The stock of Varun Beverages (VBL) was up 6.8 per cent in trade on Wednesday after a strong March quarter (Q4) performance, robust outlook and revision in profit estimates going ahead. The stock is one of the best performers in the consumer space as well as the BSE 200 of which it is a constituent. It has logged gains of 130 per cent over the past year, with 41 per cent contribution coming in the last 6 months. The stock is now part of the trillion rupee club with its market capitalisation at Rs 1.04 trillion.
The outperformance in the March quarter was led by a strong showing on the revenue front. Sales in the quarter spurted 37.7 per cent y-o-y to Rs 3,893 crore. Growth was largely driven by a volume uptick of 24.7 per cent. Despite unseasonal rains, volume growth in the Indian market came in at a robust 28 per cent (four year annual growth of 27 per cent) and was aided by distribution expansion and ramp up in energy drink, Sting.
The company indicated that growth was strong across all regions, and rural outperformed the urban segment. Volumes in the international markets were up 8 per cent as compared to the four-year growth of 15 per cent. Analysts, led by Percy Panthaki of IIFL Securities, highlight that volume growth of 28 per cent in India makes VBL a clear outlier in an otherwise subdued growth environment.
In addition to volume growth, what aided revenues was realisation growth of 10.4 per cent. Realisation per case came in at Rs 174 led by price hike in some stock keeping units (SKUs) at the end of the year ago quarter and mix improvement in smaller SKUs such as the Sting.
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Going ahead, the company is expanding its presence in value-added dairy beverages, sports drinks and juice segments to sustain its growth momentum. It is adding two plants to overcome capacity constraints and meet demand in these categories. The company is also planning to expand the distribution of the sports drink Gatorade and has launched a lower priced bottle of Rs 20 for 250ml.
Operating performance of the company was strong in the quarter. Lower raw material prices and better product mix rubbed off positively on gross margins which rose by 90 basis points y-o-y to 52.4 per cent. Strong revenue growth translated into higher operating leverage helping the company expand its operating profit margins by 170 basis points to 20.5 per cent.