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 then zero on your touch-tone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on Varun Beverages Q3 and 9M CY 2022 Earnings Conference Call. We have with us Mr. Ravi Jaipuria, Chairman of the company, Mr. Varun Jaipuria, Executive Vice Chairman and Whole-time Director, and Mr. Raj Gandhi, Group CFO and Whole-time Director of the company.
We will 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 request Mr. Ravi Jaipuria to make his opening remarks.
Good afternoon, everyone, and 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 the third quarter and nine months ended 30th September 2022. We are pleased to report yet another strong quarter, delivering a net revenue growth of 32% and a PAT growth of 53%.
Our India business has delivered a solid organic volume growth of 22%, led by a favorable demand environment and strong performance of our energy drink Sting. In addition, healthy double-digit sales volume growth of 31% in our key international markets further assisted performance during the quarter. Post-COVID related setbacks over the last two years, we are now increasingly improving our presence by expanding our distribution reach across markets.
This will help us gain a larger share in the growing market. On the product portfolio front, we are pleased to share that Sting continues to perform exceedingly well across geographies. Similarly, our launches in the value-added dairy segment are seeing healthy consumer response, and we remain confident of improving contribution from these new launches going ahead.
Overall, the demand environment for the beverage industry has been robust, and we are witnessing a healthy offtake in India as well as in our international markets. The festive season quarter four is expected to further aid consumption trends in this calendar year.
We are confident that we can sustainably deliver healthy volume growth across all product categories going forward and further strengthening our market position in the beverage industry. I would now invite Mr. Raj Gandhi to provide the highlights of the operational and fiscal performance. Thank you very much.
Thank you, Mr. Chairman. Good afternoon and a warm welcome to everyone for joining us today on our earnings conference call. Let me provide an overview of the financial performance for the third quarter and the nine months ended 30th September 2022.
Revenue from operations adjusted for excise GST grew by 32.5% year-on-year in Q3 2022. That's the level of INR 31,766 million. Sales volume in India grew by 22.1% in Q3 2022 to the level of 148 million cases, and in international markets grew by 31.3% to the level of 42 million cases.
Consolidated sales volume registered a solid growth of 24% to the level of 190 million cases in Q3 of calendar year 2022 as compared to 153 million cases in Q3 of calendar year 2021. Realization per case, as informed by our chairman, improved by 6.8% to the level of INR 167 per case in Q3 2022.
Primarily driven by a higher mix of smaller SKUs, which is 250 ML, especially Blockbuster Energy Drink Sting, which has a higher net realization, and its mix is increasing in the sales volumes. Carbonated soft drink contributed 70%, juices 5%, and packaged drinking water 45% of total sales volume in Q3 2022.
On the profitability front, despite the inflationary raw material environment, gross margins for Q3 2022 increased by 90 basis points to the level of 53.7% from 52.8% in Q3 of 2021. The increase in input costs was more than offset by operating leverage and higher sales volume, leading to an improvement in EBITDA margin to 22% during Q3 2022.
This is gone up from previous year of corresponding period 20.6%. EBITDA increased by 41.3% to the level of INR 6,989.9 million in Q3 2022 from the level of INR 4,946.6 million in Q3 of 2021.
PAT increased by 53.3% to INR 3,954.8 million in Q3 2022 from INR 2,099 million in Q3 of 2021. This is driven by high growth in revenue from operations, improvement in margins, transition to lower tax rates in India at PAT level on income tax, basically.
Overall, the company's financial position continues to be solid, and we look forward to delivering healthy results in the years to come. 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. Ladies and gentlemen, we will now begin with the question and answer session. Participants who wish to ask a question may kindly press star one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two.
Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abneesh Roy from Nuvama. Kindly proceed.
Yeah, thanks and congrats on very good set of numbers. My first question is on the Morocco announcement. Wanted to understand how big could be the investment and size of the opportunity, and is there a possibility that Lay's, Doritos, and Cheetos distribution and selling this can go beyond Morocco also? Is there any thought process from Pepsi on that?
Well, I think, first of all, it's existing business there's, which is about INR 150 crores, which we will take it forward from there, starting from January 1st. Hopefully in the coming time we will start manufacturing also in Morocco, and this involves all the brands, Cheetos, Doritos and Frito-Lay.
Your question of will it take us further to other countries, we can only hope so, but it would depend on PepsiCo's choice, and it's a first, which is a big starting base. I mean, this is not. Normally, Pepsi doesn't give distribution rights of snacks. They have given it. Now we have to prove ourselves and hopefully we will get other countries.
Right. Thanks. My second question is on the impact of Sting. Last quarter it was around 7.2% of the sales, so has that moved meaningfully? In terms of the realization growth and gross margin expansion, which was a positive surprise, how much would have been the impact of Sting in the overall scheme of things? It is around, say, 7% to 8%. Does it really move the needle too much? These
The cost difference in Sting, yes, it moves the difference and nine months average 8.5% mix, and for the quarter was more than 12% and it's moved about, I think, the mix change about INR 8 and INR 1.67. It's substantial for us actually. Yes.
Sure. Last question, more of bookkeeping. Current outlet reach in India, and if you could give some details on Sting and Tropicana also in terms of the outlet reach. In terms of CapEx guidance overall, CY 2022 and 2023, how do you see that?
Well, I think the Sting reach is reaching pretty well close to our highest penetration of any of our products. Sting is reaching practically everywhere, which is more than 2 million outlets we are going to already. Sting is pretty well everywhere. The exact count we will have at the end of the year. When we see the growth, I mean, it is clearly looking that it's reaching everywhere.
Right. Similarly for Tropicana and CapEx?
Tropicana is also doing extremely well, and the only constraint was we had one large facility which we had opened in Pathankot. Because of that d istribution. Our distribution has gone to about 15% of the outlets, so it's still not gone to all the outlets because of a constraint of production. Hopefully this will get better next year.
Thanks. That's all from my side. Thank you.
Thank you.
Thank you. The next question is from the line of Gaurav Jogani from Axis Capital. Kindly proceed.
Thank you. Thank you for the opportunity, sir. Congrats on a great set of numbers. My first question is again with regards to the Sting. If you can help us out, you know, what would be the realization difference between Sting per se and for the other company products together? The reason I'm asking is, you know, we have seen a sharp 20% odd jump in the realization in the domestic business. Any color on this would help me.
The difference realization.
There's a large difference. I would say it's more than 25% to 30% different. Okay. Our realization is actually more by 65%, actually. Sorry. In Sting.
Sir, you mentioned that the contribution for this particular quarter was around 11% to 12% for Sting in the overall product mix in India.
That's what it has been in the last quarter.
Okay. Between 11% to 12%, right?
That's right.
For the nine months, it was 8.5%.
8.5% is for the cumulative nine months.
Nine months. Sure. That is helpful, sir. My other question here also is with regards to, because the realization is so high in Sting, does it also translate, you know, to the gross margin and the EBITDA margin levels as well? The cost there is a bit higher, leading to a same realization. Sorry, the same EBITDA per case.
No, it definitely adds to the margin, and that's why you're seeing margins which are better than the volumes growth. If you even after you know higher resin and sugar prices, we've been able to do our EBITDA margins have been better than year-ago or before, so you know even much better than our guidance, which we have given. It's Sting has definitely helped in the process.
Oh, okay. Got it. Sir, my other...
Yeah, go ahead. Sorry.
Yeah. Sir, actually, the related question with this was actually, you know, because if you see the realization per case on a company level basis, you know, has increased to around INR 167 per case. Given, you know, the strong contribution from Sting and, you know, the numbers are just going up for Sting. Would it be right to assume, you know, that the realization per case could sustain around the current levels of around 160-odd levels?
Well, we hope so. You know, if everything is seasonally based or partly seasonally based. The Sting is definitely contributing to the higher realization. Sting base should be somewhere close to what it is today, so we should be able to maintain it, but give or take one or two points up or down.
Okay. Got it. One last question from my end. In the international business, you know, while we have seen the overall volumes have grown by 30% plus, however, you know, the revenue growth has actually declined by 1%. I mean, we just did a console minus standalone, so that actually declined by 1% odd. While margins, EBITDA margins also have seen sharp expansion of 29%, to 29%, actually. How should we read this particular thing?
Well, basically our major growth have come from Morocco, where our growth are not that much in CSD, but in water, where the realization is lower. Overall, the margins are good. We are growing much faster in water there. That's why you see lesser realization.
Okay. This is expected to continue ahead? I mean, this is sustainable, what we are seeing in terms of the growth?
Sustainable. We are growing in CSD as well as water. We did not have enough capacity of water before. As we added capacity, our water growth has been faster.
Okay. Sir, I'll come back in the queue for more questions. Thank you, sir.
Thank you. The next question is from the line of Yash Dantewadia from Dante Equity. Kindly proceed.
Hello. Congratulations on a great set of numbers. I just wanted to know, what is the capacity utilization numbers, if you have it?
Well, I mean, we were reasonably fully utilized this year. We are adding new capacity and we should have good capacities for next year.
Also, is this the seasonally weakest quarter or is it the next quarter?
The next quarter is the weakest quarter. October to December is the weakest quarter.
Could you please talk and elaborate more on your CapEx plans? I'm a fairly new investor, so I'd really like to know.
Well, we are looking at about INR 1,200 to INR 1,300 crores for this year.
Greenfield and brownfield.
Yeah.
Could you give me the?
Both inclusive.
Yeah. How much is greenfield and how much is brownfield?
I would say about half and half.
Half and half. By when will we see this CapEx coming or getting commissioned?
We are hoping that, this happens before the season, which is before February.
Could you give me the energy drink market share of Sting, percentage, if you have it?
At the moment, I think we are the only one practically. Our competition has just launched their energy drink. I mean, we were practically the only energy drink player except Red Bull and all, which was very small.
Do you have the market share numbers by any chance?
I don't have the exact numbers because, you know, Coke has just launched their energy drink and so it's too new.
Okay. Also, could you be able to give a margin guidance going forward? I think, this quarter, your OPMs were somewhere around 22%.
We've always given a guidance that if we can reach around 21%, we are very happy. We still want to give the same guidance. I mean, we've had a good year, and even though we've been able to absorb all the higher costs. I think the guidance, that's what we look at for 22%.
Are you seeing raw material prices coming down? It h ave cooled off, right?
Partly. Sugar has not cooled down, but resin prices have started cooling down.
Okay. Also, what is the debt on your books? Net debt.
Around INR 2,300 crore.
INR 2,300 crores. Okay, thank you so much.
Thank you. The next question is from the line of Devanshu Bansal from Emkay Global. Kindly proceed.
Yes, sir. Congrats on a great set of numbers, and thanks for the opportunity. I wanted to check by when do you expect the CapEx in Rajasthan and Madhya Pradesh to get commissioned? Do we expect it to get commissioned before start of next season?
That's what we are trying. I hope we are able to do it.
Okay. Secondly, sir, wanted to check on initial traction in Democratic Republic of the Congo, where we, I guess, have started distribution. How is the traction in that continent? In that country, sorry.
Still a bit early. I think it'll take little bit more time. I think we will start seeing some traction in 2023.
Okay. Any sense that you can provide on the opportunity that the African continent sort of offers to? Because my analysis suggests that PepsiCo's penetration relative to the Coca-Cola Company is much lower. Does that sort of present a good long-term growth opportunity for Varun Beverages in that continent?
No, absolutely it does. That's why we are going one by one country. Once we stabilize one country, then we look at the second country. There are a lot of countries where Pepsi is still not existed, so there is huge opportunities available.
Okay. Sir, my question was to get a sense as in which part of that continent would we be targeting because I guess there are other two, three bottlers that PepsiCo is engaged with in Africa?
No, they are engaged, but they are not expanding, the other big bottlers, whoever is. They are rather in the process of selling, not adding new territories.
Okay. That's it.
It depends how fast we can grow and what we can do.
Okay. That's encouraging to know, sir. Thank you. Thanks. That's it from my end.
Thank you. The next question is from the line of Jaykumar Doshi from Kotak. Kindly proceed.
Hi. Hi. Thanks for the opportunity and congratulations on a very good quarter. My question is in the past couple of quarters, your, you know, growth on three-year CAGR basis is much stronger than what we are seeing in other staples, semi-discretionary category.
Even if I leave aside the upside from Sting, where you are like a category creator in some sense, even for the rest of the portfolio, double-digit three-year volume CAGR looks very impressive versus what we are seeing elsewhere.
Can you give us some color on what is the industry volume growth and, you know, what is your outperformance versus industry? And second is, are you surprised by the traction or demand that you've seen during the course of the year, or is this something that you were anyway sort of expecting or in line with your expectations?
I think if you've been on the calls in the earlier calls, you know, we took over the territory, rest of the country in 2019. As soon as we took over the rest of the country, the next year when we wanted to expand the distribution, COVID came in for two years, so we could not.
All the important expansion of the go-to-market we had done, we could not get any results. This is the first year we have really got results out of whatever expansion and go-to-market we had done, and that is what is giving us the fruits.
Going forward also, as long as we keep on growing the markets and keep on adding our go-to markets, there is enough room for us to grow the market. You know, PepsiCo had a much smaller share in most of the markets which we have taken, so the room is enough there.
Reasonable to expect that this year, even if we leave aside Sting, in the rest of the portfolio also you have gained market share versus.
Well, I don't want to say we have gained market share, but we have grown substantially, and we have done quite well.
Sure. My second question is, you know, maybe a year ago or two years back, when we asked this question on the potentials of Sting.
Your response was that in some of the markets where the product has done well, it tends to be in 12% to 15% range. Having seen the success you have seen so far, you know, where do you think, you know, Sting can be, in terms of its overall salience next year?
Well, I can't answer you exactly, but you know what we have seen, the sky seems to be the limit. It's just question of how much we can distribute and produce and if we get the same liking of the people which we have got, it should be a good mix for us going forward.
Understood. Elsewhere in the world, has Coca-Cola... Does Coca-Cola have an offering that competes with Sting? In India, they have long chart, Thums Up. Just wondering if they are in other markets.
They have both the companies have energy drinks all over the world, mostly different energy drinks, different pricing, different model. I mean, Sting has done extremely well in this part of the world. It's now doing extremely well in Pakistan, in Thailand, in Vietnam. It, Sting has done very well in this part of the world.
Understood. Thank you so much.
Thank you.
Look for the next quarter.
Thank you. The next question is from the line of Sandesh Agrawal from Sahasra Capital. Kindly proceed.
Thank you so much, sir, for giving me opportunity. My question is, what is the market size of Lay's, Doritos, and Cheetos in Morocco?
Well, I just said that they have an existing business of about INR 150 crore, and we have to take it forward from that.
Okay. See, we are only distributing and selling this product, right?
For the time being, that's what we are doing.
Okay. Sir, what is the margin for this distribution and selling?
That we can't disclose it.
Okay. Thank you so much, sir. That's it.
Thank you.
Thank you. The next question is from the line of Sumant Kumar from Motilal Oswal. Kindly proceed.
Yes, sir. Can you talk about the 22% growth in India, which geography has a higher growth contribution, in the current quarter?
It's very difficult to say. You know, it's wherever we were very weak, which are the new territories which we have taken from PepsiCo and some of the bottlers, where Pepsi was very, very weak, that's where we've had higher growth. Because our share was so low in the market, so that's where we've enhanced our go-to-market, and that has started giving us results. That is what is added to our growth.
As per my understanding, North is driving growth, say for Bihar and Eastern UP and the Central UP also. Can you talk about the kind of growth we have seen in these two areas? South is also doing a similar kind of growth. Organic growth I'm talking about.
Well, I don't know if I want to give the exact numbers, but Bihar and MP have been seeing growth of over 50%, so.
These two geographies outpacing other markets.
Well, lot of markets are actually outpacing. You asked for these two markets, and I've given you the answer.
Okay. Thank you so much, sir.
Thank you.
Thank you. The next question is from the line of Sanjaya Satapathy from Ampersand. Kindly proceed.
Yes. Thanks a lot for the opportunity. My question is that, in Sting, you are starting to see competition. How do you really plan to take account of this?
Well, they are counting us right now, so, I think energy drink is a large market and there's enough for both of us to play. We will always have a first mover advantage, which we are seeing, and our product is very good and it is being liked by the market. We just have to keep on expanding our distribution, and I'm sure we'll get growth, and I'm sure competition will do well also.
Understood. Sir, can you just tell us how much is the overall beverage industry growth during this quarter on a year-on-year basis? I mean, the same question I can ask in another way that while in South and many other places where you are growing much faster, in your established market, is your growth far lower than this 20% to 22% that you have reported?
Well, there's definitely some territories which are growing slower than 22% because if we are growing 50% in some of the territories. Overall it's been a healthy growth all across. Some territories obviously, you know, it's this quarter was a rainy quarter also.
Wherever it has rained little bit more, it has. The growth has been little less. Overall, you know, we've grown at close to 48% in the first nine months, so it's been a more than healthy growth. It's actually all territories have grown.
Sir, earlier you used to give a guidance that your sustainable volume growth was some 13% to 14%. Considering the success that you are seeing in new territory as well as the success of Sting and your dairy product where you are fairly optimistic about, will you look forward to a much higher growth rate to sustain going forward?
Well, we don't like to commit, but we are definitely trying, and we've had good success this year. We hope we can do well next year also. The only thing we can say we are expanding our distribution, and that is what helps and we are adding more chilling equipments, which is what is adding, and hopefully we should have a good year next year.
Sir, if I can just ask last question that if you can just give us the details about your expansion plan both in Tropicana and in the dairy product.
Well, Tropicana and dairy are both done from the same plant, so we are expanding. We are adding one more plant next year. That will double our capacity in dairy as well as Tropicana.
By when, sir?
I think by June or July it should be ready.
Whereas the other soft drink factories will be ready by January.
We are trying to get it ready before the season.
Understood. Thanks a lot.
Thank you.
Thank you. The next question is from the line of Jenish Karia from Antique Stock Broking. Kindly proceed.
Thank you for the opportunity. First question is with regards to dairy products. How has been the distribution and performance of the dairy product segment during the quarter? How do you see it for the next first half of the CY 2024, considering the new capacity will come in the second half? First question is with regards to that.
You know, fundamentally in the season we could not supply because we ran out of capacity. Hopefully, as I said, even next year we are going to be constrained because our capacities are only coming after the season. We've had a good quarter and the growth has been quite healthy. Going forward, there will be healthy growth, but in the peak season we won't have the capacity.
It's majorly restricted towards the north region, if my understanding is correct, currently.
That's right. That's right.
Okay. The second question is with regards to the joint venture investment that we have done. We have increased our stake in the joint venture with IBCL to 50%. Any color on what future investments we'll be doing with regards to CapEx? Because setting up a recycling plant under JV system will require some CapEx in the next two to three years. Any color on that front?
We have really not invested anything as of yet. It's in the process. We are waiting for the government policies. We have agreed on an understanding between IBCL that we will have a 50/50 joint venture when the recycling plant will come. We are still waiting for all the approvals and some policy changes in the government.
Can we see it materializing in-
INR 30,000 more, to be honest, so has no meaning.
Okay, in CY 2024, no CapEx yet committed on that front, right?
We can't because it's waiting for certain government policies, so I can't decide when.
Got it, sir. No problem. Just one last bookkeeping question. We have shifted to the new tax regime from the second quarter of this year. What would be the average or tax rate that we can assume for the CY 2023? Going forward, what would be the tax rates if you can help with that?
This is going to be 25% for India, blended with international, something 22.5 or 23%. In a nutshell, it will bring an advantage of 3% in the overall tax rates for the company going forward.
Okay, great. Thank you. Thank you so much, and all the best for the future.
Thank you.
Thank you. The next question is from the line of Prateek Rathi from Salt Caps. Kindly proceed.
Congratulations on a great set of results. A big thank you to the management for consistently delivering it from past six, eight months. I mean, I've been a shareholder of this company from past six, eightc months, and the management has consistently delivered. I just have a few questions. One is, I mean, assuming the CapEx comes off before the peak period next year, what kind of revenue guidance we have for the next calendar year?
Well, we will first want to make sure because of the, you know, equipment supply, there's a huge challenge getting the supplies in time. We are trying and hoping, and once we get a complete assurance that we will be, then we are expecting a reasonably good growth because even this year we ran short of product in the peak season. Hopefully we can make up for that and get a reasonable growth. It's still touch and go, and we are not 100% sure we'll be able to get all our lines operating before peak.
Okay, fine. I just wanted to understand, like we got the rights of the puffcorn business in February or March this year. What kind of revenue have we seen in this quarter from that business, and how do you see this going ahead?
This is still very small. It's something we wanted to learn and understand, so it's a small investment from our side, and it will not be large revenue. It'll give us the proper learning, and we'll understand what is going on. Hopefully, once we are, we understand this, like in Morocco, we have got the distribution also, and then going forward, we want to take it in a much bigger way.
Okay. This paves the way of, say, future snacking businesses, other new business.
Any new business you need to understand. For us, you know, this was more for a learning curve than anything else.
Okay. One more question is, recently, Reliance acquired this Campa Cola business, and they showed their interest in starting into beverage industry. Any comments or any competition threat you see from Reliance for the industry?
I think, Reliance knows better what they are doing. It's a large company, they understand, and I would.
Just from a competition perspective, do you feel that it could be a threat?
There's enough room for everybody to compete. The business is large, it's growing, and I'm sure they'll do a good job.
Okay. Just one last question, if you allow me. I just saw that one of the whole-time director has resigned with immediate effect. Is there any reason for such a reason, sir?
He was the CEO and he has retired from us. After retiring, he was a board member because being the CEO. Now as his age has passed then he's retired in normal course.
Okay. Okay, great. I think that's that for now. Thank you so much.
Thank you. The next question is from the line of Aarushi Lunia from Hem Securities. Kindly proceed.
Hi. Congratulations on a good set of numbers. I just wanted to get an idea on the Zimbabwe plant that you recently set up. You had mentioned in the latest phone call that the peak season in Zimbabwe is August. Has it reaped some benefits for the peak season?
No, Zimbabwe is doing extremely well for us. I mean, their peak season is actually October to December. This year peak season is going to come now. Starting August, the sales increase, but peak season is October to December. This quarter is the peak season.
Okay, sir. Okay. Thank you.
Thank you. The next question is from the line of Faisal Hawa from H. G. Hawa & Co . Kindly proceed.
Sir, a lot of the distribution is being, you know, now disrupted by, you know, Reliance and B2B models like Udaan or even DVMart. Are we in touch with any of these for even, you know, doing some kind of third-party contracting or, you know, some private labels for them? And do you see even this as a very big revenue stream going forward?
That's one. Secondly, sir, is there any way that we could expand our distribution model to more FMCG brands also for more African countries or to, for, you know, Indian foods or even frozen foods, et cetera? Because then you will be just leveraging the same platform or the same, you know, setup for more products to be distributed.
That is true, but as it is, we are expanding so many new products every day. Like we added the value-added dairy, we added Tropicana, we added energy drinks. There's enough in our palette. We are now looking at somehow to start snacks with Pepsi, which they have given us the first opportunity in Morocco.
There is enough for us to expand, and there is enough room for us to expand in the categories which we have. I think that itself is going to take us a long time before we can saturate the market. The Indian market is growing at such a huge pace, the number of outlets which are being added. If we can meet that also itself, we'll see double-digit growth.
Sir, if you could have some comments on the private labels contracting opportunity.
We don't do private label. I mean, we only do our own brands, so we don't do any private label. We sell through Udaan and Reliance, but we don't do any private label for any.
We are not open to do that kind of business also going forward?
No, we are not looking for private label.
Okay. Sir, any improvements in manufacturing or processes that we could really, you know, get into and which could improve our margins going forward ever?
I think, we have one of the highest margins in the world. I don't know what else I can do. I'm trying our best to get whatever best we can do.
Shop floor improvement and, you know, cost efficiency from shop floor is always an infinite task.
No, if you look at it, our margins have been the highest, and the only reason they have been highest is we have been doing some of the right things, some right decisions, and some of the best practices, which are possible.
Thanks a lot, sir.
I won't say we are the best, but we are trying to do whatever best is possible.
Basically, we are always trying to better our margins each year as it goes by.
Of course, we are trying. I mean, it's not easy when you are at 20%, 21%, 22%. It's, I mean, there's a limit to how far you can go. If we can maintain this, we'll be very happy, actually.
Thanks a lot, sir.
Thank you. The next question is from the line of Sudarshan Mall from Dhunseri Investments. Kindly proceed.
Hi. Thank you for the opportunity, and congratulations on great set of numbers. Sir, my question is that the plant capacity which we have, which we are trying to get before season, if that satisfies, by what percentage will our existing capacity grow?
See, I can't answer you exactly because I'm not sure if we'll be able to get everything going before the season. We are adding reasonable quantity that we can grow more than double digits.
Okay. Okay. That's it for me.
Thank you. The next question is from the line of Smitesh Sheth from Reliance Securities. Kindly proceed.
Hello?
Yes, Mr. Sheth.
Yeah.
Please proceed.
Sir, thanks, congratulations for one of the finest performance. Just to, can you quantify some data points with regard to whatever we expect to grow in terms of number of the data points or in terms of the distributor reach or chilling machines, what we intend to install, just some data points asked for the next year, CY 2023, sir.
Yes. You know, as you know, chilling equipments, we are adding 40,000 to 50,000 every year, which we'll be doing. You also know two years back, we had a reach to about 2 million dealers, which has gone to 3 million, and which every year is going up by 5% to 10%, as far as the dealers reach is concerned. The carrying size also with these people is going up another 5% to 7%. That's some statistics on distribution side.
Sir, I mean, what's the total India dealer reach, what we can have? Like, what's the maximum saturation point or near-logical distribution outlets what we can cater to over next two, three years, sir?
Well, as per our information, there is 11 million outlets in India. Now, question is, I think we are reaching close to 3 million now. To add more, we are looking to add between 10% to 12% every year, and that is what we'll be able to practically reach. I mean, you might be able to some year reach a little bit more, but that's the maximum you can actually target.
Right. Yeah. Obliged, sir, and good luck for the future.
Thank you.
Thank you.
Thank you. The next question is from the line of Yash Dantewadia from Dante Equity. Kindly proceed.
Hi. Hi, sir. Sir, have you taken any price hikes, and do we plan to take any price hikes in the coming quarters? Could you talk about that?
Well, we have taken some price increases during this year. We have not decided on any price increase at the moment. We hope we don't have to take any price increase.
Also, sir, one more question back to the CapEx. We're planning an approximate CapEx of INR 1,000 to 1,200 to 1,300 crores, out of which 50% is brownfield and 50% is greenfield. Could you please tell me what percentage of capacity does this give us to our existing capacity?
I have said that we are not sure how much of it will realistically come before the season.
No, I'm not asking regarding the time, sir. I'm asking, by how much is our capacity going up? By what percentage point is our capacity going up?
It's very difficult to say because our overall capacity is based on PT cans and glass. Now the capacity mostly which we are adding is all PT. In what context do I add the capacity? That makes it very difficult. It's not.
On the total existing capacity, sir.
Pardon me.
On the total existing capacity, combined of everything, PT and cans.
Maybe about 20%.
Basically our capacity is going to go up by 20% in the next one year, right?
That's what we are trying to do it before the season.
In this, could you give me a breakdown of what is coming in Sting, what is coming in milk-based products and what is coming in the other products?
As I said, our dairy line will not be ready before season. It'll be coming only after season. Rest all the lines are interchangeable to Sting or to any other product.
Are you seeing any change in demand trends after COVID?
In what way?
I mean, this is the first year, you know, where everything is functioning normally after COVID. Pre-COVID to post-COVID, have you seen any demand trends change in.
Well, the biggest change has been the Go-To-Market has opened up, so single serve has started selling, which was not selling because it was mostly home consumption. Of course, you've seen the big jump in the energy drink, which was not there. These are the two major changes which have happened.
Thank you so much for your time, sir. Have a good day.
You're welcome. You're welcome.
Thank you. The next question is from the line of Arpit Shah from Stallion Asset. Kindly proceed.
Hello?
Yes, Arpit Shah, kindly proceed.
Yeah, just wanted to understand, because we have acquired a lot of territories from Pepsi and other bottlers in the last couple of years. What kind of distribution you would say that you need to build or there have been a lot of gaps which have been there in the market?
What kind of scope that you can build in the next couple of years which would add to your growth? Because right now, your growth is largely led by volumes, and at some point in time, the volume-led volumes will actually saturate. What kind of headroom you have to grow in terms of distribution in some of the states that you've acquired?
Yeah. As you know, we had been saying in the past calls, first is the distributor network we have to strengthen, enroll more distributors, make the reach go-to-market strengthened. It starts with the distribution network, then adding more retailers in those territories, then ensuring the product availability at the point of sale on regular basis, no stock-out situations.
Adding retailers by adding more chilling equipment and adding more vehicles in the market so that the product reaches the market. Matching this in the season month, 24/ 7, like, you know, the phrase is 24/ 7, but in our trade it gets modified, 24 / 90. Three months, it's a 24-hour basis like.
All these things if we follow definitely helps us in improving the distribution network, market share and the sales growth. I think we are trying to fire all these engines from all sides continuously.
Got it. What would be that number? Let's say you started at X number when you acquired a territory from Pepsi or some other bottler. What would that number be today? X going to 1.3x, 1.4x in the last couple of months?
Well, this is a journey, actually. It's not something based on number or one day it is done. This is what chairman said that during COVID year two years, although you know the results immediately are not coming, but we never stopped putting.
We have to keep on expanding our distribution. This distribution was very weak there. It's a long process. It's not an overnight process, as Mr. Gandhi is saying. We will keep doing it. It will take us a few years before we can reach the distribution to the level we would like.
Got it. The dairy products which we have launched, those are products not by PepsiCo, right? Those are Varun Beverages products, right?
That's right.
Okay. What will the share of those products in the revenue right now or that will be very small?
It'll be very small because there's only one plant which can produce it. We are doubling our capacity for next year. Once we have that, then it'll be because we are only practically distributing in the north only.
Are we looking to add more products in the Varun Beverages portfolio, where it's a non-PepsiCo product?
Right now we are not even able to supply what products we have. Once we have additional capacity of production, then we will add more flavors. Right now, not at the moment.
No, no other category of product. Right now, you started with dairy. You wanted to start with like some other kind of product.
We've already, you know, we do Tropicana in that, so that will automatically get added. The same line does dairy as well as the juices. You know, we've started energy drink in a big way. That itself is taking enough room right now. Once we can get these established properly, then we'll look at some other products if need be.
Got it. Given the current territory that we have and the current headroom that we have, you believe that 15% to 17% volume growth is sufficient for us in the next, let's say, four or five years?
Well, I don't want to give exact numbers, but we definitely believe double-digit growths are possible.
Got it. Got it. Thank you so much.
Thank you. The next question is from the line of Dhruv Bhimrajka from Monarch. Kindly proceed.
Yeah. Good afternoon, sir. I wanted to know the debt reduction that you have done in these nine months, sir.
Yeah. We, as we mentioned, we are at INR 2,300 crore and we were INR 3,000+ crore last year.
Okay.
On 31st.
Okay. Basically in the nine months we have reduced the debt by INR 700 crore.
That's right.
Okay. Sir, what was our CapEx in this quarter or the third quarter?
Third quarter CapEx is very less, but very little capital work in progress or some plots for future which we might have purchased and paid for some installments for those. CapEx normally happens in the H1 of the year.
Right.
Major portion happens in H1.
Right. Yeah, because, as Ravi, sir mentioned that, 1,200 to 1,300 crores CapEx you have planned from January 2022 up to February 2023. Wanted to know that in these nine months, how much CapEx you have done, sir?
In these nine months, about INR 9,381 billion.
About INR 950 million. INR 950 crores.
Yeah. This is cumulative in current financial year, which that's.
It would just be about INR 300 to INR 400 every quarter. That's what is happening. It's cumulative, so INR 300 crores or INR 400 crores every quarter CapEx. That's what happens, but sometimes little more, sometimes little less.
Right. Completely understand. Sure. Thank you, sir. Thank you so much.
Thank you.
Thank you. The next question is from the line of Jaykumar Doshi from Kotak. Kindly proceed.
Hi. Thanks for the opportunity again. My question is, you said you talked about shortage or delays in equipment supplies, and I believe you've placed orders well in advance. Could you expect some kind of competitive advantage versus rest of the industry going into next year, the kind of advantage you had this year because of procurement of PT inventories well in advance and all?
Well, I don't know if we had advantage. I mean, I'm sure going forward also I think our competition has also placed orders. It all depends who's their supplier and who's our supplier. Whoever is able to get the equipment in time will have an edge.
Beyond this, I think it will only be speculation. Let's try what we can.
We are trying our best to be in time. Let's see what happens. It's still not 100% clear, but we will have enough lines operative.
Thank you so much. Thank you so much, sir.
Thank you.
Thank you. The next question is from the line of Gaurav Jogani from Axis Capital. Kindly proceed.
Thank you for the opportunity again, sir. Just one last question in terms of margins. You know, sir said that, you know, we are trying to meet the EBITDA margins around 21% odd, and even you know that we are steadily increasing the mix of Sting in the overall mix, which is, again, margin accretive. Are we really being conservative here in terms of the margin guidance around 21% odd?
Well, as I said before, I think our margins are more than healthy. If we can sustain this, we'll be very happy. We've seen a slight growth in our margins this year because of the mix of Sting. I mean, I think, our guideline has always been 20% to 21%, and that is a very healthy margin, actually. It's the highest in the world. I don't think we should guide or suggest anything beyond that.
Oh, okay. Got it. Thank you.
Thank you. The next question is from the line of Mitul Shah from Reliance Securities. Kindly proceed.
Yeah, good evening, sir, and thank you for taking my question. Sir, I have a question on your recycling of PT investment. Can you give more details that, how it's going to shape up going forward? The granules after recycling, are we using it directly or what is the process there? Secondly, follow-up on that is that, is it will be only for the VBL PT or we are going to expand it for non-captive also?
No, we are looking for our own selves, but I think it's still very early. We haven't even started the project. We're still waiting for government clearances and understanding what it'll be used for. Because till it is approved for food grade, we are not going to be getting into it.
By when do you expect it to be operational?
I wish I could answer you. I think you have to ask your boss. Maybe he knows better.
Okay. Yeah. Thanks, sir.
Thank you. The next question is from the line of Devanshu Bansal from Emkay Global. Kindly proceed.
Yes, sir. Thanks for the follow-up opportunity. Sir, you touched upon the realizations part. I still want to understand it better. Realizations for India have improved from about INR 145 odd to about INR 165 odd so far in this calendar year. You indicated that INR 8 to INR 9 benefit has come from Sting. Wanted to check what is contributing to the rest 5% to 6% improvement that we are seeing in the realizations?
Well, I think it's the mix and, you know, the water mix has come down slightly, which has helped. Overall mix, as I said, single serve is selling more, which gives us better value. Minor changes, that is what the dairy is. Our dairy sales have improved, our juice sales have improved, which are little slightly higher value.
General price increases water.
Some price increases which we have taken.
Okay. This small SKU mix, is this a trend that you expect to continue or that can sort of see some reversal towards larger packs as well?
Well, I think both the markets will grow, so it's very difficult to say. I think the smaller single serve will continue to grow faster than the multi-serve, the way it looks right now.
Got it. Lastly, for international also, we were sort of closer to INR 190 to INR 200, but now we are in the range of INR 170. You indicated it is because of higher weighted share in Morocco. Wanted to check, is Sri Lanka depreciation also impacting the realizations? Once that economy sort of recovers, we can see an improvement there?
Absolutely. Absolutely.
Can you sort of quantify as in what sort of an impact positive impact it can have?
No, Sri Lanka is not a large business for us, but, you know, the main difference in the realization is because of water. The mix of water has gone up in Morocco to a large extent, and Morocco is a large territory for us.
Okay. Is it a quarterly thing or for annual basis also that, water.
Annually, water is selling throughout the year, so. Water because we didn't have capacity last year, so that's why you're seeing the big change. Now we have the capacity, so we are seeing growth at much higher pace.
Okay. This 170 odd is sort of, sustainable, you're saying?
Yes, that's right.
Got it, sir. Got it. Thank you.
Thank you.
Thank you. The next question is from the line of Arpit Shah from Stallion Asset. Kindly proceed.
Hello. Am I audible?
Yes. Yes, sir, you are audible.
Yeah, thank you for the opportunity again. Just wanted to understand, this year we'll be probably generating, let's say, cash flows of more than INR 2,200 crores December 2022. What kind of reinvestments are we looking at other than the CapEx?
Because our CapEx will be around INR 1,200 toINR 1,300 crores, and we will still have another INR 600 to INR 700 crores to be reinvested somewhere. What kind of reinvestment we are looking at? Are we looking at some higher dividend payouts, or are we looking at some other kind of inorganic investments or where you can acquire more global territories from PepsiCo? What kind of reinvestments we are looking at?
We are always looking at new territories like DRC, which is going to be one of them, which we have already said. We will be putting up a plant there next year. There will be CapEx going, and as the growths are happening at a higher pace here, the CapEx will increase slightly here also.
That would happen in the continent of Africa, largely?
Not Africa alone. DRC would be the investment in Africa, whereas in India if the growths are higher than planned, then so our capacities will have to increase here. There'll be more CapEx here going forward next year.
Do you see increased dividend payouts?
We have not decided yet, so I don't want to say anything.
Got it. Got it. Thank you so much.
Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Thank you very much. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarifications or would you 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 to join us on this call. Look forward to interacting with you soon. Thank you very much once again.
Thank you. On behalf of Varun Beverages Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.