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Informist, Wednesday, Apr. 30, 2025

By Anand JC

NEW DELHI – Varun Beverages Ltd. expects rising compeition, especially from Reliance Industries Ltd.'s Campa Cola, to spur the growth of beverages industry, its management told analysts in a post-earnings conference call. "This market is growing at a much faster pace as more competition is coming in, more money is being spent...," they said.

The segment is already doing much better than the other fast-moving consumer goods categories, Varun Beverages said. The company expects a double-digit revenue growth to be very "doable" in the current landscape. The PepsiCo franchisee disclosed its March quarter earnings earlier Wednesday. It reported a consolidated net profit of INR 7.3 billion, up 35% on year, on revenue of INR 56.8 billion, up 29%.

Analysts have been wary of rising competition in the beverages space amid increasing presence of Reliance Industries' Campa Cola, which they feel could disrupt the landscape. Emkay Global Financial Services on Apr. 9 had cut Varun Beverages' price-to-earnings ratio by 17% to 50x on high competition from Campa Cola, but retained a buy rating on the company.

"I think the good part is competition is making all of us put more chilling equipment, more go-to market, increasing our efforts. So, I think the overall market is growing faster than it was growing over the years," the company told analysts. Its management has attributed the growth prospects given the high underpenetration of the industry in this space, which could enable rapid growth acceleration. "...there are 12 million FMCG outlets and I think we are going to about 4 million only. So, still there is so much room for everyone to add on outlets...," it said.

During the March quarter, the contribution of carbonated soft drinks to Varun Beverages' portfolio went up by 400 basis points to 75%. Its gross margin for the period fell 171 bps to 54.6%, in part due to a higher mix of carbonated soft drinks. The company told analysts that focus on this segment has helped increase its realisation per case and eventually an increase in operating profit. 

Margins from carbonated soft drinks segment are three times higher than its other drinks, the company said. The contribution of smaller packaged products to revenue in comparison to the larger packs increased during the quarter, it said. In its international business, Varun Beverages is slowly working on building margins and is increasing the sales of high-margin products, which will take longer than a year to materialise, it said. 

Varun Beverages told analysts that an operating margin of 21% is very good for the soft drink industry. "So we have stuck to that, and we keep trying and making sure that we achieve better than that. As we are doing backward integration and expanding into bigger plants, we expect our margins to do better than that," it said.

On the input cost front, Varun Beverages does not expect raw material prices going forward. "Fortunately for us, oil prices are not going up. So, our packaging material pricing are quite stable, rather even slightly lower. Sugar slightly has gone up, so it balances out and we are quite comfortable with our production costs," the company said.

Zero-sugar drinks are still a very small segment in India, the management said.. The mix of low sugar or no sugar products increased to around 59% of its consolidated sales volumes in the March quarter, according to its investor presentation. The company sold 312 million cases across geographies in the latest quarter, registering a year-on-year growth of 30.1%. 

Varun Beverages had previously guided for a capital expenditure spend of INR 31 billion for financial year 2025. "...we are on track. And maybe INR 9 billion out of which is yet to be spent," its management said. 

Wednesday, shares of the company closed at INR 522.35 on the National Stock Exchange, down 1.3% from their previous close.   End

Edited by Akul Nishant Akhoury

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