Varun Beverages' stock poised for steady growth amid strong India business

Operating profit margins were flat Y-o-Y at 15.7 per cent due to the consolidation of South Africa business

Varun Beverages (VBL) reported a revenue growth of 38 per cent year-on-year (Y-o-Y) in Q4CY24, led by volume growth of 38 per cent.

 

This was driven by volume addition from South Africa and the Democratic Republic of Congo (DRC).

 

Organic volume growth was 5 per cent Y-o-Y. Realisation remained flat Y-o-Y at Rs 172/case. There was healthy volume growth in India (11 per cent).

 

The management guided about double-digit volume growth in the domestic market and higher growth internationally.

 

VBL’s revenue grew 38 per cent Y-o-Y to Rs 3,690 crore with 38 per cent growth in volume to 215 million cases.

 

Realisation was flat Y-o-Y (at Rs 172/case). International volumes (excluding South Africa and DRC) grew 8 per cent Y-o-Y to 45.2 million cases, while India volumes rose 5 per cent to 119 million cases.

 

South Africa and DRC together reported volumes of 51 million cases.

 

Operating profit margins were flat at 15.7 per cent due to the consolidation of South Africa business.

 

Operating profit per case inched up 1 per cent Y-o-Y to Rs 27. Operating profit stood at Rs 580 crore up 39 per cent.

 

Adjusted net profit grew 40 per cent to Rs 1,250 crore partly offset by higher depreciation (up 57 per cent) and increased finance costs (up 48 per cent) for acquisition of BevCo and setting up four new production facilities.

 

Subsidiary (consolidated minus standalone) revenue grew 2x and operating profit 2.1x Y-o-Y to Rs 1,800 crore and Rs 250 crore, with a net loss of Rs 23.5 crore (versus adjusted net profit of Rs 13.3 crore).

 

For CY24, consolidated revenue grew 25 per cent to Rs 20,000 crore and operating profit rose 31 per cent to Rs 471 crore and adjusted net profit was up 26 per cent to Rs 2,600 crore.

 

Total sales volume grew by 23 per cent to 1,124 million cases.

 

VBL turned net debt free in Q4CY24 through QIP proceeds, and cash flow from operations stood at Rs 3,380 crore in CY24 against Rs 2,390 crore in CY23. 

 

The management expects to sustain double-digit growth and 21 per cent margins in the Indian market. Projected capex for CY25 is Rs 3,100 crore, of which VBL has already spent Rs 1,650 crore as of December 2024.

 

The capex will raise total capacity by 25 per cent from the CY24 level by setting up greenfield facilities in India and snacks manufacturing overseas.

 

Sting contributes 15 per cent of global volume, while the energy drink segment in India remains underpenetrated, accounting for only 5-6 per cent of total beverage volume.

 

The company is set to launch a new energy drink variant, Sting Gold, soon.

 

In South Africa, VBL is focusing on increasing the general trade mix (higher margin) versus heavy mix (40-45 per cent) of modern trade (low margin) improving margins for the region.

 

VBL anticipates strong growth of 30 per cent in this market.

 

In Tanzania, PepsiCo already has a strong foothold, and VBL will enhance it. The management expects African markets to achieve strong double-digit growth.

 

Morocco is expected to generate $25 million-$30 million in revenue, with production starting around June 2025.

 

Zimbabwe and Zambia operations began in February 2025, and the plant is set to commence production in Q3CY25.

 

Currency devaluation in Africa is currently lower than in India. In significant devaluations, costs are passed on to customers.

 

VBL currently operates in 4 million outlets across India, of a total of 12 million outlets.