Varun Beverages sees dip in volumes, holds margins steady amid weak summer

Varun Beverages Ltd (VBL), PepsiCo’s largest bottler in India, reported a soft June quarter with consolidated revenues slipping 2.5% year-on-year to ₹70,174 crore. Volumes were hit by an unseasonal summer, especially in India, but better margins and international growth provided some cushion.

“Volume degrew 3% YoY, led by India’s 7.1% dip due to a weak summer and a high base,” said Abneesh Roy, executive director, Nuvama Institutional Equities. “But margins remained resilient, expanding 82 basis points YoY to 28.5%, driven by operational efficiencies and better international mix.”

International volumes were up 15.1%, led by South Africa, which grew 16.1%. Net realisation per case rose 0.5% at the consolidated level, largely aided by a 6.6% improvement in international markets, even as pricing in India dipped 2% due to a higher share of water sales.

Roy pointed out that while the June quarter was a key season for beverage sales, the company was still able to post a 5% growth in adjusted net profit at ₹13,267 crore. “What helped was a drop in other costs, largely due to consolidation of distributors and better plant location planning,” he said.

Standalone revenue and EBITDA were down 8.6% and 5.6% YoY respectively, showing the clear impact of India operations, even as EBITDA margins held up at 30.9%.

Despite the shortfall, VBL continues to invest heavily for growth. Capex during H1CY25 stood at ₹2,500 crore, including ₹1,450 crore for four new greenfield facilities in Uttar Pradesh, Bihar, Himachal Pradesh and Meghalaya, and ₹450 crore towards international markets. The company also began production of Cheetos snacks in Morocco and expanded canning capacity in Durban.

VBL is guiding for a minimum EBITDA margin of 21% going forward, with a focus on cost control. It also plans to expand its retail reach from 4 million to 4.3 million outlets by year-end. Capex will remain moderate in India but higher overseas.

On the earnings front, Nuvama has cut CY26 earnings estimates by 6%, revising its price target to ₹606 from ₹659, but maintained a 'Buy' rating. “Despite near-term pressures, India’s base remains favourable for H2CY25, although the monsoon could be a risk,” Roy added.