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 touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anup Bajaj from CDR India. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on Varun Beverages Q1 CY 2022 earnings conference call. We have with us Mr. Ravi Jaipuria, Chairman of the company, Mr. Varun Jaipuria, Executive Vice Chairman and full-time director, Mr. Raj Gandhi, Group CFO and full-time director, and Mr. Kapil Agarwal, full-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 state 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 will 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 presentations that provides details of our operational and financial performance for the quarter. We have started the year on a strong note, delivering notable growth across all parameters. Robust demand in both domestic and international markets, also supported by the early onset of summer in India, translated to healthy volumes during the quarter, which grew by 18.7%. This, along with improved net realizations, resulted in a solid net revenue growth of 26.2% Q1 2022. On the profitability front as well, we have delivered enhanced performance despite significant increase in input costs witnessed during the quarter.
Our EBITDA grew by 39.1%, and our margins improved to 18.8% in Quarter one 2022. On the demand front, we are seeing a solid uptick in consumption. The summer season in the domestic market has begun well, and as we enter the peak months, we are well prepared to cater to the anticipated demand by optimizing our capacity utilization across all plants and further enhancing our reach across establishments and under-penetrated markets. During the quarter, the board approved the proposal to manufacture Kurkure Puffcorn for PepsiCo India as part of their network of co-packers. The commercial production is expected to begin from Quarter three of 2022. As we look ahead on the back of an improving demand environment, we remain confident of delivering healthy volume growth in the medium to long term.
We are also happy to share that as a token of appreciation to all our shareholders, the board today has recommended a bonus issue of one equity share for every two shares held by shareholders of the company as on the record date. Overall, our initiatives today towards improving our market share, building infrastructure, and expanding reach continue to hold us in good stead, and we are confident of delivering strong and sustainable growth going forward. 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 financial performance for the first quarter ended 31st March 2022. Revenue from operations adjusted for ex-CSD grew by 26.2% year-on-year in Q1 2022 to the level of INR 28,274 million. Total sales volume grew by 18.7% to the level of 179.7 million cases in Q1 2022 from the earlier level of 151.4 million cases in the first quarter of 2021. On account of strong demand environment across geographies, CSD constituted 70% juice mix of 7% and packaged drinking water mix of 23% of total sales volume in Q1 2022.
Realization per case improved by 6.3% to 157.3 in Q1 2022, led by price hike in select SKUs, change in SKU mix, and high realization in international markets. On the profitability front, EBITDA increased by 39.1% to the level of INR 5,310 million in Q1 2022. Gross margins for Q1 2022 reduced by 427 basis points.
To the level of 51.5% from 55.8% in Q1 2021, primarily because of increase in preform prices by around 30% over Q1 2021. Despite the decline in gross margin, the company was able to improve its EBITDA margin to 18.8% during the quarter because of higher operating leverage, driven by strong volume growth and high realization. Finance cost declined by 19% to the level of INR 469.6 million during Q1 2022, primarily because of lower average cost of borrowing.
Debt increased by 98.2% to the level of INR 2,710 million in Q1 2022 from INR 1,336 crore, or 1,367 million, in Q1 2021, driven by improvement in margins, reduction in finance cost and higher profitability from international operations. Overall, during the quarter, we have reported an encouraging performance. We have seen a strong demand environment and are excited about our prospects going into the peak season. Our outlook remains positive for all our product categories over the medium to long term. 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. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the 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 Percy Panthaki from IIFL. Please go ahead.
Hi, good afternoon, everyone.
Good afternoon, Percy.
Hi, good afternoon. When you were doing the Pepsi acquisition, just before that, you had shared that your market shares in south and west would be around 25%. In your core geographies, the existing geographies, they were about 40%. Now, of course, we do not expect you to update us on this on a regular quarterly basis. Since it's been three years since then, would you give us an idea on what kind of market shares stand today versus what you had shared earlier?
Percy, the only thing I can tell you is after our acquisition for last two years, we could do very little because both the years in the peak season, COVID was there. What we really needed to do was enhance our go-to-market, increase our distribution, which we had started in 2019, but could not completely go through with that in 2021 because of the peak season disturbance. Which this year is the first year when we are seeing the change happening and when our distribution enhancement is starting to give us encouragement and giving us results. That is why you're seeing better numbers. Even in the off seasonality quarter, we are seeing better results because the territories which we had acquired have started doing well.
The context in which I asked this was, if I look at this quarterly result and try to calculate the organic volume growth on a three-year basis, using three years because two years also is not a normal base because of COVID, now we have to look at three years. On that basis, the organic volume growth for the India business is 10.5%. I just wanted to understand whether the industry itself is growing at this rate, or is it market share gains which is leading to such robust growth? Because in this kind of a consumption environment, no other FMCG company is reporting a 10% kind of a volume growth. In fact, most of them will report close to zero volume growth this quarter.
Just understanding the source of the growth, is it a broad-based industry growth itself? If so, why is this industry so different from the rest of the FMCG pack? If not, then obviously it's a market share gain.
Well, partly the industry is growing, so it is not only that we are growing. I think competition is growing also. Obviously, our enhanced go-to market is giving us some results. Where we feel we might be doing better, but I can't really be sure of that because those numbers are not available. I think overall, if you look at it, the season has started a little earlier also this year. The summer started little earlier. I think everything put together and overall our real enhancement in go-to market, which is the key issue in this trade and putting enough chilling equipments is what is helping us grow the market.
Any data you can share on the increase in distribution touch points or the increase in the chilling infrastructure that you have effected?
Sure, Percy, that data is attached in the quarterly results presentation also is given here. What I would like to tell you is, how, you know, we are increasing our penetration in the market, not only the distribution go-to-market. Also, we are trying to enrich our product portfolio over last year. If you see, in the last two years, what has changed for us is Sting, which is energy drink. Last year the growth in that particular segment was 440% and became 5% of our mix. In this quarter also that has grown 131%. Also, the dairy products which we have started and we are already booked to our capacity to the full. Tropicana, which we took. First, you know, there are phases.
First, they had never franchised Tropicana anywhere in the world that, you know, they gave it, they chose Varun Beverages, they gave it to us. Second, because always for last 10, 15 years was getting co-packaged from third parties. We put a facility, started in-house and made it profitable so that we can earn and flow back this for the growth of that. Happy to inform that we are already 100% capacity realization on Tropicana, and we are feeling necessity to double our capacity by next year. If we do that, the way the demand is coming, unfulfilled demand in that field, I mean, there is a huge growth potential. One another factor other than go-to-market is the product portfolio enrichment.
Understood. Also, can you give us some guidance on your CapEx? Not the total amount, but things like in the international geographies, where do you think, if at all, you would require capacity enhancement and whether it can be done through a brownfield or would you need a greenfield? Similarly, in India, now that you have a very sort of robust footprint presence in almost every state, do you think that most of the capacity enhancement in India can also be done through brownfield rather than greenfield, given that most of our facilities have sort of excess land on which brownfield expansion can be done?
See, we try and enhance our capacity wherever it is possible by brownfield, since we have plants in most of the states. Due to our water utilization, some of the locations, even though we can put up another lines, the water, the amount of water we draw does not allow us to put any more lines there, so we have to go for greenfield plants. That is one of the conditions which changes some of the brownfields into greenfields. The one state which we didn't have a plant, which was Bihar, we have just started our plant in on April first, and that is doing extremely well for us.
This year's result, also, you will see, you know, in the presentation that Sandila, we increased the capacity, which was a brownfield. Bihar, where we didn't have a plant, and last time when we mentioned, it was more driven for, you know, arbitrage between freight versus fixed expenses. That proved to be a very good decision, and that capacity is becoming very handy to cater to the growth there. It's going to be a mix of the two, at least for some more years. On the international front, see, last year we had doubled the water capacity in Morocco, which due to Delta, they could not be implemented during the season time.
It got implemented in August, the fruit of which will be available this year, and that's running to full capacity. In Zimbabwe, we are adding our capacity this year. By May/June it will be implemented just before season there. Last year Zimbabwe got support from Zambia. This year Zambia will be feeding DRC, where we are not going to make any investment till we test the market. These are the international CapEx plans.
Right. In terms of monetary amounts, if you can give some rough number for CY 2024.
It won't be very large, Percy. This year it won't be very large because the water line was already put last year in Morocco, and DRC is going to be fed from our Zambia line. It's only one line which we are adding, so about $10-$15 million is the total CapEx we are looking at internationally.
Sorry to interrupt, Mr. Percy. May I request you to please rejoin the queue? We have participants waiting for their turn. Thank you. The next question is from the line of Himanshu from Yes Securities. Please go ahead.
Yeah, good afternoon, team, and thanks for taking my question. Sir, firstly, just to understand this quarter's performance, I mean, there was a commendable reduction in expenses below the gross margin line. Just wanted to understand, I mean, this sort of operating leverage, I mean, is this completely operating leverage or there were certain one-off benefits or cost reductions as well that we sort of saw? Just wanted to understand whether we can operate at broadly these level of employee and other expenses basically, and can we benefit significantly in that case once the gross margin start recovering again?
This is mostly an operating leverage, yes. Because the volume has gone up and there was no change in fixed expenses.
You mean to say if this sort of volume growth sort of continues for us, I mean, and once the gross margins recover, in that case, we should be looking at significant margin expansion, right?
See, the gross margins, presently, you know, as we stated that what we have done is because, the demand was quite strong and the commodity prices had gone up, the discounts were curtailed to the maximum. Once the price increase happens, discounts may come back. I don't see a big jump in the profit margin except to the further operating leverage. You know, as we have stated in our earlier call, about 23% of our annual volume we do in the first quarter, and second quarter is 1.5x around of the first quarter's volume equivalent. Operating leverage in next quarter definitely will be there, and operating margin in next quarter is definitely going to be much superior than the first quarter. It is not true for all the fourth quarter.
Third quarter may look like the first quarter. Fourth quarter will be depressed.
Right, sir. In terms of gross margins, can you talk a bit about, in the current quarter, how we are seeing our raw material prices, whether we might need some amount of price hikes?
Well, you know, if you saw, we had borrowed extra money, and we had stored enough. Our key ingredient is PET resin, which we had stored enough for the full season. We don't see any challenge on that front, even if the prices go up, because we are already sitting on stocks with us. Concentrate is fixed, so there's nothing. Sugar prices are reasonably within the same range, maybe INR 1 or INR 2 up or down. We don't see any cost escalation further. The competition has taken some price increase, and we have also taken some price increases, so that benefit will come in this quarter.
Understood. Sir, second question was on the write-off. I think we've taken a INR 14.5 crore write-off on some plant and machinery. But we don't see that flowing through the P&L. Is it a direct adjustment from the balance sheet that has happened in that case?
It is through the other expenses, it's coming to the P&L. This is actually there. Basically, we were left only with the glass line. Water line in our consolidation process was already shifted to Gujarat plant. Water line, you know, the glass is unfortunately not growing. We took the plant machinery, glass and very small can line write-off, because after glass doesn't work, only a small can line running a plant doesn't make sense. Because we have seen with our experience, larger plants, the cost of production per case reduces substantially, which now we are up to, and that consolidation process for the next few years will be going ahead. Therefore, you know, there can't be straight answer like in the earlier question that will everything be down scaled.
Maybe, may not be, because consolidation is going to be key in next few years.
Got it. Adjusting for this INR 14 crore, our operating margins are even higher because you're saying this INR 14.5 crore is a part of other expenses. That's correct. Right, sir?
That's right.
All right. That's clear, sir. Thank you, and all the best to you. Thanks for taking my questions, sir.
Thanks.
Thank you. The next question is from the line of Shrenik Bachhawat from LIC Mutual Fund. Please go ahead.
Hi, sir. Thanks for the opportunity, and congrats on great set of numbers. Sir, could you please explain if electricity issues are being faced in various parts of the country, so will that impact our business in any form going forward?
Well, we are not facing any major electricity issues anywhere. If there is any, it doesn't affect our business because we are fully backed up with generators. As an overall production, there will be no constraints. It might be that if there is less electricity, the cost might go up slightly because of generators, but it's not very significant, so.
No, sir, I mean to say from the distribution side, the retail outlets and will they be affected?
No, I don't. We are not seeing any challenge as of now.
Sure, sir. Could you share the utilization level currently? Previous year, if I'm not wrong, it was around 60-65% in the peak season.
Well, if you
Last year we didn't have a peak season, unfortunately. April, May both were COVID, so you can't take a you know. This year we are trying to utilize our lines as much as possible, actually. We are running our lines fully, actually.
Okay. Sir, this last question, could you share the volume growth expectations and EBITDA margin expectations for CY22?
Well, we have just said that, you know, our first quarter is about 23% of the mix. We expect hopefully the volume should be based on that. EBITDA margins are always higher in the second quarter because of the volume growing up. It's looking quite healthy.
On a full year basis, sir, CY22, full year basis margin, what can we expect?
Well, you know, we, I think did 21% or so in 2019, which are our normal margins with operating leverage little bit here and there.
Mm-hmm.
We calculate. For us, it will be little difficult to give any guidance on that.
Sure, sir. OK, thanks. Good afternoon.
Thank you. The next question is from the line of Dhruv Dhimrajka from Monarch AIF. Please go ahead.
Yeah, good afternoon, sir. Thank you for the opportunity. Sir, my question, just two, three small questions. One is, what would be our volume split between domestic and international market for the first quarter?
Out of 180, 147 is India. Balance is international.
Okay, 147 and 33, right?
Yeah.
Okay. Sir, as of the quarter ending 31 March 2021, we had a net debt of approximately INR 3,500 crores. In these four months, what is the debt that we have repaid, if any, and what would be our net debt as on date or as at end of the first quarter?
Yeah, it's 3,100 and some odd figure as on thirty-first March. That also included because of the inventory which we created for PET stocking.
There's no debt repayment aspect in the first quarter, right?
This is because in the first quarter we have paid for the CapEx for Jammu plant, which is for backward integration. We also have paid for Sandila plant, which is a brownfield expansion. We have also paid more or less fully for Bihar plant, which got implemented in this month. That CapEx then without raising any additional debt is already taken care.
Sir, so you said, last question is that for CY 2022, you said for international markets there would be a $10-$15 million CapEx. How much would it be for the India market, then?
In fact, this up to May that $10-$15 million, which is from the internal accruals being paid already side by side, no debt increase. For India, actually, I think what we would like to restrict ourselves is by saying that, you know, which we are saying for last five years, equal to the depreciation figure, to cater to the normal organic growth 10%-12% level. If we grow, say, 1.5x. So 1.5-year equivalent depreciation if we say grow two year equivalent, so two years equivalent depreciation figure. I mean we have given a guidance through this formula.
You know, projecting future is little difficult and, here actually what I would like to tell you is by June end we will know broadly which direction we are going ahead. At that point of time we'll be forming up our capital CapEx plans, and we'll be able to share. Till then, you know, it's only speculating. I think we would like to stay little away from there.
Okay. Thank you so much, sir. I'll get back in the queue.
Thank you. The next question is from the line of Jaykumar Doshi from Kotak. Please go ahead. Mr. Jaykumar Doshi, please go ahead with the question. Your line is unmuted.
Hi. Thanks for the opportunity and congratulations for the set of numbers. My first question is, 16%-17% volume growth in India is very impressive in context of what we are seeing in FMCG as well as, you know, Alcobev company that has recently reported. Is this growth broad-based across geographies? Are you able to sort of, you know, is the environment conducive for you to grow double digits in north and east markets as well?
Oh, this has been broad-based, so it's not only the south and west, it's been. The growth has been reasonably good throughout the country, give or take a little bit depending on the rains and the weather, but mostly it's been broad-based.
That's great. Good to know. In, you know, from south and west, you know, when do you think, you know, have we hit a kind of a inflection point or will we see accelerated growth in this season, or you think that it will be next season?
Well, I think we are already seeing accelerated growth from South and West and all the territories which we had acquired. Wherever there are very weak territories, we are seeing additional growth coming in.
It has started to contribute.
Yes. It has started.
Right. On international markets, again 30% volume growth is very good. Other than Sri Lanka, are you seeing any kind of operating challenges or currency related issues in any market? Do you see any risk in context of, you know, inflation?
No, not really. Even in Sri Lanka we are, business-wise, we are still doing all right. We would be one of the company which is still not going negative in Sri Lanka and continuing with minor growth. Obviously, the foreign exchange challenges are there, which we are managing, and there will be some challenges, but it's such a small part of our business that
First quarter growth Sri Lanka.
Actually, if you look at the first quarter growth, Sri Lanka has grown at 37%. Sri Lanka is also growing for us.
I would assume it's local currency. It must be local currency, 37%.
Yes, local currency, yes.
In fact, these are volumes, so.
No, no. This is volume. No, this is volume, so this is not currency related.
Understood.
This is actual volume growth, so currency related is completely different.
Thank you. My final question is your partnership with PepsiCo Foods business and, you know, starting as a co-packer, are there other players globally in other markets where this model has evolved? The idea of asking is, you know, beverages has been it's a well-established model of bottling all across the world, and it's a very high gross margin business as compared to foods business. Are there similar partnerships that have evolved which we can look to get a better understanding of how this journey can-
Not to our knowledge. We might be the first in the foray, so we are also learning from it. That's why it'll be an interesting start. Let's see where it takes us.
That's it from my side. Thank you so much, and we're looking forward to a great season.
Thank you, Jay.
Thank you. The next question is from the line of Nihal Jham from Edelweiss. Please go ahead.
Yes, sir. Thank you so much, and congratulations on the strong performance. Three questions from my side. The first one was, you know, just delving into the strong volume growth. If you had to compare, say, from three years back, has there been any significant change in the product mix other than, say, the Sting being added versus, you know, CY 19?
As you look at it, you know, the three products which Mr. Gandhi said, Sting, of course, has been a very strong performer for us. Our value-added dairy has done extremely well, and Tropicana Juice has done extremely well for us. All the three categories have done extremely well for us. Apart from, of course, our core business, which is CSD and other juice and water category.
Absolutely. That's helpful. Mr. Jaipuria, would it be possible just to give an approximate proportion of what these three specific products would make up at this point in time of our total volumes?
These new products last year, 23-24 million versus Sting.
No, I think Sting is about 6%-7% of our mix.
Yeah, in this quarter.
In this quarter.
Yes.
I'm giving you very approximate numbers, so.
That is helpful.
What is the mix? You know, in value-added dairy in Tropicana, we've run out of capacity. We are producing 100% what our capacity is. Unfortunately it will not show a seasonality therefore going up because we'll continue producing 100% of our capacity. Those volumes will only go up now once we add capacity to both these products. Tropicana is 2%.
Dairy?
Dairy is about 0.5% for the time being. That's basically the capacity of the unit which we had put up in Pathankot.
Okay. Yeah. Tropicana and dairy both are fungible on the same equipment. That's another constraint.
That equipment is giving us about 2.5% mix for the time being and, about 7.5% is Sting. Between the three, you're talking about 10%.
Which you can say would be close to negligible, actually, two to three years back.
Which was practically not there. Yes. Practically very small.
That is very useful. The second question was on this popcorn arrangement. I know we've answered, but just at this point in time, what the current arrangement is with co-packing. Is there a discussion on the table that, you know, you take up the distribution similar to the beverage business end? Just to understand that would, say, the food business require a manufacturing setup as intensive as it, what it is for beverages or how would it be, say, different in case this.
I think it's a bit too early. Let us start with the first unit. Let us understand this and right now it's a co-packing arrangement only. I think we'll stick to that for the time being and understand it before we can talk a little anything more.
Sure, Mr. Jaipuria. My last question was on the debt side. We've obviously, you know, given the strong run rates and performance, there will be significant cash generation that will accrue in our Q2 second quarter and for the year. Other than debt repayment, or is it fair to assume that most of this will be used for the debt repayment or how's it being looked at?
I think part of it will be definitely used for debt reduction, and some of it will be used for CapEx enhancement because with the run rate of growth which is happening, we would have to spend some more money on CapEx.
Understood. This is helpful. I wish you all the best. Thank you so much.
Thank you.
Thank you.
Thank you. The next question is from the line of Devanshu Bansal from Emkay Global Financial Services. Please go ahead.
Yes, hi. Thanks for the opportunity and, congratulations on a really strong set of numbers. To build on the question asked earlier on international geos. As I view the base quarter was also quite strong here, and on that base, we have grown about 30% in volumes. Just wanted to understand the drivers of this strong growth, as well as any outlook here that you can give us for the coming years would be helpful.
No, I think one was if you looked at Morocco, by the time we were able to put up our lines, it had passed the season because of COVID. We couldn't get the people. That enhancement of the additional line has started giving us results. Zimbabwe is also the addition what we did last year has started giving us results. Even if you look at Sri Lanka, which has done very well. If you look at Morocco has grown at 50% for us, so that has given a big spike, and Zimbabwe has done well for us. Actually, all the countries have done well for us, so it's very difficult. I think it's not just a spike.
I think the overall business has improved, and I think we look at some good results coming going forward also.
Sir, going ahead, any outlook you can provide as in if Morocco now CY 2022 would be a good base, and upon that, what is your outlook on growth in these geographies?
Well, Morocco has become a reasonable sized business for us. Because of the growth in volume, this has become a profitable and good business for us, which we were struggling for quite some time before. That's the guidance I can give you.
Sure, sir. Sir, I also wanted to understand, since India is a very large market, so how is the traction for our other new launch, Mountain Dew Ice? Are there any marketing plans that we intend to launch going ahead?
No, I think we've got our hands full this year with the Sting and Mountain Dew Ice we had already launched last year, so it's doing extremely well for us. With value added dairy as well as Tropicana, we have got enough, and even Gatorade is doing extremely well this year for us. I think we have enough products apart from our core business, which is growing at a very healthy volume, which you are already seeing.
Sir, I was specifically asking for Mountain Dew Ice, not a new product.
No, Mountain Dew Ice is doing well for us. You know, we are whatever limited capacity we have, we are producing it, and it is selling to the capacity actually.
Sure, sir. Lastly, sir, in terms of PET stocking that we did in December 2021, what would be the crude price levels at which we stocked the PET in December?
The math's very difficult for me. We bought it at a reasonably decent price because we bought it mostly at the end of the year.
Sure, sir. That's helpful. Yeah, that's it from my end. Thanks for taking my-
One is the price. Of course, second was the, you know, de-risking against the logistics, risk or issue. So at least this decision proved to be right for us, and we still have enough for the whole season.
Sir, my question was from going beyond H1, so if crude prices increase from current levels, then maybe gross margins can see a-
I think we are pretty well covered till Q, a little more than H1, so maybe even the third quarter is reasonably covered.
Sure, sir. That's helpful. Yeah.
Thank you. The next question is from the line of Sumant Kumar from Motilal Oswal. Please go ahead.
Yeah, hi sir. Can you talk about the out of home consumption trend and how is the contribution in this quarter?
The biggest growth which is coming is out of home now. Out of home, people are all in the market. That has increased significantly because till last year the major quantity was going in home consumption. Now, home consumption is about 35%, and on the go is about 65%.
Okay. The major volume growth happening this quarter is, can we say 65% is volume growth from the out of home?
Out of home is more, absolutely. Because there's no more restrictions, so everybody is going out. Because before it was mostly at home.
Okay. 6% realization growth, can this trend is going to continue for the coming quarter also?
Looks like it. Should be.
Okay. Sir, what is the CapEx number for FY 2022?
It's a bit difficult to tell you exactly, but as Mr. Gandhi said, the guideline that if it is about 10% growth, our CapEx would be approximately to our depreciation level. If this growth doubles, then our CapEx would be double of our depreciation. Approximately in line with that.
Thank you so much.
Yeah. Thank you.
Thank you. The next question is from the line of Rakesh Roy from Indsec Securities and Finance Limited. Please go ahead.
Hi, sir. My first question is regarding, sir, your international business, especially.
I'm sorry to interrupt you, sir, but we cannot hear you clearly.
Hello.
Yes, please go ahead.
Sir, I just want to, can you highlight on international business, especially in line with the Sri Lanka issue and Nepal issue, sir?
There's no issue in Nepal.
Yeah, Nepal, sir, they are trying to restrict some import from other countries.
No, but they are not restricting manufacturers. That is for luxury goods and that is for basically traders. It's not for manufacturers.
Okay.
It's not impacting us at all.
Okay, sir. Right, sir. Also Nepal, sir. For Sri Lanka, sorry, sir. For Sri Lanka.
Sri Lanka, I mean, we all know there is a foreign exchange crisis, which we are managing. The business is doing extremely well still. We are managing with it, and I think it's. It's such a small part of our total business. It's 1-1.5% of our total volume. I think we just need to wait and see what happens. I feel they'll come out of it. Will it take three months? Will it take six months? I don't know. We are managing, and our parent company is also supporting us, so we are. I'm sure we'll manage.
All right, sir. First, my next question is regarding out of India total volume 147, how much is the southwest this one, sir, southwest market?
About one third.
One third, sir.
Yeah.
Okay, sir. Regarding, say, your new strategy where you just want to try to understand, sir, your geographic mix, sir, regarding in India business, sir. Can you give me the idea how much is geographic mix?
What? I didn't get your question properly.
Geography by mix means in the sense north and south, east and west.
This will keep changing. You know, this will keep changing. Every quarter is a different mix because seasonalities are different for every quarter. We've really not had a full year of a proper year, which we hope we'll get this year. I think you should give us this year to really find the real mix of each geography.
Understood.
It won't be right to give the mix for, you know, summer is April, May, June is always higher in North. October, November, December or January, February, March would be better in, South and West. It's a very, every quarter is a different story.
Right. Thank you for your answer.
Thank you.
Thank you. The next question is from the line of Sanjaya Satpathy from Ampersand Capital. Please go ahead. Mr. Sanjaya, please go ahead with your question. Your line is unmuted.
Hello?
Yes, sir, we can hear you.
Yes. Sorry, sir, I just wanted to confirm this INR 15 crore WDV that you said. We should reduce our other expense and see the normalized margin by adjusting that. That is what you said, right?
That's right.
Yeah. That is the 19%.
Yeah, whatever that percentage is.
Yeah. The second thing that you mentioned, pardon me, that typically this quarter one is 23% of your sales volume. Am I right, sir?
Generally.
Approximately.
Okay. Lastly, just wanted to confirm with you that this 25% CAGR over a two year period that we are seeing, which most people are finding difficult to kind of understand that why it is happening and why what is sustainable. That is because historically you have been saying that this cold beverage business will grow at about 10%-15% volume growth annually. Are you kind of saying that this kind of a growth is rather one-off and it will come back to that level pretty soon?
You are saying that because of the initiatives that you have been taking, you have been gaining some kind of market share, and that is why one can look for not 10%, but rather 15% kind of a growth sustainable in near future?
Well, we always said the market should be growing at 10%-15%. We will always keep trying to do better than that. Will we succeed or not? I don't know. We, our job is to keep trying.
Understood. If at all you will be successful, that is primarily because of this foray into South, which will turn around and also the factories that you are expanding, right, sir?
Well, we hope so. Yes.
Lastly, sir, I just wanted to check with you that I'm seeing that between your different categories, the juice segment is kind of relatively subdued. Is there any explanation for that in terms of the outlook and how it will kind of also plug growth, which is similar to the other segments?
Well, as we've said that juice is not really subdued. It's done extremely well, but we have run out of capacity on Tropicana. As soon as our second facility will be ready, we expect to see 100% growth on that. The facilities are ready.
When will that be, sir?
Hopefully, it should be next year sometime.
The last question that you were in discussion of margin, while gross margin has gone down, you have done some operational savings. I missed that point. I thought that you were talking about some kind of a 21% kind of EBITDA margin.
No, but that is throughout, on a yearly basis. Our first quarter is a subdued quarter, so our EBITDA margins are always lower. If you see our second quarter, you'll see our margins much higher. On an average basis throughout the year, it averages out to about 21%. That's the guidance we have been giving basically.
Despite the raw material prices going up so much.
That's right.
Thanks a lot, sir.
Thank you.
Thank you. The next question is from the line of Alisha Mahawala from Envision Capital. Please go ahead.
Hi, sir. Good evening, and thank you for taking my question. While most of my questions have been answered, just wanted to understand with respect to the Kurkure Puffcorn, what is the kind of investment that we're looking to make?
About INR 20 crore-INR 23 crore.
It's a very small investment. We are testing it out. It's about INR 23 crores.
Okay. This is only for co-packing. We are not going to be doing any manufacturing.
No, manufacturing, of course. We will be manufacturing and giving it to PepsiCo.
Okay. This is for Pan India. Do we have select geographies?
No, it's their choice wherever they want to take it. We just have to produce it and give it to them, and it's where they will sell it is their call.
Okay. Okay, great. The rest of my questions have been answered. Thank you.
Thank you.
Thank you. The next question is from the line of Suvarna Joshi from Quantum Advisors. Please go ahead.
Sir, thank you for the opportunity. Most of my questions have been answered, but I have two questions. One is, you mentioned that the realization has improved because of price hikes and also the product mix. So if you can just help us understand the mix between price hike and the product mix, which is contributing to the 6% or kind of a realization improvement on a YOY basis. That is question number one. The second question is, I wanted to understand the mix in terms of SKUs. Now, when we were in the COVID period and in-home consumption was very high, we had seen that larger pack sizes were doing much more sales.
Now with out-of-home consumption being the driver, I'm certain that it is more to do with the smaller. Can you just indicate as in what kind of pack sizes are doing better for us, and how do we stand over here despite the margin kind of the gross margin pressures that we are seeing?
See, fundamentally, you are absolutely correct that as the go-to market has opened up, the small size, the 250 ml bottles, single size bottles have started doing extremely well. The major growth is coming in that pack. As far as your margins are concerned, you asked, partly the increment in pricing has been very small, but what we've been able to do is reduce our discounting as the demand is high, and we've been able to convince the distributors and retailers that the costs have gone up, so we will not be able to give that kind of discounting.
Right. It is not the effective price hikes that we have taken which has led to this.
Partly, I would say. Out of the 6%, maybe 1% or 2% is pricing, and the balance is efficiency and, of course, cutting discounts.
How much of it would be from the product mix?
Product mix I don't think has made that big a difference. It's basically minor difference. Of course, single serve is slightly more profitable because it's more on-the-go pack, so that has helped. All the things mixed together has given us a 6%.
Sure.
-growth.
That's it from my end. Thank you and wish you all the best.
Thank you.
Thank you. The next question is from the line of Devanshu Bansal from Emkay Global Financial Services. Please go ahead.
Sir, in continuation with the earlier question, I just wanted to understand, are in-home consumption trends sustaining or you are sort of seeing a decline with on-the-go picking up? This is basically to understand.
I won't say declining, but the major growth is coming on-the-go. What the market had, what subdued, that has opened up, so people are going out. They're drinking out. The restaurants have opened. The hotels have opened. Cinema halls have opened. You know, people are traveling from one place to another, so railway stations, bus stations, all that has opened up. That is where the major growths are coming. I don't think the habit which has been formed by drinking at home has come down.
Sure. Secondly, I also wanted to understand these, if I understand it correctly, the distributor commissions or discounts that you used to sort of account for have now been moved below gross margin level and so is this understanding correct?
No, the commissions have not been changed. It's just that, you know, because of the cost, I think both the companies or the all the beverage companies were giving more in the market as they were all felt the same. I guess they have curtailed part of the discounting and partly it has got covered up by the extra volume which we are doing.
Sure. Got it, sir. Thank you.
Thank you. Ladies and gentlemen, this was the last question for today. 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 like to know more about the company, please feel free to contact our investor relations team. Thank you once again for your interest, time, support and for taking the time particularly out to join 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, and you may now disconnect your lines.