Varun Beverages Limited Q2CY21 Result Analysis and Conference Call Highlights

Varun Beverages (VBL) is one of the largest franchisees of PepsiCo in the world. The company produces & distributes carbonated drinks, juices & packaged drinking water in six countries including. Some of the PepsiCo brands produced by VBL include Pepsi, Diet Pepsi, Seven-Up, Mirinda, Mountain Dew, Nimbooz, String, Slice, Tropicana, Aquafina, among others. The company has announced its Q2CY21 result on 2nd August 2021. Here is a detailed analysis of the Quarterly Result and the Earning Call Highlights of the company.

Q2CY21 Result Analysis: Varun Beverages Stock Price

Q2CY21 Result: Varun Beverages Fundamental Analysis

• The revenue of the company has increased significantly by 49% YoY from Rs. 1,666 Cr. in the quarter ended 30th June 2020 to Rs. 2,483 Cr. in the quarter ended 30th June 2021. Sequentially, the same was up by 9.4% from Rs. 2,270 Cr. in the quarter ended 31st March 2021.

• Revenue grew by 49% YoY due to robust volume growth over last year and margin increase in realization per case.

• The Volume Growth of the company stood at 45.4% in Q2CY21 against 46.4% in Q2CY20. Volume growth was 24.7% in Q1CY21.

• The Sales Volume Mix for Q2CY21 stood as follows: 78% from CSD, 15% from Packaged Drinking Water, and 7% from Juices.

• Increase in Sales Volume Led by strong growth in April 2021 compared to the low base of previous years same month and a steady recovery in June 2021, despite the second wave of pandemic and related lockdowns, which led to degrowth in May 2021.

• The Earnings before Interest, Depreciation & Amortisation (EBITDA) of the company have also increased impressively by 51.1% from Rs. 378 Cr. in Q2C20 to Rs. 571 Cr. in Q2CY21. EBITDA of the company has also gone up by 49.6% QoQ from Rs. 382 Cr. in Q1CY21.

• The EBITDA margin of the company stood at 23% in Q2CY21 up by 30 bps YoY from 22.7% in Q2CY20. Quarter on Quarter, the EBITDA margin of the company has grown massively by 600 bps from 17% in Q1CY21.

• The Profit Before Tax (PBT) of the company has increased remarkably by 130.8% YoY from Rs. 182 Cr. in Q2CY20 to Rs. 420 Cr. in Q2CY21. Sequentially, the same has increased by 115.6% from Rs. 195 Cr. in Q1CY21.

• The Net Profit of the company for Q2CY21 was Rs. 308 Cr. up by 119% YoY against Rs. 141 Cr. in Q2CY20 and 138.4% QoQ from Rs. 129 Cr. in Q1CY21.

• Growth in Profit After Tax (PAT) was driven by lower finance costs on account of lowering the averaging cost of borrowing and reduction in total debt.

• The Net Profit Margin of the company stood at 12.4% in Q2CY21 up by 390 bps YoY and 670 bps QoQ.

Varun Beverages Limited- Q2CY21 Result

2) H1 CY21 Results: Varun Beverages Stock Analysis

• The Revenue from Operations of the company on a 6-month basis has increased from Rs. 41.3% from Rs. 3,365 Cr. in H1CY20 to Rs. 4,753 Cr. in H1CY21.

• The EBITDA of the company has also expanded by 46.8% for the 6 months of the current year from Rs. 649 in the half-year ended 30th June 2020 to Rs. 952 Cr. in the half-year ended 30th June 2021.

• The EBITDA margin of the company has also expanded by 70 bps from 19.3% in H1CY20 to 20% in H1CY21.

• The Profit Before Tax (PBT) of the company for 6 months of the current year has shot up by 223.9% from Rs. 190 Cr. in H1CY20 to Rs. 614 Cr. in H1CY21.

• The Net Profit of the company has also increased significantly from Rs. 196 Cr. in H1CY20 to Rs. 437 Cr. in H1CY21 amounting to a growth of 123.5%.

Varun Beverages Limited- H1 CY21 Result

3) Performance Trends: Varun Beverages Performance Analysis

i) Revenue & EBITDA/EBITDA Margin Trend:

• The Revenue of the company has been affected by the Covid-19 Pandemic, which has reported a downfall in the rising trend of Revenue to Rs. 6,450 Cr. in CY20. On a half-year basis, the revenue of the company has shown some improvement and stood at Rs. 4,691 Cr. in H1CY21.

• The EBITDA of the company is also in line with the past performance of the company and is improving every year.

• The EBITDA margin of the company has come to a normal level of around 20% in H1CY21.

Varun Beverages- Revenue & EBTIDA/EBITDA Margin Trend

ii) CSD Volumes Trend:

• The CSD Volumes of the company are increasing sequentially from 89 million units in Q2CY20 to 118 million units in Q2CY21.

• The Growth in CSD Volumes of the company has shown drastic improvement company from -39%in Q2CY20 to 78% in Q2CY21.

Varun Beverages- CSD Volumes Trend

4) Quarterly Highlights: Varun Beverages Q2 Results 2022

• The resurgence of the Covid 19 pandemic caused a significant disturbance and led to a slowdown in economic activity and business operations of the Company in May. As covid cases declined the business operations of the Company have shown significant growth during June. The impact assessment of COVID 19 is a continuous process given the uncertainties associated with its nature and duration. Hence, the management will continue to monitor changes to the future economic conditions which may have an impact on the operations of the Company.

• The Board of Directors has recommended an interim dividend of Rs. 2.5 per share. Total Cash Outflow will be around Rs. 108.3 Cr.

• During H1CY2021, the net organic CAPEX of ~Rs.1,900 million including forex adjustments was primarily towards expansion in India, Morocco, and Zimbabwe.

• Credit Rating from CRISIL continues to be CRISIL AA for long-term debt and CRISIL A1+ Short Term Debt.

• With immediate effect from August 2, 2021, Mr. Vikas Bhatia, Mr. Rajesh Chawla is upgraded as Chief Financial Officer and a Key Managerial Person.

Earnings Call Highlights: Varun Beverages Financial Analysis

Business Performance:  Varun Beverages Annual Report Analysis 

• Easing down of restrictions from June, the company witnessed faster recoveries which assisted growth in the quarter.

• The higher growth rate in the revenue is on account of robust growth in volume over a lower base of the previous year as well as a marginal increase in realizations.

• The rise in Profit After Tax (PAT) was primarily driven by lower finance costs on account of lowering of average cost of borrowing and reduction in Total Debt.

• In-home consumption volumes are steady and doing well. In CY20, the majority of demand was driven by the rural areas, whereas in CY21, the urban region has showcased strong growth.

• The company witnessed improvement in month-on-month demand and the output remains positive for all the product categories over the medium to long term.

• The overall focus remains on generating strong free cash flows over the ensuring quarters and coming years.

Volumes:

• India recorded volumes at 127 million cases in 2QCY21, whereas International volumes stood at 25.3 million cases. In India, the northern and eastern regions account for two-thirds of overall volumes, whereas the remaining volumes come from the southern and western regions.

Working Capital:

• Working capital days increased marginally to ~ 24 days as of Jun 30, 2021, from 20 days as of Jun 30, 2020.

• The increase in working capital days is primarily due to higher stock of pet resin/preform inventory stocked to take the advantage of lower pricing at the start of the year

Realizations:

• The Company did not take any price hikes during the year.

• Improvement in the product mix (higher volumes recorded in juices, ‘Sting’, and ‘Mountain Dew Ice’) has led to an increase in realization.

• International realization per unit case stood at Rs. 180, whereas domestic realization was recorded at Rs. 156/unit case.

• Realization per case improved by 2.8% to 160.8 in Q2CY21 mainly on the count of 5 realizations in International Territories partially offset by a higher mix of water.

Product:

• The 'Sting' product has seen strong demand traction and is gradually improving the overall mix.

• The company has already crossed the 10 million-unit mark in this segment. Sting is expected to post strong volume growth over the next 6–12 months.

• VBL has resumed the sale of dairy products and currently focuses only on the northern region. The current capacity is sufficient to meet increasing demand. Products are expected to be launched in the southern region over the next few quarters.

• Mount Dew-Ice reported a strong uptick in sales and is quickly gaining traction.

International Status:

• $15 million is outstanding with the Reserve Bank of Zimbabwe.

• Every quarter, $2–3 million is expected to be repaid until the final payment is complete.

Gross Margins:

• The Gross Margin of the company has improved.

• In India, it has come down because of the stocking of the raw material which led to the stalking of the working capital and a higher number of days.

• Due to the higher transfer activity of goods, the company has incurred extra freight costs.

CAPEX:

• Capex is expected to be in the range of depreciation for the next few years.

• In 1HCY21, VBL’s CAPEX stood at around Rs. 190 Cr., including forex adjustments – this was primarily utilized for expansions in India, Morocco, and Zimbabwe.

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