Carbonated drinks, juices power Varun Beverages profitability in Q4

Varun Beverages in focus: Varun Beverages (VBL) has reported strong financial results for the fourth quarter of calendar year 2023 (CY23), showcasing robust growth in both revenue and profit after tax (PAT). The company recorded 21 per cent increase in revenue, with profit after tax witnessing 77 per cent growth.

The revenue surge was primarily fuelled by a commendable 17 per cent growth in volume and 3 per cent uptick in realisation, analysts noted.

Geographic performances include a 20 per cent growth in India and a 22 per cent growth in the international segment. VBL's strategic focus on carbonates and smaller stock keeping units (SKUs) contributed to the increase in realisation, brokerage firm Emkay said in a note.

Meanwhile, category-wise, carbonates and juices emerged as the frontrunners, witnessing healthy volume growth rates of 25 per cent and 14 per cent, respectively. However, the growth trajectory for low-realisation water remained moderate at 5 per cent.

The Gurugram-based company’s operating performance also exhibited positive trends, with an EBITDA margin witnessing a notable improvement of 180 basis points, to approximately 16 per cent. 

The enhancement was largely attributed to operating leverage and certain one-off factors in the base, while gross margin remained stable at 56.6 per cent.

VBL's ambitious expansion plans further solidified its position in the market. With major investments worth Rs 2,100 crore in CY23, including greenfield and brownfield expansions, land acquisition, and international ventures, the company augmented its peak capacity by 45 per cent over the base of CY22, Emkay said.

Despite an increase in net debt to Rs 4,700 crore, primarily driven by capital work in progress (CWIP), Varun Beverages remains optimistic about maintaining its debt-equity ratio near current levels of 0.7 times.

VBL anticipates a cash capex of Rs 1,700-1,800 crore for both domestic and international expansions in CY24. While realisation growth may moderate compared to the previous year, the company expects a favourable mix and increased sales in certain categories to bolster realisations.

The company's strategic initiatives, including capacity expansions and distribution network enhancements, position it favourably to capitalise on evolving market dynamics and consumer preferences. 

With a positive outlook on earnings and growth potential, brokerage firm Emkay has upgraded Varun beverages rating to ‘Add’, with a target price of Rs 1,400.