ growth in other segments. Regarding energy drinks like STING, a temporary dip in sales occurred due to regulatory confusion, but clarity has been provided to remove the word 'energy' from labels within 90 days, and sales are expected to recover. The company believes its focus on profitable growth and diversified portfolio positions it well against competition.