Varun Beverages is the company that bottles drinks on behalf of PEPSICO. Drinks like Pepsi, Tropicana, Mountain Dew, 7Up, Lipton Ice Tea, Aquafina, or Gatorade are names we have all heard. Varun Beverages has come out with a stellar performance for the April-June quarter of 2021, right after the second wave of COVID-19 retracted. [The company follows the January-December financial year cycle]

In this piece, we cover the business model of Varun Beverages, its performance this quarter, and what lies ahead for the company. 

About Varun Beverages Limited (VBL)

Established in 1995, VBL is the largest bottler of PepsiCo drinks outside the US. Till 2019, PepsiCo had partnered with VBL in its bottling and distribution till it completely handed over the bottling business to VBL. As of now, VBL looks after the manufacturing of the sweeteners as well as the bottling of its products. Apart from India, VBL also operates in Sri Lanka, Zambia, Zimbabwe, and Morocco. 

VBL has a robust supply chain with 90+ depots, 2,500+ owned vehicles, 1,500+ primary distributors all across India, Nepal, and Sri Lanka.

India’s consumption of soft drinks is 44 bottles per capita, whereas, for countries like the United States, the per-capita consumption is 1,496 bottles. India, a country with 1.3 billion people, has a larger market to penetrate that can surpass that of the United States. Varun Beverages is looking to expand into the Indian rural and semi-urban areas where the market penetration is less. 

VBL’s product segments include – Carbonated Soft Drinks (CSD), Juice, and Water. Following is the sales volume breakup for the quarter ended June 30:

Segment% of Revenue
Carbonated Soft Drinks (CSD)78%
Non-carbonated Beverages 7% 
Packaged Drinking Water 15%

Q2 CY21 Results: The Finances

.Jun-2021Mar-2021QoQ%Jun-2020YoY%
Revenue2,507.52,246.611.61%1,642.852.63%
Net Profit308.2129.3138.42%140.8118.9%
All Amount In Indian Rupee Crore

VBL registered total revenue of Rs 2,507 crore in Q2 CY21. This was an 11.61% growth from last quarter (QoQ) and a 52.63% growth since one year (YoY). 

  • The company saw a three-digit growth in profit numbers. Profit was up by 138.42% QoQ and 118.9% (YoY) to Rs 308.2 crore.
  •  Total expenses up by 40.4% (YoY) at Rs 2,087.79 crore in Q2 CY21 versus Rs 1,486.49 crore in the same quarter of 2020.
  • The company has announced an interim dividend of Rs 2.50 per equity share for the financial year 2021 on equity shares of the nominal value of Rs 10 each.

What Lies Ahead

The repayment of debt as well as the lower average cost of borrowing translated into a reduction in finance costs during the quarter. The company was able to reduce its debt by more than Rs 600 crore from March 31, 2020, to March 31, 2021.

Apart from handling North and East regions, VBL took over the operations of the South and West regions in Feb 2019. One year later, the COVID-19 pandemic hit the world and the company couldn’t utilize the potential of the new acquisition. 

Right when sales volume had picked up in Q4 2020, the second wave hit the country as well as the sales volume of the company. Unlike the first wave, the supply chain wasn’t much of a problem. The situation isn’t as bad as last time since lockdowns were localized this time. Later on, the sales picked up the lockdown eased in June 2021.  

From the earnings call of the company, the following factors could possibly drive growth in the next quarter:

  • As lockdowns gradually subside and COVID-19 cases decline, sales are likely to go up. 
  • Growing refrigeration facilities in rural/semi-rural areas.
  • Increased volumes in Southern and Western regions
  • Volumes recovering in international business.

After the results, the share price of VBL closed ~4% above the previous day’s close. The company has given a return of ~60% over the past one year. Have you invested in VBL? If not, do you plan to invest?. You can let us know in the comment section in the marketfeed app.

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