Varun beverages fast growth duopoly business

Concall Notes – May 2024

Financial Performance:

• Consolidated sales revenue grew by 10.9% to Rs. 43,173 million in Q1 CY2024.
• Consolidated net realization per case increased by 3.5% to Rs. 179.7.
• Gross margins improved significantly by 385 basis points to 56.3%.
• EBITDA increased by 23.9% to Rs. 9,887.6 million.
• PAT grew by 24.9% to Rs. 5,479.8 million.

Operational Highlights:

• Three new greenfield facilities were commenced in Supa, Maharashtra; Gorakhpur, Uttar Pradesh; and Khordha, Odisha.
• Sustainability efforts include reducing sugar content and lightweighting packaging material.
• Entered into an Exclusive Snacks Appointment Agreement to manufacture and package Cheetos in Morocco by May 2025.
• Successfully completed the strategic acquisition of the Beverage Company (BevCo) in South Africa.
• Expecting the DRC greenfield plant to start production in the next quarter.

Future Growth Initiatives:

• Focused on three growth engines: South Africa, new territory of DRC, and snack food production in Morocco.
• Expecting favorable operating and financial leverage in CY25.
• Debt levels are well within norms, with a Debt-to-EBITDA ratio around 1 – 1.25.

Challenges and Opportunities:

• Delay in the Holi festival impacted the seasonality cycle in the first quarter.
• Market expansion plans in South Africa and DRC to capture growth opportunities.
• Continuous efforts to reduce sugar content and enhance sustainability practices.

Market Expansion:

• South Africa market potential is close to 1 billion cases with significant room for growth.
• DRC market has a population of over 100 million, aiming to capture a sizable market share.
• Focus on enhancing production capabilities and making new acquisitions to strengthen global presence.

Debt Management:

• Debt levels expected to stay consistent with Debt-to-Equity ratio around 0.5 – 0.7.
• Amortizing debt for BevCo acquisition and CAPEX in the next couple of months.
• Long-term strategy to maintain leverage ratios and enhance financial efficiency.

Industry Trends:

• Quick commerce and e-commerce channels still not prominent in the segment.
• Continuous focus on product innovation and market penetration to drive growth.
• Positive outlook on future growth potential driven by new projects and strategic acquisitions.

Source:Screener notes
Disc: Invested