Varun Beverages Limited (VBL) is a key player in the beverage industry and one of the largest franchisees of PepsiCo in the world (outside the USA). The Company produces and distributes a wide range of carbonated soft drinks (CSDs), as well as a large selection of non-carbonated beverages (NCBs), including packaged drinking water sold under trademarks owned by PepsiCo. 

PepsiCo CSD brands produced and sold by VBL include Pepsi, Diet Pepsi, Seven-Up, Mirinda Orange, Mirinda Lemon, Mountain Dew, Seven-Up Nimbooz Masala Soda, Evervess, Sting, Gatorade, and Slice Fizzy Drinks. PepsiCo NCB brands produced and sold by the Company include Tropicana Slice, Tropicana Frutz, Tropicana Juices (100%, Delight, Essentials), Nimbooz, Ambient temperature value-added dairy beverages as well as packaged drinking water under the brand Aquafina.

The share price of Varun Beverages Ltd touched an intraday of Rs 645.65 up by ~5% ahead of its result on 5th May 2020. The results were declared during market hours.

Varun Beverage has reported a good set of numbers in its Q1CY20 earnings amidst the ongoing Coronavirus scare which has resulted in a nationwide lockdown.

The Profit After Tax (PAT) for the company stood at Rs 60 crores which were up by 50% as compared to Rs 40 crores in the previous quarter ended in March 2019.

Key Highlights (YoY):

  • Revenue increased by 23% to Rs 1,699 crores as compared to Rs 1,381 crores
  • EBITDA increased by 4% to Rs 230 crores as compared to Rs 221 crores 
  • EBITDA margin and PAT margin stood at 14% and 4% respectively
  • Sales Volume were up by 26% to 11 crores unit cases as compared to 9 crores unit cases
  • Earnings per Share (EPS) stood at Rs 2.66 as compared to Rs 2.02

The company had started a new fiscal year on a strong note with healthy demand and robust volume growth across our domestic and international markets. This enabled Varun Beverages to deliver double-digit growth in its top line and bottom line numbers during the quarter. In the last 10 days of March, a country-wide lockdown and similar restrictions in many of the international geographies moderated performance for the period which would have otherwise been even better.

The Company is taking all recommended precautions in its operations against the spread of COVID-19, which includes sanitization, closure of the corporate office, and its plants, following all government directions on the subject and duration of the same depending on the Government Policy.

Segment-Wise Performance (YoY):

  • Carbonated Soft Drinks (CSDs) contributed 67% to revenues as compared to 71%
  • Juice contributed 7% to revenues as compared to 6%
  • Water contributed 26% to revenues as compared to 23%

Organic volumes for the company got severely impacted in the last 10 days of March due to the spread of COVID-19 and the subsequent lockdown restrictions. As per the relaxations provided by the Government of India for essential services and particularly packaged food and beverages, Varun Beverages got the permissions from respective State Governments to operate its certain production facilities.

The Company has been able to sell its complete inventory of finished goods that were built up in March in anticipation of the upcoming season. Moreover, it has also operated a few of its production facilities in April as the demand scenario is improving with the relaxation in the lockdown.

The Company has also not availed moratorium for its debt repayments as it has been timely servicing all its debt obligations.

While we are currently witnessing curtailed demand both in India and in our international geographies as a result of the ongoing macro-situation, we believe, in the near-term, there should be a gradual bounce back in volumes. This will be enabled by easing of lockdown restrictions and restoration of consumer sentiment as they will once again have normal access to beverage purchases. Given the increasing demand that we witnessed for all our products before the lockdown, we are confident that once things stabilize, we will once again see encouraging growth and we will further strengthen our position as the leading player in the 8 beverage industry said Mr. Ravi Jaipuria, Chairman at Varun Beverages Limited.

The company has a healthy balance sheet and strong financial status which will help Varun Beverages to sail through these tough times. 

Key Highlights from the Management Call:

  • Very difficult to forecast growth as we don't know how things will Pan out post lockdown
  • As of now all the plants are operational but are not running in their usual 3 shifts 
  • Volumes are going up and we are in a position to supply the products. We do not see demand going down as people are enjoying it
  • In terms of Institutional sales, we have seen lesser growth as all hotels and restaurants are shut. Institutional sales are under 10% of the total sales
  • The management is confident of maintaining the margin level as earlier as the prices of raw materials and commodities have dropped 
  • The debt obligation out of term loan stands at Rs 476 crores while the gross debt in March was about Rs 3200-3300 crores
  • The management further said that they are supporting their distributors and can reach out to them except the ones in the red zone
  • We don't carry inventory for more than 30 days in the peak season and 15 days on a normal basis so on an inventory level we're not going to face any issue. Also in terms of logistics, we're not facing any issue
  • Rural market is comparatively more open than the urban market and before the lockdown rural used to be 30% of the market share
  • Overall this quarter India business reported 41% of the total business and globally it was 39%

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