Varun Beverages rallies 7% on strong December quarter earnings

The strong recovery in demand post the pandemic and continued efforts towards expanding the distribution network across markets resulted in a 41% growth in consolidated sales volume in CY22.

Shares of Varun Beverages (VBL) rallied 7 per cent to Rs 1,304.50 on the BSE in Tuesday’s intra-day trade in an otherwise subdued market. In past two trading days, the stock of beverages company surged 12 per cent after the company posted robust revenue growth in December quarter (Q4CY22), fueled by strong volume growth and higher realization. In comparison, the S&P BSE Sensex was down 0.22 per cent at 60,375 at 11:40 AM.

The company’s revenue from operations grew by 27.7 per cent year-on-year (YoY) to Rs 2,214 crore. Net realization increased by 6 per cent to Rs 164 primarily due to price hike in select SKUs, rationalized discounts/incentives, and improvement in mix of smaller SKUs (250ml) especially the energy drink – Sting, which has a higher net realization. The sales volumes grew by 17.8 per cent in Q4CY2022 to 132.0 million cases.

The earnings before interest, taxes, depreciation, and amortization (EBITDA) increased by 48.1 per cent YoY to Rs 307.5 crore. EBITDA margins improved by 192 bps to 13.9 per cent in Q4CY2022.  Profit after tax (PAT) more-than-doubled to Rs 81.50 crore from Rs 32.6 crore in Q4CY2021 in a seasonally weak quarter, the company said.

The management said the strong recovery in demand post the pandemic and continued efforts towards expanding the distribution network across markets resulted in a 41 per cent growth in consolidated sales volume in CY22. “We are excited to share that our energy drink, Sting, had a remarkable year, contributing significantly to both volume and realization growth. As the product is in an expanding category, we anticipate its strong performance to sustain in the coming year,” the management said.

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

In past one month, VBL has underperformed the market with 0.50 per cent fall in its stock price. In comparison, the S&P BSE Sensex was gained 1 per cent. However, in past one year, it zoomed 107 per cent, as against 5 per cent rise in the benchmark index. The stock had hit a record high of Rs 1,432 on December 12, 2022.

Motilal Oswal Financial Services expect VBL to maintain its earnings momentum, underpinned by increased penetration in newly acquired territories of South and West India, higher acceptance of newly launched products, and growing refrigeration in rural and semi-rural areas.

According to ICICI Securities, the company’s new product launched in last two years like ‘Sting’ & ‘Dairy based beverages’ has seen a robust growth in last one year. The company also remains relatively insulated with commodity inflation given it pro-actively procured ‘PET resin’ before the season.

Operating leverage helped in expanding margins in CY22. The company is continuing its expansion spree in relatively weak markets like Rajasthan, Madhya Pradesh, UP & Bihar. Though, we remain positive on growth prospects, it would be difficult to grow for the company at a very high pace on such a huge base in CY23. We remain positive on the company from a long term perspective, the brokerage firm said in a note.