Varun Beverages Limited (VBL) Q3 2026 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Varun Beverages Limited's 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 conference. Should you need assistance during the conference call, please signal an operator by pressing star 10-0 on your touch phone call. Please note that this conference is being recorded. I now hand the conference over to Mr. Anupo Jari from CDR India. Thank you, and over to you, Mr. Kuchat.

Thank you. Good afternoon, everyone, and thank you for joining us on Varun Beveridge's Q3CY2026 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'd like to point out that some statements made in today's call may be power-looking in nature, and a disclaimer to this effect has been included in the results presentation shared with you earlier. I will now request Mr. Varun Jaipuriya to make his opening remarks.

Good afternoon, everyone, and thank you for joining us on our earnings conference call. I hope you've had a good chance to review our results presentation for the third quarter, and nine months ended September 30, 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 33.2% year-on-year to $66,075.6 million, while EBITDA grew 25.1% to $14,267.1 million. Higher packaging costs weighed on margins during the quarter, although improved realizations and operating leverage partially offset these pressures. We continued to witness healthy volume grow during the quarter, seen since May. This performance was supported by our extensive distribution network, expanded manufacturing capacities, and ongoing investments in chipping 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 Everwest Mixers range. Our international business continues to make strong progress during the quarter, with Africa remaining a key. With effect from 1st August, 2026, the merger of Twiza with Befco has been completed, brought significant operational synergies in the coming quarters. Two new beverage brands bolt up in the fast-flowing, entered into an exclusive distribution agreement with Mondelez in Zimbabwe, into adjacent categories, the incorporation of Kiva Spirits and Company Limited, It marks an important step in exploring opportunities in ready-to-drink beverages, alcoholic beverages, and allied products. We focus on pursuing opportunities that leverage our execution capabilities and offer attractive long-term growth potential. In line with our dividend policy, 25% of the 50 Paisa per share, resulting in total cash out from 691 million. Looking ahead, across the existing market, supported by investments we have already made over the recent years, alongside this, we will selectively pursue opportunities to broaden our business, share the key highlights of our operational and financial performance.

Welcome to everyone joining us today. Let me take you through the financial and operational performance of the third quarter and nine months ended Friday, September, 2026. Revenue from operations, net of excise, VOT, and GST increased by 33.2% year-on-year to the level of Rs. 66,076 million in Q3, 2026. For nine months of CY, 2026, revenue grew up by 23.3% to the level of Rs. 18,146 million. During the quarter was primarily driven by a 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 net realization per day on account of growth in high-value categories and further launch of premium categories like Adrush, Eververse Mixer's range, calibrated discounting, and efficient price-backed architecture. In international markets, realization per day is improved on account of improved realization in South Africa and corn exchange impact. In terms of volume mix, carbonated soft drinks accounted for 73.3%, juice-based drinks to the level of 0.8% and packaged drinking water for 21.9% of total sales volume during the quarter. Coming to margins, gross margin moderated by 334 basis points year-on-year to 53.1% in Q3 calendar year 2026, primarily due to higher packaging material costs including pre-form, shrink-film, closures, cans arising from geopolitical disruptions. However, packaging cost contributed approximately 300 basis points of pressure on gross margin. In addition, sales of non-beverage products such as pre-forms and caps in India were approximately 104% during the quarter. Given their higher cost, these products had an impact of approximately 100 basis points on gross margin in India. The impact of around a 16% increase in sugar price was largely offset by a 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 part of the year-on-year to the level of Rs 14,267 million in Q3 of 2000. Margin moderated only by 140-hour fire material cost margin primarily offset by operating leverage from robust value to international territory. India margins in India remained 13.5% year-on-year, $206 million in Q3 of calendar year 2026, compared with the $7,315 million in the corresponding quarter last year. Depreciation and financials were 4.5% and 53.5% respectively, acquisition of Twiza 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 BAT grew up by 15.5% to $32,023 million. Looking ahead, we are encouraged by the strong volume growth in the national market. Our endeavor will be to sustain healthy growth over the longer term, supported by effective utilization of our expanded capacities. We will remain focused on operating efficiencies to support profitability. Any questions or suggestions that you may have?

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 your touchtone phone. If you wish to withdraw yourself from the question queue, you may press star and two. Husbands are requested to use only handsets while asking our questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abneesh Roy from Nuwama. Please go ahead.

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 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 the portfolio, plus in terms of the packaging, a lot of the buying has been done for the September quarter. So, I wanted to understand where things change versus that initial comment. And on your specific comment that non-beverage has grown very sharply, peak forms, caps, etc. 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.

Avnish, good afternoon. Avnish, 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 at that time we had stated that we had totally covered for the next quarter, and last quarter you might have noticed there was no impact on the gross margin. 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 the last quarter. But now the prices are definitely higher. And how do you see outlook? Outlook, see, this is a macro factor. Both are macro factor food and the packaging. But in our case, you know, in spite of that, through the innovation, we are able to manage sugar very well. And as far as material cost is concerned, cost-wise may not be possible to give any comment. However, how we will mitigate the way we out of the four or three percent, we have mitigated more than half of this by reduction in cost. I think if your question is directed towards that, we will definitely be able to answer that and how to preserve our margins. That will be a little pointed and easier for us.

Perhaps only Mr. Trump. The question is that the industry, of course, for two quarters has been feeling the pain of the cost going up because the raw material cost is increasing. I think there is enough chatter within the, you know, Beverage Association, which is all the players who were there, in terms of if the prices do remain high, then what are the measures they will take? Because over two quarters, we usually do not act so fast on price-back architectures. But there is conversation if the pricing stays high, do they downsize certain packs, do they take certain pricing up, or will there be a trade margin reduction? So we'll have to wait and see what happens on that.

Abhinish, just to add what Mr. Varunjaya Puri has stated, is that we have already brought, you know, strain from 300 ml to 250. So, depending upon the market condition, competitive scenario, etc., the other portfolio also from time to time will be reviewed.

So, thanks. Just one quick follow-up. So, this is extreme geopolitical situation which comes, say, once in 10 years and 20 years. And generally, EFSI is known to have discussion on how they can help here. So, especially given the new cola player has an in-house, obviously one of the largest pet supplies, so they can absorb this cost while you and the other legacy player will have to face that. So, any talks with Pepsi to handhold in this scenario?

I think it's too early. That's what I said right now. We're all figuring out what price pack can we do. So, of course, cost is increasing, not just for us. I'm sure for PepsiCo as well, back-end cost must be increasing. Hence, for the industry, the cost is increasing. So, we're going to wait and watch. Well, in terms of volume and negating the 400 basis points of able to negate it, then, of course, the whole industry will take some action on price back for sure to negate it.

Sure. Second and last question on this Mondelē's relationship in Africa, in Zimbabwe. Any numbers you can share from a longer term, three to five years, what can be the opportunity here? And do you see more markets getting adjacent, adjacent markets in Africa from Mondelē?

See, it's very nascent, right? Mondelez is one of the best brands you can work with, right? And we're very fortunate to partner up with them. They already have an existing business of about $11 million in Zimbabwe, partners they were working with. I'm sure he was not able to harness the full potential of the market, hence, you know, we're partnering up with them. So I think once we are in the market, since we do understand Zimbabwe very, very well, it was a greenfield share there. Let us get our teeth into it. We're getting the whole portfolio for distribution, and we're quite hopeful once we understand what the whole market is, and once we start the distribution properly, we can come back to you and give you some concrete answers on it.

Sure. Thank you. That's all from my head. Thank you.

Thank you, Avinish.

Thank you. The next question is from the line of Vivek M. from Jefferies. Please go ahead.

Hi, good afternoon. A couple of questions. First is on the competition side, you know, we have had one of the food companies which did mention that, you know, the competition seems to be awaiting right now. What are your thoughts on the same issue, please? What I'm saying is, like, Tara Consumer, on their conference call, mentioned that, you know, they sounded far more confident on the, let's say, the market structure and how things are evolving. What is your view on the competition in general? You know, your latest thoughts, please?

No, I think, you know, we had subdued quarters due to the seasonality of what we had mentioned. If you see a quarter one as well, we had performed very well. High WDG growth is what we had. And then quarter two, due to seasonality, obviously had gone down, which we had clarified earlier. Now, again, the weather has been very good. The price pack is holding up in the market. The growths are back. There is no reason why we believe that, you know, the growth should not be coming going forward. And, you know, we mentioned many times that the per caps in India are still very, very low. Even our neighboring countries and the amount of expansion of growth which is there, even for us and our competition today, we all can grow. Hence, if you see today, even if we've grown, I'm sure all our competitors are growing, even Tata consumers have given very good numbers, is what I hear in terms of their beverage portfolio. So there's no reason as to why we should all not keep growing.

Got it. The other thing, Varun, is, you know, in the last, so when I look at your India unit realizations, you know, in the last six, seven quarters, there has been a downward pressure. And we saw that, you know, changing in, you know, early part of this year, and then we have seen further build up from there. I know the raw material trends are, you know, also, or the trend has been difficult, which is why, you know, you explained about the price and the mix and everything. But does that also signal that, you know, like December last year, the unit realization was at the bottom? The worst, from a competition standpoint, does that also signal from this unit realization in India trend?

Vivek, instead of giving a forward statement, I draw your attention. Look at this quarter. That trend is already reversed, and there is increase in realization per case. I think that's a good indication, and you can build on that.

See, I think pressure. There's so much operational efficiency what we've built in, And there's so much operational leverage because of the growth what we're getting. And even if you see a nine-month trend, we're trailing at 17%, 16%, 17% growth now largely, right, which is a good double-digit growth. And I think there's a lot of initiatives what we've done internally as well. It could be the mid-cal, saving what we brought in, bigger plant operation is what we brought in, lot of distributed consolidation is what we've done. So these are routine things what we keep doing, which gives us huge operational flexibility. Now, we believe going forward, these are routines here which will keep happening. So, if the raw material element goes out and starts stabilizing, I think there should be no concerns when it comes to our margins.

Got it. Got it. And the second question is on the international business. Obviously, the volume growth both organically and reported basis has been very good. Given that it's a, you know, it's a geography or the, you know, cluster of geographies which we do not fully understand, can you just talk about, you know, talk about your outlook from a next few quarter perspective on the international side and anything to call out for any of the geography?

See, I think we're doing very well in Africa. I mean, most of the places, we are out of capacity. We are investing in CapEx in Morocco now because we don't have enough capacity there. We're investing in Zimbabwe since we don't have capacity. This is what we are seeing, and it's continuing.

And anything on the currency side of things, you know, because that's one thing. So there hasn't, I mean, it has yo-yoed a bit, but is there any of the markets, any worry on that front?

There is no worry, Vivek. The only thing is, last year, there were bumpers. Currency had gone up. Local currencies had gone up vis-a-vis dollar. This year, this has stabilized. A lot of commodities, minerals, metals, you know, those natural resources, which are in demand, and those currencies are holding on. In fact, the South African currency has become costier since we acquired those. Got it.

Got it. And, Mr. Gandhi, last thing, which is, you know, in the earlier quarter, you had mentioned about, you know, there was some impact of regulatory issues on the energy drinking, I think, June, as well as, if I recall correctly, I think you mentioned for July, how things are on the energy ring side in this quarter?

It happened, which happened with Sassai, that, you know, they had banned the use of the word energy. Energy brands in India were done under carbonated beverages, not under energy as a category, because energy as a category did not exist in India. So the ruling what they had was you can't use energy. Of course, that created some turmoil in the markets amongst the retailers and the distributors. But I think that's for everybody. And we see Sting, you know, holding a very, very high market share in the energy segment. So Sting is coming back here. Sting is coming back. The volumes are looking promising. And it is building back.

Got it. And would you be able to quantify where it is today versus if 100 is the baseline? Because the growth that we have seen, you know, your comment suggests that it is still not, you know, up to the mark. So, is that a fair understanding, which means the rest of the portfolio growth has been faster than what the headline number suggests then?

No, of course, that has to be there, right? Because in the middle, people weren't sure if they want to stock up energy or not from every distributor, not just us, comparative products, and retailers are not sure if they want to stock up energy. So, let's assume the negativity was 25%. Now, we can say we are slightly positive. So, I think month on month on a quarter, we're moving towards the positive range versus where we were at least.

Yeah, this helps. Thank you very much. Wishing you and your team all the very best.

Thank you. Thank you, Bibi.

Thank you. Please and gentlemen, in order to ensure that the management will be able to address questions from all the participants in the conference, kindly limit yourself to two per participant. Should you have a follow-up question, please rejoin the queue. The next question is from the line of Adipa Suman from CLSA. Please go ahead.

Hi. Good afternoon. So, two questions from me. Firstly, can you give us a sense of the volumes for volume growth that you're seeing for the non-carbonated business? And second, you indicated that you've taken a price increase or a volume cut for Sting. When was this taken? And broadly, the price increase that we're seeing in the portfolio as well for India, from a timing perspective, Should we expect that to play out fully in the December quarter?

Sorry, I'm not clear. When you say we've begun a price increase in the portfolio, means what exactly?

No, so we've seen the net realizations improve in India, as well as you indicated that for Sting, you've reduced the grammage, right, or the volume. Yeah, so when was this taken, so we can estimate better for the portfolio?

Yes, there's no pricing which we've taken on the CSD portfolio that's come through operational efficiency, like I had mentioned, and the consolidation of distributors and bigger plant productions, more operational efficiency, mid-care sugar saving, some saving and tradespents we did. So, there's no pricing on the CSD portfolio or there's no change in the pack size what we've done this quarter. On Sting, the downsize, what we did, from 300 to 250, I'll have to get you the exact date. I think it was May or June, around about that time.

We'll come back, exact number, but from the top of memory, it's sometime in the last quarter only. And the trade spend, these are the two contributors, which, you know, rationalization of trade spend, these has contributed to the market.

Yeah, we'll get you the exact numbers, yeah.

No, very clear, thanks.

The next question is from the line of Devanshu Bansal from MK Global. Please go ahead.

Hi, Varun. Thanks for the opportunity and congratulations on the very strong domestic volume role. Varun, my question is to better understand how unorganized industry is playing out, right? So, while the margin is a hit for us, but it is a bigger hit for the smaller unorganized players. So, we have preserved our magic price points. So, wanted to check if this can lead to better growth for us in the coming quarter or next year. So, any views if you could share?

See, you know, the example I give everybody is, if you go to the southern markets, right, the industry mix in the southern markets is almost 50% of bee brands. Whereas, if you come to the northern markets, only probably 15%, 18%. But if you go there, I mean, we've been growing, so there's a different market and different consumer who's consuming our price point versus the 10 rupees plus price point. The margin pressures are high, our water growths are better, because water is where the most amount of pressure is for B brand and local players due to the increase in availability and increase in raw material cost. So I think, you know, I'm sure they're growing. I don't have an exact number, but growth in terms of what we've delivered.

So, my question was more from our growth perspective. So, can this turbulent period lead to better growth for us? Obviously, because we are not changing our price points. So, can we grow faster versus what we were expecting earlier?

My only question is, when they're selling full sugar at 10 rupees, I'm not sure how, you know, bee brands are able to sell. So, I have no idea how they're running their business or what they're doing. I cannot be able to answer on that. We know that our growths are coming 20% plus, which we're very happy about. And we're hoping we can deliver better numbers, yeah?

No, fair enough. Thank you so much. And secondly, sir, DT is ballpark 10 to 15% of your sales, right?

Sorry, your voice was breaking. Could you just repeat that?

So, I'm saying PET's ballpark 10 to 15% of your sales. We have indicated a 300 basis points margin impact, which says the normative increase is only 20-30%, right? But if you see crude prices, they are up like 50-odd percent. So, I wanted to check if this entire crude increase is baked in the current P&L, Or we may see some more sort of impact as we go down the lane.

The 100% crude price is already built in because all these fresh stocks are being consumed. And the prices, of course, when we are, you know, we time or the thing, which, you know, the purchases which help us. And also, you know, we had, if you remember, we had invested in RPET.

Backward integration.

And RPET as a backward integration in-house RPET supplies, which I think about, exact number, I'll let you know, around 30% or more is RPET, which is much cheaper than the Virgin Pets. And that has helped us to keep, yes, we have the cost advantage, and if it's slowed back in the market, definitely it can also help in increasing the share also.

That's very interesting to hear. Thanks for taking my questions.

Thank you. The next question is from the line of Anand Shah from Access Capital. Please go ahead.

Yeah. Hi, team. There's a couple of questions here. Firstly, I mean, anything that you can share on this expansion on adjacent categories and especially Kiva? I mean, it's early days, but what kind of capital deployment you're looking at and what kind of plans?

Yeah, so very, very early days. I think, you know, Alcobev is an interesting space to get into, especially RTDs, the way they're growing in India, and I think Africa, there's a huge scope to grow them. And RTDs, if you see, they're growing at about 13 to 15%. So we're looking to see where can we partner up and get into RTDs. That's the PepsiCo, Coke, all the other guys, they have entered RTD in the US, in UK and Canada with their core brand, which is Pepsi, Mountain Dew, 7up, because that's what, you know, the younger generation is drinking now. So I think our plan is to enter RTD right now. That's the first thing. We're also looking, which we are in talks with right now, with a lot of global players. If we do the whole portfolio, we would like to play the prestige plus. So we're not looking at margin diluted portfolios. If we can maintain higher margins, work with international brands, a lot of things work in play, and hopefully in the next call we have, we'll be able to give you more clarity.

Got it, got it. And here you will be open to inorganic as well. And lastly, I mean, you did call out a little bit of impact on Sting in the interim, and now it's coming back. I mean, so while you have some volume impact, it would have also had realization impact, right? I mean, given its higher realizations versus the other portfolio.

Yeah, and we did downsize to $250,000, so there has been obviously some negation of the raw material impact when we did downsize.

Got it, got it. And beyond seeing any other price pack architecture changes you have done? I mean, like from $200,000 to $300,000? Anything that you want to call it?

No, not as yet. Not as yet. I mean, this year, I think, you know, which was very important for us was to just maintain and make sure that we get into the high WGD growth, right? And a lot of pack price intervention, which we had done, was looking at how dynamic the market was. So we wanted stability, but now I think the earlier question, I think Vivek Avneesh has asked, that how does it look going forward with all the raw material pressures? So we're going to see what the industry does here, and it's a rapidly fast-moving industry. It's not like it was earlier. So make sure we can maintain our margin as best as we can and offset it as much as we can. And I think we've done a good job this quarter, and hopefully going forward, you know, we'll plan in terms of how the industry moves.

Got it. Very clear. And just very last, anything you want to call out on October as well? I mean, you are seeing similar momentum sort of continue. Got it. Fairly clear. Thanks. Thanks. Thanks a lot.

Thank you. The next question is from the line of Arnav Mitra from Goldman Sachs. Please go ahead.

Yeah, hi. Thanks for the opportunity. My first question was on the Africa business. If you could just let us know the constant currency growth and how much was the currency benefit on the top line. And a related question is that, you know, as you go into the season in Africa, which is December quarter, March quarter, given the capacity situation, do you think the volume growth can taper off from these very high levels or do you think you have enough capacities to be able to sustain growth even in the season in Africa?

See, there are two questions. One is the currency. This year, you know, we said that the currency is more stable, so there is no effect, negative or positive, if there is anything marginal and gets compensated within one country to the other. Last year, yes, we called out there was a good benefit of the currency, which we had duly accounted for. And the second question of yours is about the capacity. We are preparing ourselves fully because South Africa DRC, the season is November, December, January, and there we are already, you know, running our plants full speed, and Morocco, the season was August, where the capacity is short, And hopefully, before the next season, at all locations, we will have enough capacity installed. As far as South Africa is concerned, with the Twiza acquisition, we have enough capacity. And I don't think we will face this year's shortage. The only little bit gap was found in Zimbabwe, which Zambia had overcapacity and will, on a monthly basis... ...capacity in Zimbabwe as well.

Got it, got it. My second question was on international business margins. So, it seems to have held up better than the standalone in terms of gross margin also. So, one is, has it been easier to pass pricing there, or is it more to do with your own initiatives on backward integration, and therefore, will the margins be better protected there because they would also have the same inflationary pressures?

See, the margin is slightly improved because Twiza has the backward integration and other places also we have started. So the improvement in margin is because of that. And risk, you know, the economies of scale also have started playing in. And in the opening remarks, as we stated, Twiza is already effective first of August, is already integrated into Bebco. So, a lot of synergies there also have already started showing up.

Just one quick follow-up. So, the input cost pressure on PET and cans and all, they are fully reflecting in September quarter, even in the international business. Yes.

In international, this is 272 basis point as it is around 300 in India. India is looking slightly higher.

But it's all been accounted for in the quarter. Yeah, it's all been accounted for.

Got it. That's all from my side. Thanks. All the best.

Thank you. The next question is from the line of Jai Doshi from Kotak Securities. Please go ahead.

Hi. Thanks for the opportunity. I have a few questions. First one on international, just continuing. This year, you have managed to deliver 20% plus organic volume growth every single quarter. Can this kind of momentum continue for another couple of years? Is this the new normal run rate we should think of for the international business volume growth?

In the world we live in today, who knows what's going to happen tomorrow, but we hope we'll keep delivering the numbers which we have been delivering quarter on quarter. I think what we normally say is that if we believe that per cap in India are way less because the penetration is very low, in Africa we believe the penetration is even lower. So I think the more investment we are putting in, the more countries we are getting into, and you know the example what my father always gives, when we entered Zimbabwe as a market, the whole market was 35 million cases. Now, we are doing almost 75 million cases after six to seven years, and our competition is doing about 35 million. So, I think there it really depends upon how many players you have, what investment you are making, and I think there is no reason why the growth should not continue.

So, basically, this is a structural pickup in growth and not season-related or, you know, favorable weather.

I think I'll come back, you know, because, you know, we look at the business quarter and quarter, and I don't believe that's the right way to look at any business of our scale, at least, because the penetrations are so low, given it's India as well. The penetrations are so low in most of our markets. There's population growth happening in all our markets. So I think, you know, when we compare quarter one versus quarter one or quarter two versus quarter two and say it didn't go well, I think we have to look at the business at a long-term consolidated basis. If you see our history over 5-6 years as well, every year there is a growth of double-digit, profit growth, EBITDA growth. So this is a long-term business, and we are here for the next 5 years, 10 years, 15 years. So this is a story which is going to play out. India's consumption story is going to be huge, as we know. Africa is going to be huge as well. So hence, we are very bullish, and we are very bullish to keep investing in both Africa and India as well at the same time.

At the same number of 20, in 20s, growth in the last 30 years, we have consistently delivered.

So you do have the off, you know, raw material pricing going up, or the weather going down, or the competition doing something, but I think consistent delivery of shareholder return and profitability has been there along with volume. So yes, we do believe and we are very bullish.

Thank you. My next question is, how has been the consumer acceptance and repeat purchase for low-sugar variants of Mountain Dew and Pepsi across markets, I mean, across states in India.

See, it's been accepted, I would say, largely. 85-90% of the places, there is huge acceptance. Of course, certain places, they have a palette of high sugar. There, we do have challenges, but then we don't segment into state, into district and see what's happening. As long as the overall brand is growing and doing well, we are very happy with that.

Third question, you mentioned that Beverage Association is considering price increases with inflation, which means elevated. So, is the new entrants also a member of this association, or is it just a…

No, I never… No, when I said Beverage Association means that there is talk amongst the competition and there is talk amongst the industry that everybody is under pressure, They're figuring out what to do, and how do you negate the cost? So there's no common conversation which happens in a room, but I'm just telling you this is what the general conversation is because there is margin pressure due to raw material price.

The last one is, you know, can you give us some color on what is the level of AI adoption in the organization at this point of time? Do you have any efficiency or productivity targets from a medium-term perspective? Where do you sort of score versus other bottlers of PepsiCo globally and maybe, you know, other bottlers of Coca-Cola in India in your, that's for your assessment?

I think we've done a lot of work here in the last few years. At least according to PepsiCo, we're doing a pretty good job. More than 4 million outlets, you know, all of the outlets are of India, all the thousands of them we have. All our route operations, route sizing, time to delivery, all of that speed to delivery is mapped, bases the AI tool, what we use, which lets us know which distributor should be serving, what sort of an outlet base and what the distance should be. Once we put all these in, that will reduce our distributor attrition in the market. We've started having larger scale distributors as well, so the distribution has become more stable. That's one big thing what we've done. The second big thing what we've done is that we have an order management system which we've done with E-Buy now. So every single distributor of ours, we have visibility of how many SQs he's picking up, how often is he taking the trucks, how often the load sizes are going, what brands are going, what we want to push with them. So every day we get a push report, so that makes it much more easier and clearer as one control tower visibility which we didn't have earlier. And that helps us kind of increase our range and flavor profile as well in the market. The couple of other things what we've done and which we're working on right now, we've come up with a B2B app, we call it Bandhan, because sometimes the PSR or CSR guy is not there in the market, then we, you know, how can the retailer place an order? So we've just launched it not even six months back, and monthly we've got half a million retailers ordering from it now. Now the next goal for us, the first goal is obviously adoption. Once people do adopt, then we gamify it and see how do we get them hooked on more on the app to give them a personalized service. So that's the other thing what we've done, the big way CNC working. Another thing which is very important for us is that we've got more than a million coolers in the market now, or we've got a large number of coolers in the market. It's giving us almost half a million images, what the purity of the cooler is, how the cooler is performing. So all that data has started coming in now. Now, the question is that, of course, we're working with different companies and AI-led because the amount of data which is coming out is so important to clean out the data to make sure the right data is there. So, a lot of work is there, and I think a lot of it is kind of benefiting us in terms of increasing our distribution and ensuring that we have a larger range available in the market to the consumer.

Thank you so much for the detailed response.

Thank you. The next question is from the line of Latika Chopra from JP Morgan. Please go ahead.

Yeah, hi. Thank you for the opportunity. My first question was, you know, around a bit clarifying on your comments on margins. Given that you were saying that both for the Indian and the international business, the full cost, you know, is now reflected in the September quarter, And probably you will look for more efficiencies and hopefully pricing as well. Is it fair to assume that given the visibility that you have, the gross margins would have dropped in this quarter?

Latika, hi. Based upon the present price trends, we can broadly say yes. I hope there are no more surprises on the macro factors. The answer is yes. And only upside may be there. You know, as we stated, you know, price pack architecture, etc. Like in this thing we have done, how much and how fast we can roll it down to the other packs. So, that is correct understanding with you.

The second question I had was on, you know, price pack itself. You know, ahead of the upcoming season, how are you thinking about the 10 rupee price point, given now, you know, the volumes in that pack have come down to 150 ml? Would you take this as a viable opportunity to drive penetration, or would you shy away from pushing this price point because of the margin perspective?

See, Ladika, like I had mentioned earlier, that the 10 rupee pricing, right, was never part of our larger portfolio play. I think even this quarter, our 0.3 percentage to our overall volume. So I don't think so we are focusing on the rupees 10 because we believe the pricing and the offering what we have and the consumer profile which is there right now will still give us very, very good growth in which it has this quarter. So we are not looking to do it because even though you go down to 150, the price and unit economics, it just does not make sense. And we would not like to build a business which is not sustainable in the long term. The energy, it could be the CSD portfolio, we see all of them growing strong double digits.

All right. And the last bit was, you know, if you could share, you know, some color on your investment plans, Capex plans, basically for, you know, CY27, and where would you see Capex for CY26, you know, landing at? And if you could also give us some wake-up between India and overseas here, and also clarify if it includes any investments that you plan for the new businesses.

Yes, Latika, as far as 26 is concerned, the CapEx is already over. Now, it's only for 27. And, you know, as we mentioned, international markets, we have to add lines in South Africa, Zimbabwe, Morocco, DRC, Zambia, at all these locations. And the combined capex for all these is under 100 million, maybe anything between 90 to 100 million USD for the international markets. And as far as India is concerned, the total capex, including one greenfield plant at Suratghar, Rajasthan.

The next question is from the line of Bhavya Gandhi from Bajaj Alternate Investment Management Limited. Please go ahead.

Yeah, thanks for the opportunity. Just wanted to understand on the RPET side, because you said currently the cost is lower. So what is the RPET mix in the total packaging as a part of the total volume, if you can provide some number on that? And structurally, second question is regarding the gross margins. Structurally, because you are getting into newer products, in the intermittent period, can you expect that the gross margin could be softened in the intermittent period till you scale those brands' newer product categories? So, if you can throw some light on that as well.

So, our has been about close to 25%. We were mentioning earlier this portfolio. We're not seeing any margin dilution in terms of what the launches we will be doing or we have done or what we will scale up. And the rest of the businesses is too early to answer right now. Once we have a concrete plan, we'll come back to you.

And this entire RPET piece is internally sourced or because RPET before the West Asia crisis used to be at a higher rate and because the RPET regulation is in place, can we expect that structurally, assuming that the war ends one day, the packaging cost will be on a higher side on a structural basis?

No, so we are obviously using a large part of it internally, but we are obviously buying some from outside, but at the moment, given the price of oil and virgin pet, it is much cheaper than virgin pet.

Yes, on a longer term basis, if you can, assuming that the war is not in place, because the RPT regulation is in place.

So, yeah, this will definitely go up, and the next plant will be operational in, I think, one or two quarters, and this number will definitely go up. Yes. Okay.

Thank you so much. Yeah, yeah. Yeah, please go ahead. Sorry, sorry. You wanted to say something. Sorry.

Thank you. The next question is from the line of Atul Mehra from Motilal Oswal Asset Management. Please go ahead.

Yeah, hi, good afternoon, and thanks for the opportunity. So from a longer term perspective, you know, like if we look at our history, there's been a great evolution in terms of things we have done. And even at this point in time, you're adding new categories. So from a longer term perspective, how do you guys envisage like what this company will look like, maybe five years, 10 years down the line?

The starting point is that our core business is the beverage business, what we're already doing. Even today, even five years, the business has been happy to say this quarter. We will be an F&P company. AlcoBev, again, is what we're trying to enter into. We believe there are synergies in terms of what we do today at a Varun Beverages level versus AlcoBev level in terms of the end number of outlets. Outlets is where VBL goes, could be the restaurants and bars. We do go with a complete portfolio of mixers, CSE, energy, and I think to increase the portfolio as well, if we're able to add in some AlcoBev, we go with a consolidated portfolio, and we already do have a relationship with most of the outlets where we go, right? So AlcoBev, it does fit into the scheme of things. Secondly, AlcoBev is, you know, a fast-growing category, and do in the food and beverage space, let me know.

We will catch up all night.

Thank you. The next question is from the line of Harit Kapoor from Investec. Please go ahead.

Yeah, hi. So just one question was on the, you know, ad and marketing spend. You did speak about, you know, rationalization of trade spends, etc. I just wanted to understand in the current context, you know, where costs are high, etc. Do the, I know, I know, I know large part of the ad spend doesn't sit in your book, but how does, how does, you know, the ad How does the ad marketing spend play out in your relation with Pepsi in terms of how does that play out in times of high inflation? Does the ad marketing spend, which is Pepsi's piece, actually stay at normative levels? My question is from the fact that if those levels are still higher, then that's a source of competitive advantage. I just wanted to just understand how it works in periods of high inflation.

It depends how the industry is moving, right? We are not doing it if the competition is not doing it because we've got certain price points we can't move away from. There's a 10 rupee price point which we don't play largely, there's a 20 rupee, 50 rupee, and there's a 100 rupee price point, right? There's an inherent price point with which you cannot move away from them. The only lever you have is because the industry we play in, we give one of the highest margins compared to any other CPG group, right? We are at 16%, 17%, 18% margins in terms of MRP margins in a lot of our packs. Now, I'm assuming, which we don't micromanage, even with PepsiCo, they do have a calendar full year in terms of their marketing spends and how they look at the business. And, of course, I'm sure if the industry is rationalizing or the growths aren't as what they thought, But I'm sure they look at their books and their P&L as well, and they manage it themselves also.

And the second bit was on, you know, early part of this year, you mentioned that, you know, you've done all this distribution in CY25. You didn't get the full benefit because it was a tough year. This year, you know, you're going to probably do kind of mid-high-team kind of, you know, volume growth for the year, for India I'm talking about. I just wanted to understand, you know, does your distribution expansion plan start to kick in again from next year? Or do you think there's still significantly, you know, in the current four plus million outlets, there's still significant amounts of scope? Do you need numeric distribution incrementally? How are you just thinking about that?

No, so we're looking at both, yeah. So, you know, of course, 2025 wasn't a great year, but was less aggressive, I would say, because they did have the vehicles and, you know, the investments and the warehouses they had built. But now looking at 2026 and the performance we've had, again in 2027, we're still planning numeric distribution. At the same time, we're planning weighted distribution also.

So, in your opinion, this 4 plus million number still has legs to move forward in terms of…

Oh, 100%. 100%. 100%. 100%. We are already at about 4.2 million.

Got it. I wish you all the best. Thank you.

Thank you. The next question is from the line of Anurag Bayal from Philip Tabari. Please go ahead.

Yeah, hi. Thanks for the opportunity. One clarification is for you to understand on the gross margin side. So, we had this 100 basis point, you know, for impact because of sale of non-beverage, including pre-forms and caps. So, do we expect this impact to continue in next quarter as well? And secondly, just want to understand that why we are selling it so much? Do we have some agreement with some third party to sell that? Because if it is inflationary, wouldn't it be good to consume it internally instead of selling it higher outside?

This is over and above what we use for ourselves, for the others. This is only marginal and helps us amortize part of our fixed expenses. This is an additional contribution coming to us. If we sacrifice this, that much recovery, obviously,

is it going to stay at 100 basis points or something or to ease from here?

Thank you.

This launch, I mean, I'm aware we are there. I'm just planning to do it in the second half of the year.

Elvis, we're still working on the marketing plan.

And do we have any initial plan if you could share how we're going to launch it or we're still, you know, under development?

It's pretty much under development because usually what happens is that we're tied up with our marketing calendar. So even with PepsiCo, the entire marketing calendar usually gets frozen around December. And we are looking to obviously launch some key markets, you know, across India where we have production capability and try out different regions to see, you know, what are the taste profile of the consumer and how it picks up. And then, of course, finalize the marketing calendar. And usually that kicks in around late February or March.

Sure. That's so right. Thank you so much.

Thank you. Ladies and Jansan, we'll take that as the last question for today. I would now like to hand the conference over to the management for closing comments. Thank you, and over to you, sir.

Thank you. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarifications or would like to know more about the company, please feel free to contact our investor relations team. Thank you once again for your interest in support and for taking the time to join us on this call. Look forward to interacting with you soon. Thank you.

Thank you, members of the management. On behalf of Varun Weberators Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your line.