More Stories

Informist, Tuesday, Oct. 22, 2024

By Steffy Maria Paul & Avishek Rakshit

MUMBAI/KOLKATA – Varun Beverages Ltd. is looking to expand its snacks business in Africa and enter new countries in the region by setting up manufacturing units, Chairman Ravi Jaipuria said Tuesday. The company is set to focus on the region to drive future growth. "Africa is the next horizon where the growth is going to come from. And going forward, next 20 years, Africa is looking very bullish," Jaipuria told investors in a conference call after announcing the financial results for Jul-Sept. 

The contribution from Africa to the company's total sales volumes has been on an upswing since the company started to focus on the region. During Jan-Sept, the company sold 207 million cases in Africa, which accounted for 29.5% of its total sales volume. In the last calendar year, when total sales volume was at 913 million cases, Africa accounted for 23% of the total sales volume.

At the same time, the company will not focus on one country in Africa but de-risk by investing in different countries. "There are some challenges, but that's why we don't put all our eggs in one basket. We are going into different, different countries. Each country might represent 2%, 3%, 5% of our turnover. So, (if) one country has an issue, it cannot affect us," he said.

The company is currently setting up snacks plants in Zimbabwe, Zambia, and Morocco, which it expects to commission by December 2025. Once fully operational at full capacity utilisation, these plants together can contribute $100 million towards the consolidated revenues, Jaipuria said.

In February, Varun Beverages, which is the licensee for PepsiCo Inc.'s products in India and parts of Africa, said it was setting up a plant in Morocco which will make and sell the 'Cheetos' brand of snacks owned by PepsiCo. And in July, the company said that it was signing an agreement with PepsiCo to manufacture, distribute, and sell the snacks brand 'Simba Munchiez' in Zimbabwe and Zambia.

To fund the expansion into Africa, apart from debt repayment, and other operational expenses, the company’s board approved raising funds through the issuance of equity shares, with an aggregate amount not exceeding INR 75 billion through a qualified institutional placement, subject to shareholders' approval. Jaipuria said that the fund can also be used to make acquisitions once the opportunity arises. 

"We are always open to acquisitions...We want to have a war chest available with us so that when the opportunity is available, we don't have to go back," the top official said while responding to an analyst who asked how the proceeds from the QIP will be used.

This apart, the company also aims to scale up its beverages business in South Africa and is bullish on the opportunity in Congo which it entered recently. The company is aiming to more than double its current capacity of 35 million cases in Congo in a year's time.

"We are really expecting a reasonable bump (in sales) in South Africa and DRC (Democratic Republic of Congo). Last quarter, we have grown at 12% already. And if you look at September, we have grown at 20%...September has given us the going forward what is possible, and we are very happy with the 20% growth," Jaipuria said. 

Asked about the growing competition from Campa Cola brand of aerated drinks owned by a subsidiary of Reliance Industries Ltd., Jaipuria said that the opportunity in India offers enough headroom for growth. "They (Campa Cola) are a formidable player and they will take up (market share). But the India growth story is so large that I think there is enough room for everyone to grow," he said, adding that of the 12 million retail outlets in the country, fast moving beverage companies like Varun Beverages is present in only a third of them. 

Jaipuria said that the company was looking to increase its distribution reach in under-penetrated markets in India.

Commenting on the margins going ahead, Jaipuria said that the company was focussed on reducing costs wherever possible, and four of its upcoming plants will have lower production costs which will aid margins. This apart, 17 of its plants are backward integrated which will continue to aid margins.

During Jul-Sept, its gross margins increased by 22 basis points on year to 55.5%, compared with 55.3% a year ago. The operating margins also improved by 117 basis points on year to 24.0%.

On Tuesday, shares of Varun Beverages closed at INR 594.6 on the National Stock Exchange, up 2.8.  End

US$1 = INR 84.07

Edited by Akul Nishant Akhoury

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.