Varun Beverages Ltd (VBL) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day and welcome to Varun Beverages Limited earnings conference call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you and over to you Mr. Poojari.
Anoop Poojari (CDR India): Thank you. Good afternoon everyone and thank you for joining us on Varun Beverages' Q3 CY 2026 earnings conference call. We have with us Mr. Varun Jaipuria, Executive Vice Chairman and Whole-Time Director and Mr. Raj Gandhi, President and Whole-Time Director of the company. Mr. Ravi Jaipuria, Chairman of the company, has had to excuse himself from today's call due to personal reasons. We'll begin the call with opening remarks from the management following which we'll have the forum open for a question and answer session. Before we proceed, I would like to point out that some statements made in today's call may be forward-looking in nature and a disclaimer to this effect has been included in the results presentation shared with you earlier. I would now request Mr. Varun Jaipuria to make his opening remarks.
Varun Jaipuria (Varun Beverages Ltd): Good afternoon everyone and thank you for joining us on our earnings conference call. I hope you've had a
Varun Jaipuria (Varun Beverages Ltd): Chance to review our results presentation for the third quarter and 9 months ended September 30th, 2026. We are pleased to report a strong performance in the third quarter of CY 2026. Consolidated sales volume revenue grew 28.7%, with a volume growth of 22.5% in India, and 39.9% in international markets. Revenue from operations increased by 32 point, 33.2% year-on-year to 66,075.6 million, while EBITDA grew 25 point, 25%, 25.1% to 14,267.1 million. Higher packaging costs weighed on margins during the quarter, although improved realizations and operating leverage from strong volume growth helped partially offset these pressures. In India, we continue to witness healthy volume growth during the quarter, extending the positive trend since, seen since May. This performance was supported by our extensive distribution network, expanded manufacturing capa- capacities, and ongoing investments in chilling infrastructure. We also saw improved realizations supported by growth in higher value categories such as dairy, and the introduction of premium offerings, including AdRush and the Evervess mixers range. Our international business continued to make strong progress during the quarter, with Africa remaining a key continent for expansion. With effect from 1st August 2026, the merger of Twizza with BevCo has been completed, and we expect to unlock significant operational synergies in the coming quarters. During the quarter, we've also stated beverage operations in Kenya, and introduced two new beverage brands, Bolt Up and Extreme Fizz, marking another step towards strengthening our footprint in the fast-growing African region. We also entered into an exclusive distribution agreement with Mondelēz in Zimbabwe, further broadening our product offering in the market. We are also taking measured steps towards diversifying our business into adjacent categories. The incorporation of Kiwa Spirits & Company Limited marks an important step in exploring opportuni- opportunities in ready-to-drink beverages, alcoholic beverages, and allied products. Our approach will remain focused on pursuing opportunities that leverage our execution capabilities and offer attractive long-term growth potential. In line with our dividend policy, the Board of Directors have approved an interim dividend of 25% of the face value, ₹0.50 per share, resulting in total cash outflow of 1,691 million. Looking ahead, our focus will remain on driving growth across our existing markets, supported by investments we've already made over the recent years. Alongside this, we will selectively pursue opportunities to broaden our business, while maintaining a clear emphasis on profitability and long-term value creation. I would ni- now like to invite Mr. Gandhi to share the key highlights of our operational and financial performance. Thank you.
Raj Gandhi (Varun Beverages Ltd): Thank you, Mr. Vice Chairman. Good afternoon and have a warm welcome to everyone joining us today. Let me take you through the financial and operational performance of the third quarter and 9 months ended 30th September 2026. Revenue from operations, net of excise duty and GST, increased by 33.2% year-on-year to the level of 66,076 million rupees in Q3 2026. For 9 months CY 2026, revenue grew up by 23.3% to the level of 218,146 million. Growth during the quarter was primarily driven by 28.7% increase in consolidated sales volume to the level of 354.4 million cases. In India, volume grew by a strong 22.5% during the quarter, while international territories recorded robust growth of 39.9%. Consolidated net realization per case
Raj Gandhi (Varun Beverages Ltd): water for 21.9% of total sales volume during the quarter. Coming to margins, gross margin moderated by 334 basis point year-on-year to 53.1% in Q3 calendar year 2026 primarily due to higher packaging material cost including preforms, shrink film, closures, cans arising from geopolitical disruptions. However packaging cost contributed approximately 300 basis point of pressure on gross margin. In addition, sales of non-beverage products such as preforms and caps in India increased by approximately 104% during the quarter. Given their higher COGS, these products had an impact of approximately 100 basis point on gross margin in India. The impact of around a 16% increase in sugar price was largely offset by higher proportion of low sugar and no sugar products in India with their share increasing from 44 levels in the corresponding Q3 of 2025 to the level of 88% in the Q3 of the 2026 in India, almost double. This is after accounting for the sharing of sugar reduction benefits with PepsiCo through concentrate cost as part of the transition to a low level low sugar portfolio. EBITDA increased by 25.1% year-on-year to the level of ₹14,267 million in Q3 of 2026 with EBITDA margin at 21.6%. The margin moderated only by 140 basis point in spite of higher material cost year-on-year, primarily due to the contraction in gross margin, primarily offset by operating leverage from robust volume growth across India and international territories. Importantly, despite the supply chain disruptions and input cost pressures arising from geopolitical developments, EBITDA margins in India remained broadly stable on a year-to-year basis during nine months 2026. PAT increased by 13.5% year-on-year to the level of ₹8,306 million in Q3 of calendar year 2026 compared with the 7,315 million in the corresponding quarter last year. Depreciation and finance by 34.5% and 53.5% respectively, primarily on account of acquisition of BevCo in South Africa and the associated debt funding. Other income declined by 18.8% reflecting relatively stable currency movements during the quarter. For nine months calendar year 2026, EBITDA increased by 19.9% to the level of 52,746 million while PAT grew up by 15.5% to 32,023 million. Looking ahead, we are encouraged by the strong volume growth delivered across India and international markets. Our endeavor will be to sustain healthy growth over the longer term, supported by effective utilization of our expanded capacities and market infrastructures. At the same time, we will remain focused on managing input costs and improving operating efficiencies to support profitability as we scale our operations. On that note, I will come to an end of our opening remarks and would like to now ask the moderator to open the forum for any questions or suggestions that you may have. Thank you.
Moderator: Thank you very much, sir. Ladies and gentlemen, we will now begin with the question-and-answer session. Anyone who wishes to ask questions may please press star and one on their touchtone phone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Avnish Roy from Nuvama. Please go ahead.
Avnish Roy (Nuvama): Yeah, thanks. And congrats on strong volume growth in India and overseas also. My first question is on the gross margins. What will be the outlook for next quarter and if possible even the March quarter? And coming specifically to this quarter earlier the information sharing was that sugar, that change has happened. So, very low sugar usage is there in terms of portfolio plus in terms of the packaging, lot of the buying has been done for the September quarter
Avnish Roy (Nuvama): So, wanted to understand where things change versus that initial comment. And on your specific comment that non-beverage has grown very sharply, preforms, caps etcetera. So, what is the reason for that? And could you bifurcate how much is the packaging increase, sugar increase, and this non-beverage increase? That can give us more clarity. Thank you.
Raj Gandhi (Varun Beverages Ltd): Avneesh, very good afternoon. Avneesh, as you know in the opening remarks, we have clarified the food has not affected much because of the portfolio change, innovation from 44% to 48%, low sugar or no sugar. That has been managed very well. However, with the geopolitical factors, the cost of packaging has gone up. And your comment is correct. But that was relevant for the, you know, the war started on 28th February or so, and that time we had stated that we are totally covered for the next quarter. And last quarter, you might have noticed there was no impact on the gross margins. But after that, all the purchases going forward, you know, are at the revised, increased, enhanced prices. You know, we didn't stock, you know, for much longer period than the quarter, which we could manage last quarter. But now the prices are definitely higher.
Avnish Roy (Nuvama): And how do you see outlook?
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