VBL - Varun Beverages Limited Share Price

Management Outlook:
Varun Beverages anticipates sustained growth in India and international markets through deeper penetration, strategic expansions, and investments in technology/sustainability. Focus areas include leveraging distribution networks (visi-coolers in underpenetrated regions), backward integration (e.g., South Africa), and optimized product mix (healthier beverages). Acquisitions in Tanzania/Ghana (pending approvals) and snack foods entry in Morocco/Zimbabwe/Zambia aim to diversify portfolios. Capacity expansion (20-25% in 2025) via Greenfield/Brownfield projects (India, DRC) will support demand. Post-QIP (Rs.75,000M raised), the company is net debt-free, with improved working capital (31 days). Margins are expected to strengthen through cost efficiencies, PET procurement, and reduced sugar reliance.

Major Points:

1. Growth Drivers:

   • India: 11.4% volume growth (CY2024); expanding distribution (400k"“500k outlets/year).
   • International: 23.2% consolidated volume growth; South Africa volumes rose 12.5% (first year).
   • Product Mix: 53% low/no-sugar products (vs. 42% in 2023); expanded energy drinks (Sting Gold launch planned).

2. Expansions:

   • New territories: South Africa, DRC; acquisitions in Tanzania/Ghana.
   • Snack foods entry in Africa; backward integration (3 dedicated, 14 integrated facilities).

3. Financials:

   • Revenue: Rs.200,076.5M (+24.7% YoY); EBITDA margin at 23.5% (+105 bps).
   • CAPEX: Rs.31,000M projected for 2025 (Greenfield plants, rPET facilities).

4. Dividend: Final dividend of Rs.0.50/share proposed.

5. Margins: Supported by strategic procurement, energy transition (16% renewables), and reduced modern trade reliance (South Africa).

6. Competition: Confidence in double-digit growth despite regional players; focus on expanding soft drink market (4M/12M outlets tapped).

Question 1:
"First on the India business, the second half volume growth is let's say about you know, about mid-single digits and with exit also at about 4%. Do you think this is mainly due to the seasonality bit and you still think about industry growth at double digit in the foreseeable future?"

Answer:
Growth is evaluated annually, not quarterly. Confidence in sustained double-digit growth remains due to distribution expansion, outlet additions, and market potential, despite seasonal fluctuations.

Question 2:
"Given the noise on competition from Campa, anything more you want to add upcoming season? Any low-priced pack from your side?"

Answer:
No immediate plans for low-priced products. Focus remains on expanding reach (adding ~400,000"“500,000 outlets annually) and leveraging existing portfolio. Regional low-priced brands coexist but do not directly threaten VBL's growth.

Question 3:
"South Africa dynamics: moving from modern trade to general trade. Can you talk about nuances of focusing on general trade?"

Answer:
South Africa's modern trade (~40"“45% of market) has lower margins. Shifting focus to general trade (60"“65% of market) aims to improve profitability. Backward integration and distribution investments (e.g., visi-coolers) will enhance margins over 1"“2 years.

Question 4:
"Capacity increase in 2025 plants and non-core volume contribution (e.g., energy drinks, juices)."

Answer:
Capacity to expand 20"“25% in CY2025. Product mix: CSD (59%), energy drinks (15%), juices (8%), water (18%). Non-core growth driven by Sting, zero-sugar variants, and geographic expansion.

Question 5:
"Are you seeing urban slowdown in soft drinks?"

Answer:
No. Industry growth outpaces broader FMCG due to underpenetration (4M outlets tapped vs. 12M total). Expansion into rural and semi-urban areas drives consistent double-digit growth.

Question 6:
"South Africa's growth trajectory vs. Zimbabwe/Zambia. Strategy for Ghana/Tanzania?"

Answer:
Targeting double-digit growth in South Africa via distribution optimization. Tanzania (market leader) requires capacity expansion; Ghana needs market redevelopment. Both markets expected to grow robustly.

Question 7:
"Current quarter trends and low-sugar/no-sugar product mix."

Answer:
Double-digit volume growth continues. Low/no-sugar products now 53% of sales (vs. 42% in CY2023), driven by Pepsi Black, 7UP Zero, and Sting variants.

Question 8:
"Snack plants' revenue/margin outlook for 2025."

Answer:
Snack revenue projected at $25"“30M in Morocco (imports until local production starts in June). Margins stable due to PepsiCo partnerships. Zimbabwe/Zambia operations to scale post Q3 2025.

Question 9:
"South Africa's margin improvement timeline and capacity utilization."

Answer:
Margins to improve gradually via general trade shift and backward integration (1"“2 years). Capacity expansion (20"“25% in CY2025) aligns with demand; utilization may reach 90"“95% with strong growth.

Question 10:
"Sustainability of India margins and international margin drivers."

Answer:
Domestic margins (~21%+) sustainable via cost optimization. International margins to rise with reduced modern trade reliance, backward integration, and operational scale in new markets.

Question 11:
"Pricing decisions amid competition and 2024 launches."

Answer:
Pricing decisions involve collaboration with PepsiCo. Launches include Sting Gold (permanent) and potential new flavors. Focus on expanding energy drink market share (currently 5"“6% in India vs. 15"“20% elsewhere).

Question 12:
"Indorama JV progress and rPET self-sufficiency."

Answer:
rPET plant on track for Q3 2025 production. Aiming to meet ~100% of FY26 requirements. Minimal financial impact due to manageable investment size.

Question 13:
"Currency risk mitigation in South Africa."

Answer:
Currency risks mitigated via price pass-through and long-term market growth. Rand volatility manageable; major devaluations addressed through pricing adjustments.

Question 14:
"Discontinuation of Sting Blue and Sting Gold's role."

Answer:
Sting Blue was a limited-time product. Sting Gold (permanent) expands energy drink appeal with new flavor, targeting higher market penetration.