Varun Beverages Q3 profit rises 13.5% as packaging costs squeeze margins despite 29% volume growth

Varun Beverages , one of PepsiCo’s largest bottling partners globally, reported a 13.5% year-on-year increase in consolidated net profit for the September quarter of calendar year 2026, even as higher packaging material costs and geopolitical disruptions weighed on margins. The company’s profit after tax (PAT) stood at ₹830.59 crore, compared with ₹731.51 crore in the corresponding quarter last year.

Revenue from operations, net of excise and GST, rose 33.2% to ₹6,607.56 crore in Q3 CY26, against ₹4,960.69 crore a year ago, driven by strong volume growth across India and international markets. Consolidated sales volumes increased 28.7% to 354.4 million cases from 275.3 million cases in the year-ago quarter.

However, the growth in revenue did not translate into a commensurate increase in profitability. EBITDA grew 25.1% to ₹1,426.71 crore, slower than revenue growth, while EBITDA margin contracted 140 basis points year-on-year to 21.6%.

Gross margin declined 334 basis points to 53.1%, primarily due to higher costs of packaging materials such as preforms, shrink films, closures and cans, which the company attributed to geopolitical disruptions.

For the nine months ended September 2026, revenue increased 23.3% to ₹21,814.55 crore, while EBITDA rose 19.9% to ₹5,274.58 crore. Net profit grew 15.5% to ₹3,202.30 crore.

Packaging costs, international expansion weigh on profitability

The pressure on margins was also partly linked to a sharp increase in sales of non-beverage products in India, including preforms and caps. Sales of these products increased 104% during the quarter. Since these products carry a higher cost of goods sold, they impacted India's gross margins by around 100 basis points.

Higher sugar prices, which increased approximately 16%, added to the cost pressures. However, the company said the impact was largely offset by a shift towards low-sugar and no-sugar products. Their share in India's sales mix increased to 88% in Q3 CY26, compared with 44% in the corresponding quarter last year. Across consolidated sales volumes, the share of low-sugar and no-sugar products stood at around 86%.

Despite the margin pressure, Varun Beverages saw strong volume growth in both domestic and international markets. India volumes increased 22.5%, while international volumes grew 39.9%. The latter included 15.3 million cases contributed by its acquisition of Twizza in South Africa.

Commenting on the performance, Varun Jaipuria, executive vice chairman of Varun Beverages, said, "Higher packaging costs weighed on margins during the quarter, although improved realisations and operating leverage from strong volume growth helped partially offset these pressures."

In India, the company said volume growth remained healthy, extending the positive trend seen since May. Higher-value categories, including dairy beverages, and premium launches such as Ad Rush and Evervess mixers supported improved realisations per case, which rose 2.2% at the consolidated level.

International expansion remains another growth driver. The merger of South African beverage company Twizza with its holding company BevCo was completed effective August 1, with the company expecting operational synergies in the coming quarters. It also commenced beverage operations in Kenya and introduced two brands, BOLT UP and XTREME FIZZ.

Separately, Varun Beverages entered an exclusive distribution agreement with Mondelez for chocolate, biscuits, candy and gum products in Zimbabwe, effective October 1. It has also incorporated KIVA Spirits and Company Limited, a wholly owned subsidiary, to explore opportunities in ready-to-drink and alcoholic beverages.

The board has also approved an interim dividend of ₹0.50 per share, translating into a total cash outflow of approximately ₹169.1 crore.