Ladies and gentlemen, good day, and welcome to Varun Beverages Limited earnings conference call. As a reminder, all participant lines 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 conference call, please signal an operator by pressing star and zero on your touchtone phone. Please note that this conference is being recorded. I would now like to have the conference over to Mr. Anoop Poojari from CDR India. I'll cue it over to you, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on Varun Beverages Q2 CY 2023 Earnings Conference Call. We have with us Mr. Ravi Jaipuria, Chairman of the company, Mr. Varun Jaipuria, Executive Vice Chairman and Full-time Director, and Mr. Raj Gandhi, Group CFO and Full-time Director of the company. We'll 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 like to invite Mr. Ravi Jaipuria to make the opening remarks.
Good afternoon, everyone. Thank you for joining us on our earnings conference call. I hope all of you had the opportunity to go through our results presentation that provides details of our operational and financial performance for Q2 and H1 ended June 30th, 2023. We have delivered a resilient performance in the quarter despite facing a soft demand environment in India due to abnormally high Untimely rain throughout the quarter. Our consolidated revenue grew by 13.3% during the quarter, with our international territory showing strong momentum. Sales volume growth and improvement in realization per case contributed to a 20.8 and 25.4 improvement in our EBITDA and flat performance during Q2, respectively.
Our newly established greenfield plants and brownfield manufacturing lines have become operational in line with our commitment to meet the increasing demand, especially for our juice and value-added dairy products. We are currently in the process of establishing greenfield facilities in the states of Uttar Pradesh, Maharashtra, and Odisha. These new facilities, along with the upcoming facility in DRC, Congo, are expected to be fully operational before the next season. Further, we have incorporated a new subsidiary in South Africa to explore the business of manufacturing and distribution of beverages. We remain firmly committed to minimizing our environmental impact and promoting a cleaner, more sustainable future. In line with our sustainability mission, we are pleased to share that we have recently introduced 100% recycled PET bottles for Pepsi Black in certain territories.
As a partner of PepsiCo, we take immense pride in actively participating in the transformative initiative and collaborating to build a greener future for generations to come. We are delighted to share that VBL has recently received the esteemed recognition of PepsiCo's International Bottler of the Year 2022. This outstanding accomplishment further validates VBL's commitment to operational excellence, strong governance principles, and sustainability endeavors. We are pleased to share that in line with our dividend policy, the Board of Directors has approved an interim dividend at 25% of the face value, that is INR 1.25 per share. While we witness slower than anticipated demand due to unseasonal rains, we remain optimistic about our full-year performance, especially considering the low seasonality in our business following the integration of west and south territories.
As we move forward, we will continue to capitalize on our position as a key player in the beverage industry and focus on strengthening our capabilities in line with customer performance. We are confident this approach will translate into sustainable value for all our stakeholders. I would now invite Mr. Gandhi to provide the highlights of the operational and financial performance. Thank you very much.
Thank you, Mr. Chairman. Good afternoon, and a warm welcome to everyone joining us today. Let me provide an overview of the financial performance for the second quarter and half year-ended June 30th, 2023. Revenue from Operations, adjusted for excise, grew up 13.3% year on year in Q2 2023, to the level of INR 56,114 million. Sales volume grew by 4.6% to 314 million cases in Q2 CY 2023 from 300 million cases in Q2 CY22, driven by growth in international markets. Sales volume growth in India was affected due to abnormally high unseasonal rains throughout the quarter.
CSD constituted 73.9%, juice 7.3%, and bottled drinking water 18.8% of total sales volume in Q2 2023. In the second quarter of 2023, there was a notable improvement in net realization per case, which increased by 8.3% to reach at INR 179 per case. This improvement can be attributed to the continued increase in the proportion of smaller SKUs, such as the 50 ml in our portfolio, compared to the corresponding quarter last year. Our gross loss margins during the quarter improved by 196 basis points to the level of 52.5% from 50.5%, mainly due to softening of PET prices.
As a result of higher gross margins and operational efficiencies, EBITDA also saw a notable increase of 20.8% to INR 15,110 million, with EBITDA margin improving by 169 basis points to the level of 26.9% in Q2 2023. Finance costs increased to 49.5% in Q2 FY 2023 on account of capitalization of assets and setting up of more production facilities. Debt increased by 25.4% to the level of INR 10,054 million in Q2 2023, from INR 8,020 million in Q2 2022, driven by growth in revenue from operations and improvement in margin.
As of June 30, 2023, our net debt level was amounting to INR 31,716 billion, showing a decrease from INR 34,096 million reported in December 2022. It's worth noting that the net debt figure includes approximately INR 9,000 million of CWIP and capital advances allocated for the CapEx land in Maharashtra, Uttar Pradesh, and Orissa for 2024 season. These investments are expected to drive our growth and expansion in key regions. Our financial leverage remains solid, and our net equity and net EBITDA ratios standing at 0.48 and 0.96 respectively as on June 30th, 2023. In H1 2023, the net CapEx amounted to INR 19,000 million, primarily for setting up of new greenfield production facilities at Luni, Kota, Rajasthan, and Jabalpur, MP, for INR approximately 8,500 million.
Brownfield expansion at our existing facilities in India for approximately ₹6,500, and brownfield expansion in international markets of approximately ₹3,000 million and approximately ₹100 million towards land purchase for CapEx in future years. The net CapEx includes capitalization of CWIP and capital advances amounting to ₹12,000 million, which are outstanding as on December 2022. As on June 30, 2023, the CWIP and capital advances of ₹10,000 million are towards greenfield expansion as stated in Maharashtra, UP, and Odisha. Working capital days increased to 21 as on June 30, 2023, from the level of 17 days in June 30, 2022, thank you. Untimely rain. Overall, we are committed to maintaining a strong financial position and continuing to focus on our growth initiatives.
We are dedicated to optimizing our operational efficiencies, which we believe will ensure long-term sustainability and create value for our stakeholders. On that note, I come to an end of the 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. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star one on your telephone. If you wish to remove yourself from the question queue, you may press star two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue is settled. The first question is from the line of Vivek M. from Jefferies. Please go ahead.
Hi. Good evening, team. A few questions. First on the international business, can you just highlight which have... How different businesses have grown in this quarter?
We did, internationally, the growth is good and all our territories, like in the past, have been bustling, and luckily, they were not affected by the unseasonal rain. Any particular thing you want to know, we can tell you, but otherwise progress is as had been in the past.
Let's say that 27% volume growth, are there, let's say, geographies such as Morocco or others, which have grown like way, way faster than the others? Can you just highlight that, please?
Our bigger territories, which is Morocco and Zimbabwe, have grown faster.
Okay, got it. On South Africa, can you just elaborate as on the next steps?
In South Africa, we have just formed a company there. We are looking at what are the possibilities. I think it's a bit too early to say what is going to happen, but we are evaluating and seeing if this is a market we would like to go in.
Okay, got it. On the, on the CapEx, Mr. Gandhi, what will be the full, let's say second half or full-year CapEx number that we should work with?
Basically, our endeavor will be that out of the three plants which we are, you know, initiated for next season. If one out of these we can complete by December itself, because, you know, in a normalized year when rains do not affect, we still, you know, don't want to get in a situation like last year we were struggling for capacity. Moreover, there are certain things like Tropicana or juices, of which there's daily products which we have seen to launch rest of the India. We would like out of the three, one plant at least is operational in December.
Otherwise, out of this, you know, INR 19,000 million, out of, for the, out of the this year, what we have already spent, maybe by INR 7,000 million more, at least at the time of capitalization will be coming in. In India, the total CapEx may go up to INR 24,000 million, INR 25,000 million.
Just to get it right, so let's say first half, you have done just under INR 1,800 crore. You are saying the second half cash flow, cash outflow on CapEx, will be about INR 500 crore- INR 600 crore cash flow?
It maybe INR 800 crore- INR 900 crore, I say.
INR 800-900 crore. Okay. Okay. Where do you think, Mr. Raj Gandhi, you know, where peak gets that you have?
In fact, debt in the H1 has come down, and we may come back to the last year debt, and we will have four incremental plants with us. One piece are operational, three mentioned in India and one in DRC.
Right.
All these, you know, or if you see on overall basis, all these four plants will be funded out of internal renewables.
Right. What you're saying essentially is, let's say, INR 3,600 crore-INR 3,700 crore is where the, where the Debt will peak at?
should be around that. Yes.
Got it. The next one is on the energy drinks. How was the quarter for energy drinks, you know, in, in, in the second quarter?
Well, we take as stated in the earlier calls, the exact numbers will not be given, but on trend-wise, the journey is continuing.
Okay. Okay. Lastly, on the standalone, you know, business, if I look at, see, there is no real, you know, operating leverage, you know, this time around. Despite which, let's say, the margins are about 28% or so. Where, and, and we have seen in the past, you know, where we have done, let's say, 28.5%. Had it not been for this poor volume, the margins could have been far better, better, probably, you know, let's say 30% ballpark. Is that a fair assessment?
Let me put it slightly differently. See, the expectation, I think 169 basis points in the COGS, I have stated, there was an improvement. This has come up because of softening of its commodity pricing, basically, PET. Operating leverage, actually, in this quarter, there has been increase, which would have been further increased. You are right, maybe, you know, half a percent point, a percentage point or percentage equivalent, they could have been in improvement. We can't deny that.
Sorry. Sorry, Mr. Gandhi, what I was referring to was let's say the standalone numbers. You know, because your revenue growth is 7%, there is a gross margin expansion for sure, but, but the, the growth has been somewhat lower than what, what you know, what I'm sure you would have been eyeing. In that context, you know, the progress.
You are absolutely right. If the growth would have been normal and the seasonal season would have been normal, we would have had a much better margin. This is not, you know, you cannot plan it, and we don't say this for long term, because depending on the pricing, we have always said the EBITDA margin would be around 21%-22%, not more than that. That's what we like to commit. Obviously, if the season is good, then you get better commodity prices, you get a blip on it.
Got it. Mr. Jaipuria, if I can just follow up on that, you know, that's, that's my point. You know, if I extrapolate, you know, seasonality and, and full-year number, your guidance is... I mean, I get a sense if we, you know, look at what your, let's say, growth targets are, et cetera, et cetera, the margins will be higher than what, what your guidance is. What am I missing in that?
No, you're not missing anything. It's just that we don't like to give a guidance better than that. If we have a good season and, you know, this second quarter is our biggest quarter, so this margin will always be higher in this. I'm talking annualized basis, 21-22% is reasonably high, and that's what we like to say. Beyond that, we don't like to say. If we get a good commodity advantage or something better happens or a special season comes, I, I don't want to deny that we can't do better.
Got it. Got it. Thank you for wishing me all the very best.
Thank you.
Thank you.
Thank you. The next question is from the line of Percy Panthaki from IIFL. Please go ahead.
Yes, sir. On Zimbabwe, now, since many years, we have seen very robust, healthy growth in this market. Can you help us understand that market a little bit in terms of what is the industry growth, who are the main players there? If you are growing faster than the industry, who is really sort of, growing at a slower pace to balance the equation out, some flavor on that, please?
Well, I think, Percy, it is very difficult because no numbers are published in that country, and we, we ourselves also can't understand that country after 50 years. It's very difficult to understand that country, but it's a great country. We are seeing huge growth, very positive, and obviously, our main competition is the red, and we are growing faster than somebody is getting hurt, so I can't answer you more than that.
Okay. Like anything that you are doing there, which you would attribute your success to, I think, I'm sure that you are gaining market share, and you would have probably crossed 50% kind of mark by now. Is it that the other players are not very focused on that geography or something like that? Are we doing something right, which we can replicate in the other geographies maybe, because we are not getting the same kind of market share gain in the other geographies also?
I don't want to say they are not focused. I think we are more focused.
Sure, sure, sure. I just wanted to understand on the CapEx part. I think in the last call, we had mentioned that on a full-year basis, the CapEx would be about INR 15,000 million. Now that number is sort of going up by more than INR 10,000 million. It seems to be like on a cash flow basis, the CapEx will be more than INR 25,000 million. What has really changed in this one quarter period for such a big difference?
I think the main reason is basically we want to enhance our capacities of.
Percy, that INR 1,500 number, you know, FY to FY is INR 1,900. It exceeds INR 2,900 or so is for the 2024 season. So for this year, it is INR 1,900. It's a difference of INR 400 because we gave, you know, DRC.
That 400 is actually being put in a new territory which was not part of India, and that is DRC, Congo.
Okay. Is this just a pre-payment of CapEx that you would have planned over CY 2023 plus CY 2024, or is it that the total CapEx of CY 2023 plus CY 2024 also will go up and not just this year's CapEx?
Every year there will be a CapEx. What we are saying is we had spent about INR 1,500 crore for 2023, and INR 400 crore additional, about $50 million, are being put in DRC to start a new country. That is what it is. Next year's CapEx will be again there.
Okay. Versus that INR 1,900 million, it seems more like this year will be INR 2,500 million-INR 2,600 million. That difference of about INR 500 million-INR 600 million, what is the reason for that, sir?
It will not be that will not be CapEx for this year. For next year, it will be sitting in our balance sheet CWIP. When we will issue filing the debt figure, that mention comes because out of 2024 CapEx, part of it will be spent ahead of time.
Right. This INR 1,500 crore number that you had given last quarter was also on a cash flow basis only, right? Or was it on a balance sheet basis?
That was on the capitalization basis.
Okay. Okay, understood. Yeah, that's all from me. Thank you, and all the best.
Thank you.
Thank you. The next question is from the line of Nihal Jham from Nuvama. Please go ahead.
Yes, sir. Good evening to the management. Sir, just, if you could give me the India volumes first to start with, if that is possible.
India?
I didn't hear you.
I'm so sorry. I was asking the volumes in India.
Yeah, India, there is a growth, but it was.
It was very small. This quarter, the India growth has been very small.
Understood. The other thing was, if I just look at, versus, the juices segment, I see in the construction. Any specific reason for that, happening?
Yeah, the main reason is our juice plant, which is in the north, which produces, we only service the north mainly with that for Tropicana TP and KD. That, because of the north rains, it, it was depressed. We normally don't send product from here to south and west. It's, the freight is too high. That's why we are putting up a plant in Maharashtra and in the east in Gorakhpur.
Understood.
It was absolutely abnormal rains this year we had in the north.
Sure, Mr. Jaipuria. The next question was, you know, so the earlier questions on margins. We are currently having a favor of our raw material prices are playing out, and historically, we have increased our discounts to distributors, but highly drive volumes when margins have gone up. Is that also a thought in the coming quarters as we want to, say, normalize the discount system, maybe take it down last year, and maybe that is one of the reasons we don't want to change our margin guidance too much?
The discounts keep on getting adjusted, either through the marketing spend schemes. Their commission structure doesn't change, but over and above that, there are a lot of incentives. Those are performance based. If the volume goes up, they earn more incentives, therefore more commission for them. If the volumes don't go up, definitely they don't earn those extra incentives. This year, it's basically as it's directly linked to the volume of that image higher. Yeah. Last year, there was so much of volume growth that they made so much of money and rather, apart from the company, they have also co-invested with us in vehicles and other things.
We are much better equipped through the distributors infrastructure to the next round of growth, maybe next quarter in this year or in the next year.
Thank you, Mr. Gandhi. Just one last question, if I may. Given the way we've obviously turned around a lot of the territories, and if, in terms of some of the awards that we've received, definitely we do rank among the top quarters from Pepsi's perspective. Now, where my question is coming from is that today, while we found a subsidiary in South Africa, and currently, it is still a discussion that is currently happening. Are there other international geographies that we will simultaneously look at entering, or it will mainly be that maybe right now we'll see how this discussion goes, focus on maybe South Africa and Congo for the next few years, and then look at whether we incrementally want to go ahead and move into other international territories?
It is as and when the opportunity comes, we'll, you know, look at taking them on.
We are constantly discussing with Pepsi. As India, we have delivered a resilient performance and we have already taken most of it, and there's very little to grow in this except organically. Any market which looks good, which is good for us, and Pepsi is willing to work with us on that, we are looking forward to it and expand our territory.
Sure, Mr. Jaipuria. That was it for my side. Thank you so much.
Thank you.
Thank you. The next question is from the line of Devanshu Bansal from Emkay Global. Please go ahead.
Sir, hi. Thanks for the opportunity and congrats on a good set of numbers in a challenging quarter. Sir, June quarter was obviously impacted. Just wanted to check, how is the situation now, as there are clear evidences of consumption from this one?
Even in this substantive quarter, we have done well, so I'm sure we'll do well again. We'll keep you guys happy. Don't worry about it.
Great, sir. Second, sir, we have been successful in bringing Gatorade to a very acceptable price point of INR 20. Firstly, I wanted to check how difficult it is for competition to bring this offering at this price point? Second, if you could share the trends for our new growth drivers, Gatorade, dairy and juices?
Our key growth drivers are energy drinks, juice product, which is the Nimboo product, Tropicana, our dairy products and Gatorade. These are the new products, and also our sugar-free drinks, which are doing extremely well, which is 7Up and Pepsi Black. I think there are a lot of new categories which we are doing and doing extremely well, and that's why we've been able to sustain a bad quarter like this.
Got it. From a distribution footprint perspective, all these new, growth drivers, to what extent of our, our network are they currently available, and what is the plan going ahead in terms of expansion?
Dairy is not available apart from North. Dairy and Tropicana is more focused in the North right now because of our capability of the plant being only in North, which is going to change for next year's season. We'll have complete capacities available for central South as well as east. There, there we see a major expansion, which is our Nimbooz, which is our Tropicana juices, Gatorade, and energy drink, of course.
Got it, sir. Lastly, sir, just to understand this a bit better, in H1, we have done INR 1,900 crore, which includes the CWIP that was created of about INR 800 crore. Cash flow perspective, it was about INR 700 crore net one. Then we have created another INR 900 crore of CWIP, which amounts to total INR 1,600 crore of CapEx. The amount which you're indicating is about INR 1,900 crore. What are the additional INR 300 crore that you're going to use? Is it for... Yeah.
I had just said that it's for the international market, which is DRC, Congo. There's a greenfield plant coming up there.
Yeah. That is included in INR 1,900.
Sure.
It, it could be mentioned that INR 1,900 includes that INR 300.
It, the rigor of this is already given. INR 1,900 crore, you know, one is that INR 850 crore for Rajasthan and Jabalpur plant. It's on sheet number 15. brownfield expansion, INR 650 crore at INR 300 crore international subsidiaries. Paid for land and end of plant constructions for future, because the acquisition of land takes times, a lot of time, INR 100 crore for that.
No, sir, I, I get that. from that perspective, I wanted to understand the cash outflow for FY 2023. dimensions in H1, we have done a CapEx of INR 1,900 crore, of which Cash outflow, INR 1,200 crore has already been done in 3 by 20. actual cash outflow is INR 700 crore in H1. we have additionally created the CWIP of INR 900 crore, so totally to INR 1,600 crore. the number that we are giving is about INR 1,900 crore. just wanted to insert it now, what is the additional INR 300 crore that we are up to?
That is the CapEx, not the cash flow, because there was some cash other than in the international market was also sitting in the CWIP. Basically, capitalization is INR 1,900, and the money spent in H1 is INR 300. INR 300 is coming from definitely either is outstanding or is coming out of the CWIP or the capital account advances with the suppliers.
Got it. Last thing, sir, this working capital days are between, 21 days. What is this largely, raw material or finished goods?
This is partly both, finished as well as raw material, because the season was not as per planned, and normally we, we get rid of our goods by end of June. This time we had to take it to July.
Got it, sir. Okay, thank you so much.
Thank you. The next question is from the line of Vatsal Bajaria from CLSA. Please go ahead.
Hi, thanks for the opportunity, sir, and congratulations on a good set of numbers. My question is on the line of distribution reach. What is the progress on in terms of number of outlets and the distributor infrastructure?
In fact, we have taken a presentation at the year-end. Otherwise, we just finished with 925,000 distributors. At the year-end, we, you know, once a year, we update this figure. Distributor network, the next question is about 3.3 million, which we have already, in the session, retailers, we have already stated.
Okay. In terms of the South Africa expansion, could you give us some sense of the size of the opportunity there in terms of, how does it stack up versus, the other international geography we are currently, present in?
I think South Africa, at the moment, we would only like to say that we are looking at the market and it's a bit too early. As soon as we have something concrete, we get back.
Okay. Okay. Thank you so much.
Otherwise, just in size, at least, equal to 50% or higher than India.
Okay. Yeah, that helps. That helps. Thank you.
Thank you. The next question is from the line of Omkar Ghugardare from Shree Investment. Please go ahead.
Yeah, good afternoon. The question was regarding once the entire CapEx is done and all the new facilities are coming, what kind of total revenue potentially can generate?
With these new plants coming up, actually, thumb rule is, you know, whatever CapEx we do, do so that once the plants are stabilized and they are working fully, the revenue it can come out. With INR 2,900 million, we can expect INR 5,500 million or INR 5,800 million growth CapEx.
Around 2x, or 8 x you are expecting on this?
That's right. It's very simple. The thumb rule is, for example, my ROC is today is 30+, and the depreciation 5%-6%, 36 or something. 1.8x-1.9x .
Okay. A, a rough figure of how many million cases that would be servicing?
Last year we did INR 800 million. This year, H1, I think 11% growth is there, remain same, so INR 900+ million. Yeah.
Capability is much more, but of course, depends on the season and how it works, because last quarter was very subdued this one. That's why it's not showing the numbers. Otherwise, the capability of production is much higher than this.
That's what I'm asking. with the full capacity and once the plant, new capacity.
I won't be able to give you exact numbers, but we can produce reasonably high double-digit numbers.
Okay. With the expanded facilities, right?
Absolutely. Absolutely.
Okay. Another question is on the product categories. I mean, if you look at the international markets where Pepsi, Wild Cherry Pepsi, Mango Pepsi, Cut Glass, and these products are available, I mean, how do you decide to bring a new product to Indian markets or other markets?
That is, that is different. We work with Pepsi and we bring one by one products what we think are going to work and the market is tested. After that, we choose one product at a time because it has to be marketed, it has to be distributed. There, there are thousands of products available in the market, in the international market. I mean, depends what suits the Indian palate.
Okay, any deciding factor on that? Like, how do you choose it? Like, for what stock system doing-
We market it in the market, see the feedback from the people before we put it across all markets. Test markets are done, after getting feedback from a reasonable size on top, then we decide what product will work in this market.
let's say out of 100, how many, say 100%, how many % is currently available?
There's no specific. Pardon me? No, no, there's nothing available. I mean, there are thousands of products. There's nothing-
Okay.
Every market has different things. Apart from the key product, which is your Pepsi, Mirinda, 7Up, and Mountain Dew, those are your basic key products. Otherwise, there are thousands of products. Pepsi itself might have 20, 30, 40 variants.
Okay. As far as an investment, you would say that you have just scratched the surface, you can select that?
You can say that.
Okay. Just wanted to know what's the progress on the milk-based products, dairy products, and what kind of growth we'll be looking at? As you said, it would be the next category that would lead to growth.
It would be one of the categories that would-
Correct.
Grow. Because we are setting up, we are doubling our capacity on that. It will be available in west and south as well as east. We are doing the same for Tropicana juices and Limon and some other categories. Production-wise, next year we will have no shortfall like we had in 2022.
Okay. Any ballpark figure which you can give about the growth in the international markets? How much it grow in volume terms?
You know, these markets have done well. We are further enhancing some capacities where it is needed. All our international markets are growing and doing well. We expect the same to continue.
Just one final question. People, the earlier participants have already asked about South African thing. I just wanted to know what made you form the company in South Africa?
We are looking at it, that looks like another big market after India, so we are looking at it very seriously. Till we have something finalized, we can't tell you.
Okay. As Mr. Gandhi said, it's 50% bigger than India, right? In terms of-
No, no, no. It's, it is not bigger than India, but it's a large market. Per caps are much higher than India.
Right. He was talking more about 50% higher than India.
There was an error there.
Okay.
Its per caps are much higher. It's a large market.
Okay.
It's error, by slip of tongue.
Okay, what could be the size of the market if you compare with India?
It is more than a 1 billion case market, so it's a large market.
Okay. A 1 billion case market. Okay. All right. Thank you very much.
Thank you. The next question is from the line of Satadru Chakraborty from Chakraborty Family Office. Please go ahead.
Hello, good evening. Congratulations on a good quarter. I first want to start with a bookkeeping question. What I see in the balance sheet, both consolidated and the standalone results, is that the trade receivables have almost doubled. I was curious what, what color you could paint around this? You know, is this happening because of international operations? Is this just, the seasonality at it, or am I putting emphasis on something which is not really a thing for you?
Trade receivable. There, we at granular level, we come back, but looks like in the international market, the currency play, it may be one of the reasons, because international has played well in this quarter, but more details, we can come back to you.
All right, thanks. The second question is, I think, a continuation of, of a question the previous participant asked. I'm more interested in the dairy-based beverages view. I mean, you guys spoke on the manufacturing side, so that is good to hear. I was just curious on the physical distribution of this, because I imagine that the life cycle for dairy-based products are much shorter than carbonated drinks. I also know that the competitive intensity, specifically for dairy-based beverages, is already high. What can you add to us around how your physical distribution model is and, and what do you see in the competition in the market going forward?
There are two things. First of all, our time is the same. Actually, dairy-based products are longer shelf lives than soft drinks. That is one gap which you have to understand. Our dairy-based products are all six months shelf life. There is no gas, so there's no dilution of gas also. It... Actually, shelf life is longer than soft drinks. Secondly, our distribution is same, what we do, same trucks, same distributors, same people carry the product, and we have close to a million fizzy coolers, which it is very easily accessible, and our daily products go in there, which nobody in the dairy industry has. Nobody has this kind of distribution. That's our biggest strength, and that's what makes it easy for us to put our products in the market.
Mm-hmm. You're saying the physical infrastructure for supply chain distribution is exactly the same, there is no additional modification?
There's no change at all.
Understood. The, the last question on this one is: anything you can add on in terms of volume growth and realization, specifically for this dairy-based products?
Realization is higher. What else would you want to know?
Volume growth.
The volume growth, I've told you, we didn't have capacity. Now we'll have capacity. We are tripling our capacity. We expect a good run next year.
Understood. How high is the realization? Are we speaking, like, 20%, 25%, 50%?
About 15%-20%.
All right, gentlemen. Thank you, and all the very best.
Thank you.
Thank you. The next question is from the line of Sanjaya Satapathy from Ampersand Capital. Please go ahead.
Yeah, hi, sir. A couple of questions. The first one is that the slower growth that we saw in Q1 is essentially because of weather, but your company suggests that weather is not particularly a factor for rest of the year. Should one assume that your double-digit growth will come back from Q2?
I can't tell you we've done well in most of the territories where the weather was not affected, so hopefully I would see no reason why not, if the weather does not play its role.
Okay. The second question is that, that you have taken so many steps to push record growth in greater rate. Can you just give us some sense of how things are there and what are the outlook?
Well, we are looking very positively for gate rate, but I think the real push will come for next year. This year we are just getting our products right and getting the... We have reduced the price, so now it's, it's product which is a, which every common man can afford to have it, which was mainly for the niche before. We expect a huge growth in it, but it will, you will really see the traction next year.
What will board to do so that the traction will be there next year? Can you just explain?
Because we have to plan. This is not produced in every unit of ours. There's specific, specific, specific units which only produce it, and our capacities and our molds, everything has to be redone.
Understood, understood. The last thing that I wanted to check is that, you have already given a lot of color on your specific expansion in fruit juice and the milk side. I understand that the milk one is your own brand, and personalized one with five FC. Considering that you will be getting into newer territories, it's just going to be supplier, you'll need to do a lot more, in kind of, building the brand in progressively before launching your product, and make sure that appropriate sales of those segment will not be that under.
I'm not really getting your question properly.
My question is just, you are getting into not only you are expanding capacity in these two juices and dairy products, but you are also getting new territory. What will be your strategy to kind of gain market share?
We are not getting any new territory at all. We are in the same Indian territory, the same. There's no expansion in territory.
It's not present in those territories.
Except these products are being added because we didn't have manufacturing capability to go there. Now we are just going to add these products in these territories where we are already in this distribution. We have the whole setup. We just have to add these products.
No need of any branding or anything there?
Of course, there is branding, and that we will do. That's part of everything. Whatever we are doing, branding will be there. There is already branding going on for this. Advertisements have started. It will be much more focused because we'll have capacity.
Understood. That is coming by March next year?
Next year. I mean-
It will be coming by March or little earlier than that?
Maybe a little earlier.
Okay. Thanks.
Thank you. The next question is from the line of Rakesh Roy from Omkara Capital. Please go ahead.
Hi, sir. sir, my first question regarding, sir, few years back, you said you are not looking to expand your business in Africa, but currently you are expanding your business in Nigeria. Out of any reason, you, any change-
When did we say we are not expanding our business in Africa? We have never said that.
Okay. Maybe you are, I think that 2 years back you said you're not looking back, not looking to expand your business in Africa. Only we are looking to only think, like Zambia, Zimbabwe, and Morocco only.
Oh, I have never said that. I'm sorry. Some misunderstanding. After India and these countries, how, how will we inorganically expand otherwise?
Okay. next question regarding, are we looking to expand our product portfolio in Africa also, because like a, like a dairy?
That will always happen. Each country, you know, has a different market, and we have to study the market and see what is practical for that category. We'll be expanding wherever once we get in, our distribution is there, whatever we can sell, and we will definitely expand. We have the portfolio.
Okay. Okay. Okay. Next question, sir, recently, Sir PepsiCo declared their results. They increased their guidance from 80%, sir. So can we assume that our second half, our F two will be better than F one or higher growth?
F one is our growth is 11%.
Yeah, F two, we are looking same type of growth at 11%?
Well, I don't know. As I said, whether I can't expect, but there's no reason why we should not grow.
Yeah, definitely. Yes, yes, sir. Yes, sir. Yes, yes, sir. Sir, now the last question, sir, regarding.
It's all the rain gods, I'll take care of the rest.
Yes, sir. Yes, sir. Sir, your last question, sir, regarding, sir, apart from Africa, any other territory or geography we are looking where PepsiCo is doing the work, like the same, like Africa we are, we do?
Right now, right now, right now we are looking for expansion in Africa only. Wherever we get a good territory and it makes financial sense, strength for us.
Okay. Okay. Thank you, sir. Thank you so much, sir.
Thank you.
Thank you. The next question is from the line of Amit Purohit from Elara. Please go ahead.
Yeah, congratulations, sir, and thank you so much. Just on the international business, I wanted to check, has the, have you changed any distribution-led initiatives which is helping us to, probably drive even faster from here on? What is driving this, very strong growth of almost like 30% in volumes? Last two quarters, I think, slightly lower than this. Just wanted to know that.
Definitely, we have, you know, whatever practices work for us in our key country, India, and we feel can help us in other territories, in Africa or other regions. Definitely try and duplicate that and try and do the same. We are always finding new innovative initiatives, even for countries in Africa, and it is helping us.
Would you be able to share, sir, what we say two years back, what would be our reach in those markets compared to now? I know, I understand that those markets are different, but still.
Very difficult. Each country is different. Excuse me, sorry.
Sure.
Each country is different. It's very difficult to microplay each country.
There is no seasonality much in, in these markets, right?
There is seasonality. Each in business, reverse seasonality. Their summer is November, December, and January.
Just on the India business juices part, I wanted to understand, would Tropicana and Tea still be mid-single digit of our total volumes? Is that fair right now?
Yes, approximately. Maybe a little less, but very close.
Okay.
Between juices and maybe it should be 7%-8% at least.
In the international markets right now, you just, you're not looking to sell to the juices part, right, or?
We might, but not at the moment. Right now, there's so much scope to do without that. Once we complete that, then maybe we'll look at it, because we have to also look at how much CapEx we want to put at one time.
Sure. Okay. Thank you.
Thank you.
Thank you. The next question is from the line of Robert Lee from Cusana Capital. Please go ahead.
Hello. Just a question on South Africa. I'm interested in what, what particularly attracts you about that market and exactly what the, the CSD kind of market construction is there? I'm aware that Bev has her position in, with Pepsi. I just wonder whether that's exclusive or whether you have other opportunities related to Pepsi there, and how the product, competitive structure is in that market, please?
As I said, it's a bit too early, and I think we're still, still looking at the market, talking to Pepsi and looking at... Our people are looking at the market. I think maybe as soon as we have something streamlined or something happens, then we will definitely come back and tell you what we are doing and when we will be doing it. At the moment, it's still in the air.
Why South Africa? What's the particular attraction there?
Other large market, which we feel we are in the southern part of Africa. We are in Zambia, Zimbabwe, which are very close to South Africa. That's the belt that we would like us to look at. We are looking at it, but at the moment, it's a bit too early. Nothing has been agreed, nothing has been finalized. We're still looking at the market and the conditions as Pepsi is very weak there.
Thank you very much.
Thank you.
Thank you. The next question is from the line of Sumant Kumar from Motilal Oswal. Please go ahead.
Sir, hi, sir. Can you talk about any operational efficiency left post acquisition of South markets and any the benefit of operational efficiency in H1?
Absolutely, that's why you see that even North was completely rained out, and we've been able to do better than last year, maybe very slightly, and our results have been better. It's because of South and West and East. North was completely washed out this year. It is the peak season for North, actually.
Sir, when we see the rain call in, some part of, north, north, side, is it still deficient, say, Odisha, Bihar, and? No, I'm talking about some pocket of, north. Bihar, Odisha, and.
North, nowhere is deficient this year. Bihar is not north, Bihar is east.
Okay, northeast. Okay. Thank you.
Thank you. The next question is from the line of Pritesh Chheda from Lucky Investment. Please go ahead.
Yeah. Hello, sir. This one thing which I missed in the call, I don't know it was covered, this INR 1,900 crore CapEx that we are doing, in which a large part is India. In India, how many cases capacity that we are adding, and in that, how much will flow to juices and water?
This is very difficult, and we would not like to bifurcate in that cases, because cases is a very complicated way of putting it, because it depends what size of bottle you are making, what, each size has a different capacity. To start calculating it will become... The only thing is, we will have more than enough capacity to do double- digit unit and even further growth. We will have enough capacities.
Okay. We are constrained, whatever I'm listening to the call, we had limited capacity or constrained by capacity in juices and dairy, right?
That's right.
These are specific capacities for juices and dairy, and everything else is flexible.
No, the soft drink lines are different and juice and dairy lines are different. In these plants, we are adding juice and dairy lines also.
Okay. This INR 19,000 million CapEx, the asset are in this business, the asset are in the CapEx will be, 2x or less than that?
This is what we looked at, approximately 2x.
Okay, sir. Thank you very much.
Thank you.
Thank you. The next question is from the line of Jenish Karia from Antique Stock Broking . Please go ahead.
Thank you for the opportunity. First question is with regards to other income, why is there a sharp increase on a YOY basis?
See, there are various components in this light. One of that is foreign exchange currency appreciation, depreciation. That keeps on fluctuating. That's one thing, you know, majority of that we don't have control.
Okay. The second question is with regard to the recycled PET, that we have started using in some of the products in some geographies. Two questions with regards to that. Firstly, what is the cost differential on a, not year perspective for that, for us? Secondly, how much of the product portfolio going ahead we plan to use recycled PET?
The long term, we are looking at at least 25% of it, but at the moment it's too, too early. We have just started using it.
The cost difference how would you-
Very difficult to say, because it's a very fluctuative market. It would depend on what's the raw material and fresh price, and depending on that, there will be a cost difference, positive or negative.
Any color with regards to the material that we had used in the quarter, with regards to virgin PET, how much of premium or discount did we pay?
That's what I'm saying. We just started using it. It's not even half a %.
Okay.
Too early to say. We've just tested it out.
No problem. Thank you, sir.
Thank you.
Thank you. The next question is from the line of Omkar Ghugardare from Shree Investment. Please go ahead.
In terms of competition, with the launch of Coca-Cola, what competition and what kind of competition have you seen? What's the initial take on this?
I think it's a bit too early. I mean, we have to see what they do. We don't have, we are not aware of exactly what they are doing, how they are planning. I think it's a bit too early. I think most probably next year we'll see some...
Yeah, since they were. Okay. Okay.
Yeah.
The second one, on the integration of south, north, and west, all the territories, you have said that. Hello? Yeah, my question was regarding, you have said that the seasonality factor is no more, because of south and west integration. What exactly do you mean by that, which you have asked them?
Well, the north seasonality is very skewed towards summer, whereas the rest of the country is not so skewed just in summer, because even in the winter time that is not so harsh. That is what we mean by the seasonality.
Okay. Thanks.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for the closing comments.
Thank you. I hope we have been able to answer all your questions satisfactorily. If 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, and for taking the time out to join us on this call. Look forward to interacting with you all soon. Thank you very much.
Thank you. On behalf of Varun Beverages Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.