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.

Varun Beverages Limited (VBL), one of PepsiCo's largest franchisees globally, has released its financial results for the second quarter, demonstrating resilience in the face of adverse weather conditions. The company, known for its extensive beverage portfolio, managed to maintain steady performance despite challenges in its key market.

Financial Highlights

For the quarter, VBL reported:

• Revenue from operations decreased by 2.5% year-on-year to ₹70,173.70 million
• EBITDA increased marginally by 0.4% to ₹19,987.70 million
• EBITDA margin improved by 82 basis points to 28.5%
• Net profit after tax rose by 5.0% to ₹13,254.90 million

Volume and Market Performance

The company faced headwinds in its domestic market:

• Consolidated sales volume declined by 3.0% to 389.70 million cases
• India volumes decreased by 7.1% due to abnormally high unseasonal rainfall
• International volumes grew by 15.1%, partially offsetting the overall decline
• South Africa market showed strong growth of 16.1%

Product Mix and Pricing

VBL maintained a balanced product portfolio:

• Net realization per case increased by 0.5% at the consolidated level

Operational Updates

The company continued to expand its production capabilities:

• Commissioned new production facilities in Prayagraj (UP), Damtal (HP), Buxar (Bihar), and Mendipathar (Meghalaya)
• Varun Beverages Morocco started commercial production of PepsiCo's snack product 'Cheetos'
• Enhanced capacity in South Africa with a new can line in Durban

Strategic Moves

VBL made several strategic decisions to strengthen its position:

• Acquired a 50% stake in Everest Industrial Lanka (Private) Limited, a Sri Lankan visi-cooler manufacturer
• Increased stake in its Zambian subsidiary from 90% to 95%
• Approved a second interim dividend of ₹0.50 per share

Management Commentary

Ravi Jaipuria, Chairman of Varun Beverages, commented on the results: "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."

Outlook

Despite the short-term challenges, VBL remains optimistic about its future prospects. With robust capacities now operational, an expanding product portfolio, and a focused distribution network, the company is well-positioned to capture emerging opportunities and drive sustainable, long-term value creation for stakeholders.

As Varun Beverages continues to navigate through market fluctuations and weather-related challenges, its strategic initiatives and international growth are expected to play crucial roles in maintaining its strong market position in the beverage industry.