Varun Beverages Q3 net profit up 150% at ₹81.52 crore; revenue jumps 28% YoY

In continuation with our previous coverage on Varun Beverages Limited we present here the latest quarter update. Despite being a soft quarter company performed well and here is the result overview.

Management comment on the result

“We are pleased to close the year on a strong note with exceptional operational and financial performance reported throughout CY2022. The strong recovery in demand post the pandemic and our continued efforts towards expanding the distribution network across markets resulted in a 41% growth in consolidated sales volume. 

Additionally, we achieved growth in realisation per unit through strategic measures such as selective price hikes, rationalised discounts and incentives, and improved product mix. This allowed us to deliver revenue growth of 49% and PAT growth of 108% YoY on a consolidated basis in CY 2022.

We are excited to share that our energy drink, Sting, had a remarkable year, contributing significantly to both volume and realisation growth. As the product is in an expanding category, we anticipate its strong performance to sustain in the coming year.

Our recent launches in the value-added Dairy segment have also been well-received by consumers, and we are confident that these products will continue to drive growth in the future. As a leading beverage company serving over 1.3 billion customers globally through our extensive network of over 3 million retail outlets, we take our responsibility to the environment seriously.”

Performance review for Q4 CY2022 vs. Q4 CY2021

Revenue from operations (net of excise / GST) grew by 27.7% YoY to Rs. 22,142 million. Net realisation increased by 6% to Rs. 164 primarily due to price hike in select SKUs, rationalised discounts/incentives, and improvement in mix of smaller SKUs (250ml) especially the energy drink – Sting, which has a higher net realisation.

Sales volumes grew by 17.8% in Q4 CY2022 to 132.0 million cases. EBITDA increased by 48.1% to Rs. 3,075 million from Rs. 2,076 million o EBITDA margins improved by 192 bps to 13.9% in Q4 CY2022.

PAT improved by 150.2% to Rs. 815 million from Rs. 326 million in Q4 CY2021 in a seasonally weak quarter.

Performance review for CY2022 vs. CY2021

Revenue from operations (net of excise / GST) grew 49.30% YoY to Rs. 131,731 million in CY2022 as compared to Rs.

88,232 million in CY2021. Sales volume grew by 40.9% in CY2022 to 802 million cases supported by strong performance in India as well as international territories.

EBITDA increased by 68.5% to Rs. 27,881 million in CY2022 from Rs. 16,546 CY2021. Gross margins reduced by 180 bps to 52.5% from 54.3% in CY2022 primarily due to increase in preform prices by over 30% during the year o EBITDA margin improved by 241 bps to 21.2%, led by higher realisations and operating leverage from increased sales volume.

Revenue from operations, improvement in margins, and transition to a lower tax rate in India. Depreciation increased by 16% in CY 2022 on account of capitalization of assets and Finance cost remained almost flat in CY 2022.

Key developments

Commencement of Commercial Production of Kurkure Puffcorn. Reference co-manufacturing agreement dated 28th February 2022, the manufacturing plant in Kosi, Uttar Pradesh commenced commercial production of Kurkure Puffcorn for PepsiCo India Holdings Private Limited. Agreement to distribute & sell “Lays, Doritos and Cheetos” in Morocco.

As a testimony of strong relationship between Varun Beverages Limited and PepsiCo Inc., Varun Beverages Morocco SA (a wholly owned subsidiary of the Company) started distribution & selling of PepsiCo’s snack products namely “Lays, Doritos and Cheetos” in the territory of Morocco. Revised Corporate Tax Rate for India.

The company has decided to opt for the new tax regime u/s 115 BAA of the Income Tax Act,1961 w.e.f. Assessment year 2023-24 after utilisation of all unutilized Minimum Alternate Tax credit and other tax benefits/holidays available and hence the tax provision has been done accordingly. Commencement of Commercial Production in Bihar & Jammu.

During Q1 CY 2022, the new beverage manufacturing plant in Bihar and the new backward integration plant in Jammu & Kashmir commenced commercial production.

Plant & machinery impairment / write-off

With an objective of consolidating the manufacturing plants and improving operational efficiencies, during the year, the Company has written-off / impaired following assets –

Write-off of PPE (CSD Glass and Can line) at plant in Roha, Maharashtra which had sub-optimal capacity utilisation / mix amounting to ~Rs. 146 million during Q1 CY 2022.

Write-off / Impairment of PPE at closed plants at Bargarh, Odisha and Palakkad, Kerala amounting to ~Rs. 412 million during Q4 CY 2022.

CAPEX

During CY 2022, net capex (excluding foreign exchange loss and IndAS116 adjustments) included.

• Rs. 6,300 million primarily for setting-up of new greenfield production facilities in Bihar & Jammu and brownfield expansion at Sandila facility.
• Rs. 2,500 million primarily towards brownfield expansion in Morocco and Zimbabwe.
• Rs. 3,700 million primarily towards land purchased for capacity expansion in future years.

As on Dec 31, 2022, the CWIP of ~Rs. 6,066 mn is towards greenfield expansion in Rajasthan & Madhya Pradesh and brownfield expansion at 6 plants for CY 2023 in India. The net capex estimated for CY2023 is around Rs. 15,000 million (including CWIP).

Dividend declaration

In line with the guidelines of dividend policy, the Board of Directors recommended a final dividend of Rs. 1.00 per equity share. With this, the total dividend declared for year ended 31 st December 2022 stands at Rs. 3.50 per equity share.

Shuchi Nahar is a Certified Research Analyst. She can be found on Twitter at @shuchi_nahar

Note: This article is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related investment-related decision.