Varun Beverages Limited (VBL) Q2 2026 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Varun Beverages Limited Earnings Conference call. As a reminder, all participant clients 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 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 Bujari from CDR India. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and thank you for joining us on Varun Bevich's Q2CY 2026 earnings conference call. We have with us Mr. Ravi Jaipuria, chairman of the company. Mr. Varun Zaipuria, Executive Vice Chairman and Whole-Time Director, and Mr. Raj Gandhi, President and Whole-Time Director of the company. We will initiate the call with opening remarks from the management, following which we'll have the forum open for a question and answer session. Before we begin, 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. Ravi Jepuria to make his opening remarks.

Good afternoon, everyone, and thank you for joining us on our earning conference call. I hope you have had a chance to review our results. Presentation for the second quarter and a half yearly ended June 30th, 2026. We are pleased to report a strong performance during this quarter. Across our markets, consolidated sales volume grew by 19.8%. And together with improved realizations translated into 20.4% increase in net revenue from operations. EBITDA increased by 17.2% to Rs. 23,430.4 million in quarter to 2026. In India, we saw healthy volume growth in 20s since the onset of the season at That is from March onwards, except for the month of April, which was about flat, resulting in overall volume growth for the quarter of 14.4%. Our expanded manufacturing footprint, extensive distribution network, and continued investments in chilling infrastructure continued to drive growth. We also extended our... Thank you. Thank you. Thank you. policy. Looking ahead, we remain confident in the long-term growth potential across our markets, supported by favorable demographies, rising disposable incomes, and increasing consumption of packaged beverages. With adequate capacities, growing and diversified portfolio, strong partnerships, and an extensive distribution network.

Thank you, Mr. Chairman. Good afternoon and a warm welcome. We provide an overview of the financial performance for the second quarter and half-year ended 30th June 2026. Revenue from operations, net of excise and GST stood at Rs. 84,512 million in Q2 of 2026, up 20.4% year-on-year. For H1, 2026 revenue increased by 19.4% to 150,254 million. Growth during the quarter was primarily supported by a 19.8% increase in consolidated sales volume to the level of 466.7 million cases. As mentioned by Chairman in India, we saw healthy volume growth in 20 since the onset of the season, with the exception, of course, of April. International markets also delivered. with volumes increasing by 38.4% including the contribution of 11.8 million cases from Giza in South Africa. Net Realization per case. Beverages at the consolidated level improved by 1.2% supported by better realizations in international territories. Gross margin improved by 44 basis points year on year to 50% supported by a higher mix of international business. In India, early stocking of key raw materials and savings in sugar consumption driven by a high mix of low-sugar, no-sugar products helped maintain gross margins despite the inflationary raw material environment affected by a restoration crisis. EBITDA stood at Rs. 23,430 million, registering growth of 17.2% year-on-year, with the EBITDA margin at 27.7% in Q2 of 2026. EBITDA margin declined by 76 basis points year-on-year, primarily due to consolidation of Twiza business, which currently operates at lower margins. In India, the EBITDA margins improved by 38 basis points. Driven by operational efficiencies arising from healthy volume growth. primarily transportation and distribution costs. That grew by 15.1% to the level of 15,253 million, supported by a strong volume growth across India and international territories. Depreciation increased by 33.6% due to the commissioning of new plants in India last year, which were not part of the base quarter. And the acquisition of Twiza in South Africa, finance costs increased by 55.8% primarily on account of Twiza acquisition. For H1-2026, EBITDA increased by 18.7% to the level of 38,719 million, while BAT grew by 16.9% to the level of 24,040 million. No sugar, no sugar products contributed approximately 73% of the consolidated volume during the period. VPN India remained net dead. At the consolidated level met debts to debt 3713 million as of the death. Especially on account of acquisition of Twiza in South Africa, the company's long-term rating for its bank loan facilities has been reaffirmed by Chrysler at AAA's table during H1-2026. Net capitalized capex amounted to Rs 9,500 million. This included 200 crores or 2,000 million towards brownfield expansion in India, including value-added dairy beverages line at Supa, and 1,000 million towards snap manufacturing plant in Zimbabwe, and 4,000 million towards market infrastructure, including visi-coolers, glass bottles, pellets, and vehicles, etc. The balance was attributable to foreign exchange fluctuations. As on 30 June 2026, capital work-in-progress stood at the level of 4,900 million, primarily relating to expansion in South Africa and a CSD line in Kenya. In addition, inorganic capex of Rs 11,314 million was incurred towards the acquisition of TWISA Limited in South Africa. Looking ahead, we remain focused on sustaining our growth trajectory by leveraging our expanded capacities, diversified portfolio and extensive distribution network. In India, favorable demand trends, increasing beverage penetration and continued investments in market infrastructure provide a strong foundation for future growth, while the ongoing expansion of our international operations, they broaden our opportunity base. Across markets, we believe our strong execution capabilities will enable us to deliver consistent performance going forward. On that note, I have come to an end of 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.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from Abneesh Roy from Nuwama. Please go ahead.

So, thank you. My first question is on the demand side in India. So, if you could tell us on 10 rupee price point, is there any further scale up for your business and outlook on that? Second is when I see the quarter number, clearly April was challenging for the category. But if I see Campa Kola's numbers, they claim to have achieved 50% of FY26 sales in same quarter. So if you could tell us if the rain impact was more in your geographies, because that could be the reason. So that's my first question. Thank you. So, let me answer that.

Hello? Yeah, so let me answer that. We have not scaled up rupees 10 significantly. So, if you see our growth, right, which is March onwards, we are growing elderly 20% plus, right, even... You know, post June, we're looking at a 20% plus growth, at least minimum. So the 10 rupee is a non-profitable category for us. And as long as we're delivering 20% plus growth in most of our markets, we're pretty happy with those growths. And long term sustainability is not there. Yet certain markets, we are obviously pushing 10 rupees, but it's not a very big mix for us as yet in our portfolio. That's the first thing. Sorry, what was your second question?

That campfire is growing and...

I think Kampa is growing. I think, yeah, the positioning what we've always taken is that, you know, Kampa at that price point will grow because there's a certain population which is not, you know, able to, you know, access or have access to the price points, right, in terms of consumption. So Kampa is growing, the rupees 10 is growing, maybe they're eating out local brands as well at the same time, but in our markets, at least we are seeing that we are growing at the same time as well with our price points. So I'm sure a lot of new people are getting recruited in the category as well at Rupees 10. Hence, they could be getting a lot of volume from there. They could be eating a lot of bee brands as well, which is significant in a lot of our markets as an industry base. And, you know, we are seeing good growth in terms of where we are, apart from April, where the El Nino effect was there heavily.

Also, I think Kampa is expanding their territory. So, I think it's very difficult to analyze the growth is coming from the same territory or for expanding territory.

Sure, thanks. So, one follow-up here, essentially. So, if I see because of Kampa, the entire industry is offering more grommage at the same SKU. So, even for your SKU at 20, there is more grommage. So if I marry the volume growth of say 14% or 13% and this kind of a gramage growth, could you comment on how much is the pack difference versus earlier? Because that will give us one metric of the consumption. Because if you add gramage, your volume growth will be benefiting because of that. If you could comment on pack growth.

Yeah, but that, I think, you know, we keep on changing our pack sizes, so we always look at and announce our details are based on A-towns, and which is what we base it on. And all our territories are all, somewhere we downsize, somewhere we upsize. So these will continue in the whole business. But overall, we are growing in pack size as well as overall A-towns.

Avnish, as chairman, you know, mentioned, everything is tracked in 8-ounce basis. If my realization has not come down, per 8-ounce case, my EBITDA or the gross margin has not come down. So, that's immaterial. Basically, the idea is to give the benefit to the ultimate consumer instead of giving to the trade or otherwise, and utilize the newcomers giving the product at cheaper price. So, that's why we are continuing from the onset of this, with the exception of April, growing with the 20% plus from the beginning. So, that's the biggest indicator.

Thank you. My second and last question is on the Economic Times article, which came four days back. So I wanted more clarity on that article and focus of the group and company on Alcobeb in India. So that article says that the group has hired from DRGO, a very senior person, to head the group's beverage footprint. So I wanted to understand, is Varun also going to participate in this? Because clearly you have expanded your agreement with Pepsi to go beyond soft drinks. And this article also says on bidding for Beera. So if you could address this Alcovev entry in India, what are the long-term plans for the company specifically?

Well, at the moment, we are still looking at what are the categories we would expand. We are hiring some people to look at new ventures, new possibilities, but it's too early. We have just got clearance with Pepsi, and we are not looking at Beera.

And Pratmesh is for group or for company?

It's for the group. It's for the group. So he will be helping us in a lot of other things. It's not alcohol only.

Sure. Thank you. That's awesome.

Thank you. The next question is from Aditya Soman from CLSA. Please go ahead.

Yeah, hi. Good afternoon. So, two questions. Firstly, can you give us a sense of growth by category, especially some of the new categories that you've launched, like Nembo's or milk-based beverages, how the growth has sort of evolved? And is there any meaningful difference between those categories and carbonated beverages? And second, we've seen that during the GST changes end of last year, we saw a meaningful change in some of the beverage categories where the GST has come down, but in carbonated beverages, not so much. So is that leading to any sort of differences in category-level growth?

So I think our focus, yeah, I can answer that. So I think our focus has been very, very strong to kind of build a differentiated portfolio as well over the last three to four years. It just didn't start now. So if you look at other categories, which is, you know, Tropicana juice, it could be evaluated dairy. We've expanded the range, added a lot of new products at different price points. We've got Nimble, which is a hydration category. So if you look at hydration and dairy particularly and juice, these have been high growth and focused categories for us. So in terms of growth, but I can't give you the specifics here, but, you know, at least we're seeing 3x, 4x growth compared to our overall business. And we are, you know, heavily focusing on driving these categories.

Hello? Yeah, no, that's very clear. And maybe if you can just answer on the GST effect, any sort of meaningful, positive effect on the other businesses?

So I can also give you some numbers for your comfort. That VAD is growing at over 40% for us, and Nimbus is growing at more than 30% for us.

Thank you. Thank you.

Thank you.

What was the other question? Any other questions?

So, just in terms of the GST impact, right? Because one of the areas...

So, GST impact was very minimal with certain products, which was like dairy and nimble and water and soda. So, we are seeing growth and we were, you know, because of the... You know, the geopolitical issues, the pricing, some of these categories would have had to be taken up, but because of this, it has helped, and we are now sustaining the prices and continuing to be able to sell at the old prices, which is helping us grow the business.

Very clear. And since you talked about sort of the geopolitical issues, just to follow up here, in terms of raw materials, last quarter you indicated that obviously you had sufficient supplies of input materials to run through sort of 2Q. From here, how do you see that play out?

We are still, we keep buying, so we don't dry ourselves, you know, just because, so we have now made sure that we have enough material for quarter three, but obviously there is an impact of cost and which has got mixed with the, so we average our cost price and we have taken part of it in the second quarter also, and the balance would come in the third quarter, so our pricing would remain. Same, and overall effect would not be large because we have averaged out the pricing.

Understand, that's very clear. So some of the effect has already come in 2Q.

Yes, yes, reasonable portion because we have averaged it and we have got enough stock for quarter three, so we acquired more goods at higher price, but we averaged out the price in the second quarter.

Aritya, basically the cocks and the inventory valuation is not on FIFO, it's on average costing. So the purchases which were earlier opening stock, which was sufficient to cover for the quarter, although consumption might have happened of that, but the pricing to the P&L goes based upon the average, because in the last quarter also we kept, we purchased and kept sufficiently the inventory for ongoing quarter. As Varun mentioned, we are continuing to grow. At the same percentage, from the onset of the season, we are growing with the exception of March when held the 20s. So this inventory is going to be really useful and handy and at average price, which may be actually lower than today's price. Thank you.

Thank you. The next question is from Anand Shah from Axis Capital. Please go ahead.

Yeah, hi, sir. Thanks for the opportunity. Just two questions. Firstly, any sense you can share on the industry growth, how it has been this time? I mean, general broader view as to how industry would have grown in volumes. And second, also on the international part, I mean, you've seen quite a strong growth. Even if I take out Tujja, it's more than 25% growth by Hawaii. So, I mean, all geographies firing there or South Africa, Congo are growing much faster, and it seems even Morocco, Zimbabwe may have grown well there. So, just wanted some color and international and broader industry growth this quarter.

No, internationally, all our countries, except... Zambia is slightly slower, but all other countries are, which is a very small market for us, all our countries are growing at a reasonably fast pace, and there is a huge opportunity in Africa, and last year we had some issue with Zimbabwe, which has also started firing now because of sugar tax and all that, but now all the countries in the African region are firing for us. or international market rather. So we see good potential going forward and we are expanding in the African continent.

Got it, sir. Anything on the industry growth in India? I mean, this quarter, any sense would it be in line with the industry growth?

I can't give you the exact, but if we are growing at 15%, if you see at the first half, and Kempa you are saying It's growing at 50% or doubling. And I'm sure Coke is also growing. So there's no reason. That means the industry has to be growing more than 20%.

So, in fact, here you also had to see, Anand, the cannibalization of B-brands in that category.

The exact numbers are not there, but I think all the three main players are all growing, so there's enough growth which is happening in the industry.

I got it.

And I lost it.

Sorry, I got it. Anand, go ahead, please. Yeah, and this last question was on the food distribution manufacturing in Africa. I mean, how is that scaling up? You had shared some numbers in 26 ends. So, what are the targets?

That is also growing well for us. That is growing well for us.

146 against 99.

So about 50%, that is growing at about 50%.

Okay. Okay. Okay. Thanks a lot, sir. Thank you.

Thank you. Thank you. The next question is from Siddhsej Deshmukh from IIFL Capital. Please go ahead.

Hi, sir. This is Percy Pantaki here. So I just wanted to understand, I mean, in the past, we have said that we should grow the India business at kind of a low double digit kind of a number. But at that time, basically, the competitive dynamic was different. Campa was not there or had just entered. And Coca-Cola also was probably losing share at that point of time. Now both these players are ramping up sort of quite materially. So even if we assume that the industry grows at, let's say, a low double-digit number, would that still mean that we as a company can achieve that kind of a growth?

Yeah, I don't see any reason, and if you see in the first half, we have grown at close to 15%, 14.4%, and now, as we said, the peak season after March is we are growing at 20% plus, and July seems to be continuing at the same trend. So, I don't see any reason why we should not be growing in double digits.

Go ahead, Pasi. Yeah, I'm saying while our growth has been very good, one must also be cognizant that it has come on a very favorable base. If I look at the two-year kegger, the quarter for India has seen a 3% kind of a growth. Even if I look at a three-year kegger, our growth is in single digit this quarter. So the question is just in reference to context of the current performance.

Quarters. We can't look at a quarter. This quarter is always, can be, the rains can be little, like July is looking very good now, so maybe because the other part was little heavier rains, so it keeps changing a little bit up and down, so very difficult to base it on quarter, you have to look at it as easy to base it.

Yeah, I'll add, I think, Percy, you see what's happening with the whole El Nino effect as well, if I tell you 2024 is below, right, at the core, right? May used to contribute almost 15% of our business. Now, if you see 25, 26 this year as well, because of El Nino effect, May is not contributing 15%. So the personality on the overall business is also changing. And if you see April, where it heavily rained, even May for us this year, right, we saw some effect of the end, you know, in May as well, even though May we grew handsomely. Now, each month when the weather impact is not there, I mean, the kind of growth we are seeing are fabulous. High double-digit growth is what we are seeing. So, essentially, it is the weather impact which is holding it back. The month, we are not seeing weather impact. And if you compare the last year tiger growth over from 24, we are growing heavy double digits on those months.

Understood. Second question on margins, again, for the India business, but also to an extent for the consolidated business as well. If we have to maintain EBITDA margins largely on a YOY basis going ahead, up to what level of crude we are confident that we can maintain the margins?

No, we can comfortably maintain our margins even in a year which is the worst year in the geopolitical reasons, and all the costings have gone up. Internationally, here, transportation cost has gone up. We have still been able to maintain our margins, and so when the war stops or all these issues come down, our margins cannot get worse. It will only get better. So, we are not worried about, and we have never said our margins will be higher than X percentage, which we are maintaining and more than comfortably doing that.

Sure, sir. Understood. That's all from me. Thanks and all the best. Thank you.

Thank you. The next question is from Jai Doshi from Kotak. Please go ahead.

Yeah, hi, thanks for the opportunity. I've got two questions. First one is, could you comment a little bit on what's happening at an industry level in energy drinks? You know, how has the industry body responded to, and, you know, have you seen any impact at all on demand?

No, I think there's a temporary effect because I think there was a confusion created without giving a clear direction, and now we've got the clear direction. In June, it affected, June and July, it affected a little bit. But going forward, there is going to be no effect. They just want the word energy to be taken away, which does not change anything for us. So it was a very small...

Yeah, I think what has happened in this is due to the confusion of the category in India, since energy was not a category which was registered with Sasai. Hence, they had come after to say that, listen, you cannot use energy and the positioning of energy, what you guys are doing. Now, like the chairman mentioned, we've removed energy and the industry has done it. But what we have seen is that even though there's been a temporary dip in the mix of energy, we are seeing all of that volume has shifted to CSD. But now as the new labels are out in the market for us, we are seeing the uptick back into energy in terms of, or back into Sting as a brand for us. And the volumes are coming back.

And you don't foresee any further regulatory challenges or anything, right? So this is sorted for now?

They have come out with a clear guideline that we should have the word energy removed within 90 days.

Understood. Our second question is, you know, we picked up that Kampa has reduced, you know, 10 rupee SKU size to 150 ml from 200 ml, which kind of suggests that they are also, you know, making an attempt to upgrade the consumer to 20 rupee price point because they continue to offer to 500 ml at 20 rupee. Now, you know, you have responded with upsizing for the past 6-9 months. So, what, you know, are you able to sort of see any change in your market share trends, you know, at that 20 rupee price point after increasing the volumes from 250 to 400 ml, you know, because the gap has significantly narrowed versus, you know, camp for now at 20 rupee.

No, that's why it's looking positive, and that's why we are confident of the growth. To continue, and we are showing growth, and we accept that one month, as we are saying, if we can grow healthily 20% and above, there is nothing better we can look at.

See, Jay, the way we're looking at the business right now, I know there's been a lot of chatter around, you know, 10 rupee category and, you know, Kampal launching it, what should you There are already B-Brands that are selling at 10 rupees, which have been selling for the last 10 years. What our focus out here is to build a profitable business and deliver the right growth. And the earlier question when somebody asked me that how are you looking at 10 rupees, my answer is that wherever and, you know, at India level, if month on month my growth is exceeding 20%, without a 10 rupee category, then I'm not interested to get into it. Because that's not a category we would like to fight. And today, that's what we're seeing on month on month, apart from April, like we mentioned, we are not, because this is, you know, the El Nino effect, we did not get a growth in April, but other months we are growing 20% plus. So, and the 400ml pack, what we have launched, we are obviously seeing larger recruitment of consumers coming in, and that strategy for us, and majority of our markets is working for us, driving growth.

And also what is happening, if some people want to look at the pricing, then two people are sharing it, and two people are sharing it in...

Understood. One last question. I don't know if you can answer that or not. But, you know, in PepsiCo's press release, they have indicated that, you know, their market share in India was stable or, you know, better for three months starting 1st March to 31st May. How do they look at, because, you know, you generally mentioned that it's very difficult to get accurate data of industry. How do they, you know, what data do they look at when they make a comment?

I think you should ask that question to them. I'll leave it for them to answer this.

Understood.

We don't go into market share.

Got it. Thank you, sir.

Yeah. Thank you.

Thank you. The next question is from Naman from Sangvi Family Office. Please go ahead.

Yeah.

I hope you can hear me.

Yeah, Naman, I can hear you. Go ahead, please.

So, just going forward, how do we see, you know, the strategy for us? Would it be singularly focused on... And ramping up, you know, like our current businesses, which includes, you know, the low sugar, no sugar, or you see that right now the proportion of low sugar, no sugar is very high and it may retreat to, you know, some bit lower. And then again, some sugar-related impact would come in in our overall cost margin. So how are we seeing that, sir?

No, largely our portfolio is mid-sugar, low-sugar now, or low-sugar or zero-sugar as you call it, right? So there will be no sugar impact going forward because we've converted the entire portfolio already.

And the second question was that in April, the impact was majorly driven by El Nino. It was not because of some supply chain issues or mismanages or raw material availability?

No. No, the only minor issue was cans, but there was nothing else, which is a very small portion of our business. Cans were the only affected for the quarter.

Okay. What will be the percentage of total that is attributable to CAN in the mix?

No, CAN is 1 or 2% of our business, so nothing major.

Thank you. That's it. All the best.

Thank you. The next question is from the line of Milton from Green Capital. Please go ahead.

Hi, good afternoon. This is Nitin Shaktur from the Dream Capital Center Family Office. First of all, congratulations to the management on the Calpis Manufacturing Distribution Agreement. So more on that as an investor, is there any thought process to expand the Asahi Group holding lines now, whether it comes to Wanda or Wilkinson? Whether it comes to solo, because what we are seeing across the world is certain niche value-based line products are increasing volumes. For example, Schweppes, Manaus, Soda is doing very well. So, similarly, I'm assuming CalPUS is a strategic direction towards trying to identify high-volume players. So, just wanted to get a sense of future direction with your distribution.

Yeah, I'll tell you. So what our idea is, dairy as a category, we're very bullish on, you know, we've been doing dairy as a category for many years now in the country, and we're seeing huge growth coming. Asahi is, you know, it's one of the world's leading companies with the best system processes and product quality. So CalPERS is a great addition to our entire portfolio and to strengthen further our portfolio and our system processes and our manufacturing, you know, capability taken and learning from the Japanese as well. You know, our idea is to build a solid portfolio, but our starting point is CalPERS right now. We want to stabilize CalPERS. We want to, you know, structure CalPERS right in the market. So far, our conversation is only here and, you know, let's see what the future holds.

So, I would assume then ready-to-drink teas, coffees would also be on the radar at some point in time.

Well, we're not sure as yet. We've not decided. So, it's pretty much CalPUS for now. As I said, going forward, you know, based on figuring out what categories we want to do.

Okay, great. All the best and best of luck. Thank you.

Thank you. Thank you very much. We'll take that as the last question. I would now like to hand the conference over to the management team for closing comments.

Thank you very much. Thanks for the participation. 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 and support for taking the time to join us on this call. Look forward to interacting with you soon. Thank you.

Thank you very much. On behalf of Warren Beverages Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.