Release Date: October 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Varun Beverages Ltd (NSE:VBL, Financial) reported a strong consolidated revenue growth of 24.1% for the quarter, driven by an expanded distribution network and favorable demand trends.
- The company achieved a 30.5% growth in EBITDA, with an improvement of 117 basis points in EBITDA margins, reflecting enhanced operational efficiencies.
- Successful commissioning of a greenfield facility in the Democratic Republic of Congo, which reached 100% utilization, indicates strong demand and operational capability.
- The Board approved a proposal to raise funds up to INR7,500 crores, which will support growth plans, including expansion into new territories and potential strategic acquisitions.
- International markets, particularly in Africa, are positioned to drive further growth, with significant progress on new facilities across India and Africa.
Negative Points
- The Indian market's volume growth was impacted by heavy rains, resulting in a modest 5.7% growth compared to international markets.
- Finance costs increased by 89.7% due to new CapEx and higher borrowing costs, impacting overall profitability.
- Depreciation rose by 50.2% primarily due to the acquisition of BevCo and new production facilities, affecting net income.
- Gross margins in India dipped by 120 basis points, attributed to raw material costs and changes in revenue mix.
- The company faces competition from Campa Cola, which could impact market share and necessitate strategic pricing adjustments.
Q & A Highlights
Q: Can you explain the reasons behind the sharp slowdown in India volume growth and any regional differences? Also, has there been a recovery in October?
A: The slowdown is primarily due to heavy rains affecting rural areas. The third quarter should be viewed in conjunction with the second quarter as rains can shift between them. As for competition, Campa Cola is a formidable player, but it hasn't affected us significantly. We are improving our market reach, and there's enough room for everyone to grow in the Indian market.
Q: How will the INR7,500 crores raised be utilized? Will it be for acquisitions, debt reduction, or both?
A: The funds will be used for both debt reduction and acquisitions. We are always open to acquisition opportunities and are also looking to expand our snacks business in Africa. Additionally, we are expanding capacities in India.
Q: What are the plans for the Democratic Republic of Congo (DRC) and South Africa markets?
A: In South Africa, we have corrected our backend and expect reasonable growth as the peak season starts. In DRC, our current capacities are sold out, and we are expanding them, with part of the expansion happening by early next year and the rest by mid-year.
Q: Can you provide insights into the gross margin dip in India and the steps taken in South Africa?
A: The gross margin dip in India is due to raw material costs and a shift in cost classification. In South Africa, we have improved our go-to-market strategy and corrected inefficiencies in production lines, which should lead to better margins.
Q: What is the strategy for dealing with potential competition from Campa Cola?
A: Our focus is on expanding the market by adding more outlets. We are confident in our differentiated products and market strategy. If necessary, we can introduce a range to compete on pricing, but our primary goal is market expansion.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
