Varun Beverages Ltd (VBL), one of PepsiCo's largest franchisees, showcased its resilience in the face of challenging weather conditions during the second quarter of 2025. Despite a 3% decline in consolidated sales volume, the company managed to improve its EBITDA margin and report growth in profit after tax (PAT).

Financial Performance

VBL reported a revenue of Rs. 70,173.00 million in Q2 2025, marking a 2.5% year-on-year decline. The company's consolidated sales volume decreased by 3% to 389.70 million cases, primarily due to unseasonal rainfall in India. However, VBL's international markets demonstrated robust growth, partially offsetting the domestic slowdown.

Despite the volume decline, VBL improved its EBITDA margin by 82 basis points to 28.5%, reaching Rs. 19,987.70 million. This improvement was driven by operational efficiencies and strong currency performance in international operations. The company's PAT grew by 5% to Rs. 13,254.90 million, supported by improved operational efficiencies and lower finance costs.

Operational Highlights

• India Performance: India volumes declined by 7.1% due to abnormally high and unseasonal rainfall throughout the quarter.
• International Markets: International volumes grew by 15.1%, led by South Africa's 16.1% growth.
• Product Mix: Carbonated Soft Drinks (CSD) accounted for 75% of total volumes, Packaged Drinking Water contributed 18%, and Non-Carbonated Beverages (NCB) made up the remaining 7%.
• Low/No Sugar Products: These products contributed around 55% of consolidated volumes in H1 2025, reflecting VBL's efforts to evolve with consumer preferences.

Expansion and Strategic Initiatives

VBL commissioned four new Greenfield plants in India:

These plants enhance VBL's production capabilities and supply chain agility. Their multi-line configurations across CSD, Juice-Based Drinks (JBD), and water categories provide flexibility to meet rising demand.

In Morocco, VBL commenced commercial production of PepsiCo's snack product 'Cheetos', marking its expansion into the high-potential snacks category. The company also enhanced its capacity in South Africa by setting up a can line in Durban.

Dividend Declaration

The Board of Directors approved a second interim dividend of Rs. 0.50 per share, resulting in a total cash outflow of approximately Rs. 1,691.00 million.

Future Outlook

Ravi Jaipuria, Chairman of Varun Beverages, commented on the results, stating, "Although unseasonal rains have impacted performance during the quarter, we have successfully navigated such challenges in the past and we have emerged stronger." The company remains focused on strengthening its on-ground execution by adding more visi-coolers and ensuring wider product availability across retail touchpoints.

With robust capacities now operational, an expanding product portfolio, and a sharply focused distribution network, Varun Beverages is well-positioned to capture emerging opportunities and drive sustainable, long-term value creation for all stakeholders.

The company's strategic initiatives, including cost optimization, capacity expansion, and diversification into snacks, demonstrate its commitment to long-term growth and resilience in the face of short-term challenges. As VBL continues to navigate the evolving beverage market landscape, its strong performance in international markets and operational efficiencies position it well for future growth.

Varun Beverages Ltd (VBL), a key PepsiCo bottling partner, announced robust financial results for the second quarter, demonstrating resilience in the face of challenging weather conditions.

Profit Surges Despite Revenue Decline

VBL reported a significant 81.2% sequential increase in profit after tax, reaching Rs 1,325.49 crore. This marks a 5% year-on-year growth from Rs 1,261.83 crore in the same quarter last year. However, the company experienced a 2.3% decline in revenue from operations, which stood at Rs 7,333.67 crore.

Operational Performance

The company's EBITDA margin expanded by 82 basis points to 28.5%, despite higher fixed overheads from four newly commissioned plants in India. This improvement in profitability came in the face of challenging market conditions, including abnormally high unseasonal rainfall throughout the quarter in India.

Sales Volume and Market Dynamics

Consolidated sales volumes declined by 3% to 389.7 million cases, primarily due to the adverse weather conditions. Domestic sales volumes fell by 7.1%, while international markets showed strength with a 15.1% volume growth, led by South Africa's impressive 16.1% increase.

Financial Position and Shareholder Returns

Varun Beverages maintained a net debt-free position with free cash of Rs 514.90 crore. The company's board approved an interim dividend of Rs 0.50 per share, resulting in a total cash outflow of approximately Rs 169.1 crore.

International Expansion and Product Diversification

In a significant move to diversify its product portfolio, Varun Beverages Morocco has commenced commercial production of PepsiCo's snack product 'Cheetos'. This expansion into the snack category complements VBL's beverage portfolio and is expected to diversify revenue streams.

Outlook and Management Commentary

Ravi Jaipuria, Chairman of Varun Beverages Limited, commented on the company's performance: "We delivered a resilient performance during the quarter. In spite of unusually early onset of monsoon rains in the peak summer months in India, we could keep our realizations per case and EBITDA margins intact."

He added, "Although unseasonal rains have impacted performance during the quarter, we have successfully navigated such challenges in the past and emerged stronger. We continue to strengthen our on-ground execution by adding more visi-coolers and ensuring wider product availability across retail touchpoints."

Conclusion

Despite facing headwinds from unfavorable weather conditions in its domestic market, Varun Beverages has demonstrated its ability to maintain profitability and pursue growth opportunities. The company's strong performance in international markets, coupled with its expansion into the snacks category, positions it well for future growth and diversification.