KR Choksey's research report on Varun Beverages
Varun Beverages Limited (VBL) continued to see strong growth in CY23, despite the impact of unseasonal rains during peak season. Net revenue from operations grew by 21.8% YoY, backed by volume growth of 13.9% YoY and realization per case growth of 7.0% YoY. Double-digit volume growth was seen in both Indian and international operations. Realization improvement was driven by improvements in the mix of smaller SKUs (250ml) in the Indian markets and higher realization per case in the international markets. The growth was driven by robust consumption patterns among consumers, newer products such as ‘Sting’, VBL’s strategic capacity expansion program, and expansion in the distribution network and chilling infrastructure. The broader soft drinks market, encompassing carbonated soft drinks, juices, and bottled water, sustained growth during the year driven by favourable demographic shifts such as an increasing middle-cast population, and factors such as an increase in disposable incomes, urbanization, improved electricity supply in rural, and better cold storage and distribution capabilities. Due to the augmented realization per case and improved gross margins, VBL’s EBITDA for CY23 improved by 29.5% YoY to INR 36,095 Mn, accompanied by an improvement in EBITDA margins by 133 bps to 22.5% in CY23. Net Profit grew at a strong rate of 37.3% YoY, driven by the growth in revenue from operations and improved profit margins.
Outlook
VBL has been granted franchisees for various PepsiCo products across 27 States and 7 Union Territories in India (responsible for ~90% beverage sales volume of PepsiCo India). VBL has also been granted the franchise for the territories of Nepal, Sri Lanka, Morocco, Zambia and Zimbabwe. India is the largest market for VBL and contributed ~79% of revenues from operations on a net basis in CY23.
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