Varun Beverages Limited (VBL) is one of the largest franchisees of PepsiCo globally, producing and distributing a wide range of carbonated soft drinks, non-carbonated beverages, and packaged drinking water. Operating across India and international markets, VBL has a strong focus on manufacturing excellence, backward integration, and strategic expansions to drive consistent, double-digit growth in the beverage segment.
In this article we are going to discuss the summary of the management commentary that was delivered on Q4FY25 performance.
Performance Highlights
- The management is pleased to report a strong operational and financial performance in the first quarter of CY2025.
- Consolidated sales volume grew by 30.1% YoY driven by healthy organic volume growth of 15.5% in India.
- The integration of the South Africa territory has progressed well with focused efforts on strengthening on ground infrastructure, streamlining operations and enhancing execution across the market.
- The company achieved 141 million cases in South Africa over the trailing four quarters marking a growth of ~13% over the same period last year. Historically, net realizations in South Africa are lower due to a higher mix of own brands.
Capacity Expansion
- The company recently commenced operations at our new Greenfield production facilities in Kangra, Himachal Pradesh and Prayagraj, Uttar Pradesh significantly enhancing capacity.
- Currently with the peak summer season, the implementation of other two Greenfield production facilities scheduled for 2025 season in Bihar and Meghalaya is on track and shall commence the commercial production very soon.
- Backward integration facilities set up in Prayagraj and DRC to enhance supply chain efficiency.
Portfolio and Geography Expansion
- Distribution of PepsiCo snack foods started in Zimbabwe and Zambia—significant growth potential in packaged foods.
- New launches: Sting Gold (malt-based energy drink) and low-price Gatorade.
- Preparing to launch Jeera-based beverage and other products post-peak season.
Outlook
- Confident about double-digit growth in CY2025.
- Targeting sustainable growth through capacity expansion, brand portfolio diversification, and GTM improvements.
- South Africa to maintain ~14.4% margin; Pepsi brand share in South Africa improved from 15% to ~20%.
Financial Performance (Q1 CY2025 vs Q1 CY2024)
- Revenue from operations (post-tax) up 28.9% YoY to ₹5,566.9 Cr.
- Consolidated sales volumes: 312.4 million cases, up from 240.2 million.
- EBITDA: ₹1,263.9 Cr (up 27.8%); India EBITDA margins improved by 111 bps.
- PAT: ₹731.4 Cr (up 33.5%).
| Particulars | Q1 CY2025 | Q1 CY2024 | YoY Change (%) |
|---|---|---|---|
| Revenue from Operations (Net of Taxes) | ₹5,566.9 crore | ₹4,319.2 crore | 28.9% |
| Sales Volume (Million Cases) | 312.4 | 240.2 | 30.1% |
| India Volume Growth (Organic) | — | — | 15.5% |
| Realization per Case (India) | Improved by 1.8% | — | — |
| Gross Margin | 54.6% | ~56.3% | ↓ 171 bps |
| EBITDA | ₹1,263.9 crore | ₹988.8 crore | 27.8% |
| EBITDA Margin (India) | Improved by 111 bps | — | — |
| Consolidated EBITDA Margin | ↓ by 20 bps | — | — |
| PAT (Profit After Tax) | ₹731.4 crore | ₹547.9 crore | 33.5% |
| Finance Cost (India) | Negligible; ₹108 Mn interest income | — | — |
| South Africa Margin | 14.4% | ~10% (previously) | Improved |
| Interim Dividend Declared | ₹0.50 per share | — | — |
Question and Answer Session Highlights
What are the early trends from the recent launches of Sting Gold and the lower price point Gatorade pack? How are these products performing as we enter the summer season?
It’s still too early to assess performance. Both products have been launched recently and are in the nascent stage. Initial acceptance has been positive, but we’ll have clearer insights in the next quarter.
Why has the higher share of CSD (carbonated soft drinks) impacted gross margins? Is the shift of water cost from other expenses to cost of goods sold (COGS) also a factor?
Yes, water cost has been reclassified from other expenses to direct cost (COGS). Additionally:
- The product mix shifted more towards CSD, which has lower gross margins than packaged water, though higher absolute realizations.
- There’s also an increased contribution of smaller packs, which raises COGS slightly.
Despite this, EBITDA margins improved due to better per-case realizations and operational efficiency.
How are you dealing with the competitive intensity from new entrants, especially in areas like advertising, which are controlled by PepsiCo? Is there irrational ad spending in the market, and how are you responding to it?
We are increasing our own spending in line with growing volumes. While we may not spend on certain campaigns like IPL this year, we allocate our ad budget strategically across categories. New entrants may spend heavily to gain visibility, which is understandable. However, we are confident in our positioning, are spending our fair share, and are satisfied with the market response and volume growth.
How is the summer season shaping up so far? Are you witnessing the same growth trend in April as seen in Q1?
We don’t assess performance on a month-to-month basis due to variable weather patterns. Our focus is on delivering double-digit growth over the full year, and we remain confident and comfortable with that guidance.
India EBITDA margins were around 25% last year and this quarter. But previously, you mentioned you’re comfortable defending 21%. Should we expect a margin drop, or is the 21% just a conservative benchmark?
We consider 21% as a healthy benchmark for the soft drink industry. That said, we continuously aim for better margins through backward integration and capacity expansion. While we may achieve higher margins, we do not formally guide above the 21% level at a consolidated basis.
Between CY2020 and CY2022, India margins were 300–400 bps lower than international margins, but this reversed in CY2023. Going forward, will India margins revert to earlier levels?
India margins are improving due to investments in larger plants and backward integration. On the other hand, international margins faced short-term challenges:
- Morocco was impacted due to an earlier Ramzan.
- Zimbabwe saw volume drops last year due to a sugar tax, but recovery is expected from this quarter.
- In South Africa, 80–85% of volumes come from own brands, which carry lower margins.
Efforts are ongoing to improve international margins by shifting toward high-margin products, especially in South Africa. This is a long-term process, but progress is already visible.
How has the South Africa business performed over the past year compared to your expectations in terms of volumes, distribution, and profitability? What can we expect in the next four quarters?
South Africa is performing well, with double-digit volume growth already achieved in the first year. Although non-profitable SKUs were discontinued, growth in profitable packs has offset the impact. It’s a large, high-potential market, and full establishment will take 1–2 years. Initial signs are encouraging.
South Africa’s margin this quarter was 14.4%, but this is a seasonally strong period. From an annualized perspective, how much improvement has occurred since acquisition (previously ~10%)?
Margins have improved from around 10% to 14.4%, and the company expects to maintain this level through the year, despite seasonality. Operational corrections and margin-enhancing measures are underway to support this.
As an investor, how is PepsiCo supporting the India market push? Are you seeing increased volumes in sports and energy drinks like Gatorade and Sting, or zero-sugar variants? How are Indian consumer preferences shifting toward healthier options, and how is Varun Beverages responding to trends like nutrition and new-age sports?
Hydration and energy are the fastest growing categories and our energy drink is one of the largest in India. Secondly, our hydration drink, Nimbooz is growing at ~100% which is a fabulous growth. Our value-added dairy beverages are also growing at close to 80%. So, the new categories are doing extremely well and at the same time there are enough newcomers who are entering these categories. The regular categories are also growing, but a faster growth is coming from these new categories.