Ladies and gentlemen, good day, and welcome to Varun Verreja 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. Please note that this conference is being recorded. I now hand the conference over to Mr. Ravi Puri from CEDIA India.
Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on Barum Darwidge's Q2 and H1 2021 earnings conference call. We have with us Mr. Ravi Jayapuria, Chairman of the company Mr. Varun Jayapuria, Whole Time Director Mr.
Raj Gandhi, Group CFO and Whole Time Director and Mr. Kapil Agarwal, CEO and Whole Time Director of the company. We will initiate the call with opening remarks from the management, following which we will
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 detailed statement in this regard is available in the results presentation shared with you earlier. I would now request Mr. Ravi Jaiduria to make the opening remarks.
Good evening, everyone, and thank you for joining us on our earnings conference call. Trust you and your families are keeping safe and healthy. I hope all of you had the opportunity to go through our results presentation. This provides details of our operational and financial performance for the second quarter and half year ended 30th June 2021. We have delivered an encouraging set of results during the quarter despite the soft openings, operating environment due to pandemic induced lockdowns and restrictions.
While we registered strong sales in the month of April, May witnessed moderate sales on account of the disruptions. I'm happy to share that our team efficiently outlined and executed a set of SOPs and work flows to secure our business model and ensure continuity across operations during this time. With last year's learnings, we had all the necessary protocols in place to handle and mitigate the business impact to a certain extent. Further, as lockdowns and curves started easing from June onwards, we saw faster recovery in demand, which assisted growth in the quarter. Overall, we have delivered a healthy performance with a top line growth of 49.4% year on year.
The higher growth rate is on account of robust volume growth over a lower base of previous year as well as marginal increase in realizations. On the profitability front, we were able to maintain most of the cost optimization measures that we had undertaken last year, allowing us to report stable EBITDA margins at 23.3%. PAT increased by 123%, primarily driven by lower finance costs on account of lowering of average cost of borrowing and reduction in total debt. We are also pleased to share that in line with our dividend policy, the Board of Directors has recommended an interim dividend of $2.5 per share. Our newly launched product variant Mountain Dew Ice, which is a lemon fruit juice drink, has reported strong uptick in sales in the quarter and continues to be positively received by consumers across markets.
As we look ahead to continue to monitor changes in the operating environment and are undertaking necessary precautions to safeguard our business and people. Given that there are concerns triggered by a potential 3rd wave of COVID, we believe the momentum in demand in consumption is steadily building and will further strengthen with higher vaccination drives. Improving economic indicators and supportive macros such as good monsoons. We remain confident of reporting robust performance in the quarters ahead. I would now invite Mr.
Gandhi to provide highlights of the operations and financial performance. Thank you very much.
Thank you, Mr. Chairman. Good evening and a warm welcome to everyone joining us today. Let me provide an overview of the financial performance for the 2nd quarter end half year ended 30th June 2020 March. Consolidated sales volume registered a solid growth of 45.4 percent to $152,300,000 as compared to 104,800,000 cases in the Q2 of the year 2020, primarily on account of strong growth in the month of April as compared to low base of the cost spending period last year and a steady recovery in the month of June 'twenty 1.
Post easing of lockdown restrictions, PSD constituted 78%, juice mix was 7% and packaged drinking water mix is 15% of total sales volumes in Q2 calendar year 'twenty one. Revenue from operations adjusted for the excise GST grew 49.4 percent year on year in Q2 calendar year 'twenty one to INR24,498,500,000. Realization per case improved by 2.8 percent to INQ2 calendar year 2021, mainly on account of higher realizations in international territories, partially offset by higher mix of water. Gross margins declined by 128 basis points year on year to 53.5% primarily due to change in product mix and marginal increase in raw material prices. EBITDA increased to 51.1 percent to $5,708,000,000 in Q2 of calendar year 'twenty one from $3,777,000,000 in Q2 of calendar year 2020.
EBITDA margin marginally improved by 30 basis points to 23.3 percent in calendar year 'twenty one Q2, even after a 128 basis point decline in gross margins as we were able to sustain cost optimization measures that were implemented last year. Depreciation increased by 3.6% to INR1287.8 million as compared to INR1243.1 million in Q2 of the calendar year 2020. Finance cost reduced by 36.9% to INR467,800,000 from INR 741,900,000 in Q2 of calendar year 2020. This is due to repayment of debt as well as a reduction in average cost of borrowings. That increased by 123 percent to INR 3,188,000,000 in Q2 of calendar year 'twenty one from the level of INR 1429,800,000 in quarter 2 of calendar year 2020.
This is driven by lower finance cost. During the quarter, an amount of INR 1.1.1. If you remember, during the COVID quarter, the mix was slightly different. And this year, we one is the mix. Sting and Mountain Dew has come in and also Juice has gone up slightly, Tropicana.
And the international, this thing has also helped us a bit. So it's a combination of the three things. If you want to know the breakup, my realization for K's international business is 180 plus while India was 156 plus.
I see. Okay. Got it. That was one. The second was on the gross margins.
So gross margins at 53.5% have come off quite a bit. But when I look at your other comment about higher working capital because you took positions ahead of expecting or anticipating a surge in, let's say, key input prices. So can you just elaborate on the two comments that you made? And what is your outlook on gross margins?
Vivek, the gross margins basically have improved. Yes, in India actually, it has come down because of the stocking of the raw material, PET, etcetera. And also this has definitely resulted in the stocking of the working capital and higher number of days. As you know in the earlier calls, we had stated, we knew that the PET prices international are going towards the northwards. And therefore, we had covered ourselves for the full season.
And therefore, the number
of days has gone up. Also what has happened, Vivek, because of the lockdowns, we had to transfer goods from certain places to another place. And that has incurred extra freight, which was not planned for and instead of letting the goods expire. So that was one of the, another reason why our cost of goods became higher.
I see. I see. And lastly, do you think the gross margins are close to now at its trough and should stay at this level to, let's say, start to move up?
It's slightly difficult to say because let's see how the things pan out to be. What is happening, Vivek, because of the pandemic, every day your correlation keeps changing. So there is so much uncertainty right now, I think, but we are still able to manage, make sure there are no expiries, make sure our goods, goods are. Even every day today, we are now looking at will the 3rd wave come, not come. So very difficult to predict everything right now.
It's not normal circumstances. And our stock also, which happened in resin and all, was only because we didn't have a May we lost our peak month of May. Otherwise, this would have got consumed and we would have not carried this kind of inventory. So I think we have to be a little flexible during this period. And there will be some changes, which is very difficult to answer actually.
Sure, sure. Fully, fully understand that part. Mr. Japuya, but just a small bit, a lot of your peers' competition in FMCG space have been taking up prices given that the input price environment is quite against. Do you anticipate any price hike in the foreseeable future to pass on some of that impact?
We don't think so right now. We are able to cover that up with our cost cuts which we have done. So that's why we don't say that our margins will go up, but I think we can manage with our margins and without taking price hike.
It's very, very good to know that. I'm wishing you and your team on the very best. Thanks.
The next question is from the line of Ritesh Shera from Lucky Investment Managers. Please go ahead.
Yes, sir. Thank you for the opportunity. Sir, wanted to know since now some of the consolidation also would have happened in these numbers. So what would be what's this 2019? What would have been our volume growth on a like to like or a volume decline on a like to like basis?
It is again very difficult to answer because since we took over the territory in 2019, we've not even had one season. I mean, even last year. Last year was our 1st season. So that was full of pandemic. Again, this year has been full of, and both the pandemics have come in our peak season, which is April, May, June.
So it's very difficult to really answer anything, the growth we were expecting, the new distributors we had made. There is a, and still, I would only say that we have been able to manage and give reasonably good results, which would have been much better if it was a normal time. That's the only thing I can answer you. Okay. What should be the expected volume for us in the current year that is CY21 if it would I'm asking the same question and how do I how can I commit anything or tell you anything because I don't know what's going to happen in the next couple of months?
But it's looking positive and we are on the right track. We are getting reasonable good growth. Business is back to normal. Unless until we again see a 3rd wave, which is strong and lockdowns happened, we see reasonably good growth over last year.
Okay. Just to partially answer your question. See, if we see organic basis 21 over 'nineteen up to April, which was like a pre COVID period time, we can say, because up to April, the effect was not much. So we have been growing and the growth had been, as in the Q1, we had said CAGR of 10%, similar in we continued in the month of April also 1st 4 months. And then again, June onwards, the growth has come back.
Out of 7 months of the current year, 5 months, there has been substantial growth months. So hopefully, this year, let's see, as the Chairman said that it's not possible to give guidance, but hopefully,
we I mean, the business is back.
So I think the only question is depending on the pandemic, otherwise, everything is looking very good. Sir, about South, where in the past calls we had mentioned about scope for market share expansion, scope for better servicing the market. So in a normal year, let's say, hopefully next year should be a normal year. And what run rate should South grow higher than your national average if everything is kind of normal business scenario based on whatever highlights you have given in the past? We believe the new territories should go faster than our existing territories.
But again, we have not even had one season to stabilize those territories.
So I think we need
to wait one season before we can start giving you how fast we can grow. Because as soon as we took over, both seasons have been pandemic driven. Yes, sir. Okay. And my last question is, sir, for the next 2 years, what should be our CapEx that is 'twenty one and 'twenty two?
And how should the net debt look like in 'twenty one and 'twenty two? The CapEx, we are expecting to be very close to our depreciation. It could be little more 1 year and less 1 year. So those depending on where the when the plant comes and then next year it becomes less or it can become more. So very close to our depreciation would be the guidance we would give.
And net debt will keep on coming down, right?
Of course. In the pandemic year, 4.50 crore or so, even the H1, it has come down. If pandemic would not have been there, the reduction figure would have been much higher. But luckily, we got supported by a reduction in the interest cost. So interest servicing in any case was much lower as it is.
Okay. Thank you very much and all the best, please sir. Both the years we have lost our peak season. So please understand we are a summer driven industry. If you lose April, May, June because both years it has the pandemic is hitting the April to June quarter.
Yes. Thank you very much and all the best. Thank you.
The next question is from the line of Dhruv from Monark IF.
So my question on the balance sheet part, if we see the current liabilities and other financial assets, they have a big jump. So the other current liabilities have gone from INR 380 crores to INR528 crores and other financial liabilities have gone from INR25 crores to INR130 crores. So what would be the reason for this jump in these two line items? I think it constitutes the current liabilities of the term loans which falling during the next 12 months. Okay.
So these both constitute the current portion of long term debt which is payable this year, right? Yes. That's the major portion which comes to the mine, but we can see further this 2020. Okay. Because okay, cumulative it goes to around INR 250 crores.
Maybe I'll connect with you separately on this. And sir, for the 1st 6 months of this year, what has been our total debt repayment which has happened? This is INR 450 crores around. INR 4.64, precisely. INR 4.66, yes.
INR 4.66, yes. INR 4.66, yes.
INR 4.60, yes. INR 4.60, yes. INR 4.60, yes. INR 4.60, yes. INR 4.60, yes.
INR 4.60, yes.
INR 4.60,
yes additional? Normally, what happens is in the 1st year, the repayment happens. In the second part, the tax payments, the dividend payment, CapEx, etcetera, has taken place. But however, still we always are able to couple of 100. But the major portion of the debt reduction happens in the H1 only.
Okay. Okay. So maybe additional couple of INR 100, we can expect to reduce from the long term debt, right? That's right. Okay, okay.
Okay, sir. Thank you so much.
I'll come back in the queue.
Thank you.
Thank you. The next question is from the line of Devanshu Vanshan from MP Global Financial Service. Please go ahead.
Yes. Hi. Thanks for taking my question. So my question is on margins on a slightly longer term. So we did around 23%, 24% margins in India business over 'sixteen, 'seventeen time frame.
And since then, margins have dropped for understandable reasons. But when do you expect getting back to those margins levels in India, even if we assume CY 'twenty two to be a normal year?
If we assume yes, exactly. You made the question easy for us. If we assume the 'twenty two to be a normal year, we will immediately be back to those level of margins, actually. That was the only
thing which was holding up.
Otherwise, we are totally geared up, as I Chairman to go to a next level.
Sure. And secondly, I wanted to understand India gross margins in the current quarter have been more or less stable. So the RM inflation and higher water share, is that in international operations?
International operations margin are definitely always slightly higher, but they come with the currency risk. But as the currency also was stable, so that has helped the overall margins have been consistently good for last few quarters.
Sure. Any you indicated that new innovation, new introductions have been doing well for us. So if you can highlight some of the trends in STNG and Mountain View IA, what is the current contribution and possible potential contribution that we foresee from these payment reductions?
So I think basically our energy drink, which was Ting, which we launched a couple of years back, has really taken off and is becoming an important part of our mix, which it used to be a small mix at one time. And Mountain Dew Ice has done very well. But unfortunately, as soon as we launched it, within 2 months, pandemic came again and go to market became very difficult and mostly mountain device was originally launched in smaller packs, which is mainly go to market. So we are again starting it again. So that's why to say what growth we will get is very difficult and what percentage of share it will take because I think we have to give it a year, year and a half for the brand to start getting any type of mix?
And the answer to your question, yes. The whole portion of your question, which is that what are the new launches. On that, the launches mounting to I. E. Kim, Bell, dairy based beverages and string are all there.
The only thing is these are itself are to be expanded further. There's a huge potential like as you go many folds like string over 2 years has has failed. In H1, we have already crossed 10,000,000 mark, which is supposed to be very good for any brand to be a long term player. So the potential of these is yet to be expected before new launches can come in.
Lastly, sir, is this catering to a different consumer base or somewhat it may cannibalize the existing consumer base? I am specifically talking about STING.
No, it is the same consumer base. The only difference is that compared to Red Bull, we are at a very reasonable price. So people who could not afford or wanted to have a Red Bull is now going for a sting and lot of your other customers are also going for it. They like the taste. It's going to become, according to us, a big brand, one of our core brands.
So I think, again, this would have been much larger provided pandemic would not have been there because, again, this is a small pack. And all small pack sales happen more while on the go instead of taking it home. So you will see huge growth in STING coming in the next 6 months also and going forward next year.
People have a special liking for STING and therefore, this is expanding the market and growing in a different way for itself.
Sure. I have one more question. Can I go ahead?
Sure. From our side, yes.
Yes. So, PepsiCo U. S. Consistently has been indicating market share gains in India beverage space, but somehow we have remained tight lipped on this front. So any comments that you can share in this regard?
Well, I think we have done well. And I think that is where I would like to keep it.
It. The next question is from the line of Sameer Gupta from IFL. Please go ahead.
Sir, first question was on the Zimbabwe provision reversal. So I just wanted to understand now how much of this foreign currency liability is now remaining and when is it expected to be settled?
We are left about $15 odd 1,000,000 which is some to it's big in India only and some to these banks there. So about $12,500,000 on quarterly basis, we are settling this. And this is committed by the Reserve Bank of Zimbabwe. And every quarter as and when the liability gets repaid, so we will be renewing every quarter this provision which is already there. And if need arises, we will be reversing it to the P and L.
So, sir, USD 15,000,000 is currently the liability on the balance sheet as well and every quarter you are expecting 2, $3,000,000 to be reversed just like this quarter?
That's right, to be factored every quarter.
Okay. Fair enough. Sir, second question, final one from me. Sir, the dairy based beverages portfolio, I know it's been a difficult time when we relaunched this year and again the pandemic struck. But any kind of update on this product?
Where is it being sold currently? Have we resumed the scale up in June? Or are we going to again postpone it to the next year? Which market this is being sold at? What is the current consumer feedback?
Anything on this would be helpful.
So we have again resumed the sale of it, and we are focusing more for the sale of it in the north. Right now, we are not sending everywhere. So right now, our conscious decision is to make sure it is fully marketed properly in the north belt first.
But it is capable to be scaled up as and when required. You don't need set up an oil plant
It's capable of the network doing well. But again, any new product launch cannot be in the off season. It doesn't work fully.
No, no,
sir. My question was it is from a shelf life point of view. You can be
It's not an issue because it's a 6 month shelf life. But still, people, when there is any crisis or pandemic or anything, people only want to buy what is currently selling. Nobody wants to keep stock. So anything which is new or is slow moving initially, people don't like to buy it.
Thank you. The next question is from the line of Mihal Jamm from Middle East. Please go ahead.
Yes, sir. Thank you so much and good evening to the management. So three questions from my side. First is that when you ideally guide for adding 1 lakh outlets each year on the base of 2,000,000 that we have. That is something that can happen regularly even in the off season?
Or is it that most of it would happen during the season and ideally we'll have to wait for next year to do that addition again?
Obviously, that store addition is not going to happen this year. A lot of stores have shut down rather. So I mean, we don't expect additions coming this year. It has to be a normal year for the stores, number of stores to add.
So most of it can only happen during the season time itself. It's not as of the event of the situation. Only that's
the question of season time, but we are, right now, the people who have shut down, we are just, even if we are opening new stages, they are just covering up what the people have shut down. So the number of additions is not going to happen this year.
That's helpful. The other part was, is it right to assume that most of our international operations did not face any COVID impact this quarter?
Well, some of them did. But Nepal did, for example, Sri Lanka did. But even Morocco did some. But everywhere, it was the African part was much less. Even though COVID was there, but it was not complete lockdown like here.
Absolutely. And if I compare a performance of the subsidiaries also, say, 2 years back, there is a significant improvement. So most of it would be driven by Zimbabwe or it would be some other Dora?
Zimbabwe and Morocco.
Sure, that's helpful. So one last question from my side. Now while you've spoken of STING and also dairy is one of the recent additions that we've had. Ideally over the longer term in terms of a product addition, are we looking at mainly extension of the brand like in case of Mountain Dew or there could be a new category also that we contemplate launching anytime soon? Similar to Stig
where we Same thing we have added actually. Mountain Dew ice is a completely new category. It's a juice based lemon drink. Then Stig is only 2 years, 3 years old and huge traction is coming now. Tropicana Juicy, we have expanded drastically and that is showing traction.
So there is enough work for us to do with the product which we have launched. And every year just to launch what it doesn't help if the portfolio becomes too large. So I think we have enough potential in the products we've already launched, and we would first like to get enough momentum on that.
Thank you. The next question is from the line of Rakesh Roy from Intech Securities. Please go ahead.
Hi, sir. So my first question is, how do you see Sir, how do you see demand scenario, especially in South India after rising kick assays in near term
So South is doing well for us. But as I said, the real momentum or the real go to market changes we wanted to do, we have not been able to do completely. But otherwise, we are doing well. That's why you're seeing growth overall.
Okay. Sir, can you share the number, domestic volume or international number for Q2? Q2, India is 127,000,000 cases. And this is and international as against this is 25,300,000,000 and total 152,300,000. Yes, sir.
So out of 127,000,000, how much is from the South India?
No, I don't think we have that number right now, Andy. But South is Southeast. Southeast. Southeast. The exact South India numbers.
Broccoli, we could give you the benchmark. It's north and east is 1 and if with south and west is half of it, so 1.5 like that. So twothree comes from north and east and 1 third comes from west and south.
The next question is from the line of Mahavir Jain from Aditya Burdlamani.
So my question is, first, apologies if I'm repeating the question. I joined it late. So my question is on the other expense side. So when we see on a sequential basis, we have sustained cost efficiency. So just wanted to know which are the areas of cost where we have worked well and how much is it sustainable going forward?
T. Vijay Kumar:] In fact, as we have given in the earlier calls, we in the organization, in transportation, consolidating plants into 2 and on the discount side, this is actually not under 1 as a head of other expenses. It's top to bottom everything. Realization, for example, has gone up over last year substantially. So it's an efficiency across, which has come in.
So we had to analyze line by line the token C and L actually for that.
Okay. So we can expect it to be a sustainable
operation? What has come this year is definitely sustainable. Last H1 was immediately done and then there were certain there was a bit of a difference.
The next question is from the line of Sravana Joshi from Axis Securities.
Sir, thank you for the opportunity. I had 2 set of questions. One was if you can just highlight this growth of 45% in volumes. In terms of the SKU mix, can you just help us understand what has grown for us? That is one.
The second bit is on
The line for the management got disconnected. Please take a minute while you rejoin them to the call.
Sure. Thank you.
Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected. So, Arnaud, may I request you to repeat a question for the management once again, please?
Yes. So thank you for the opportunity. I had about 2 questions. One was if you can just help us understand how has the SKU mix done for us? Because in the last 2 quarter conference calls, we've said that the larger SKUs have typically done well because of the in home consumption.
So two parts to that question. One is on the SKU mix and how is the in home consumption trend doing? Is it continuing to grow at the rate that we have been seeing or there has been some tapering down noted? That is one. The second bit is on if you can help us understand the growth in semi urban and urban markets because during this second wave of the COVID, we have seen that the hinterland and the rural regions were more impacted versus the first one.
So what has been our experience on that?
So I think as far as your in home consumption, that is steady, and it has been doing well. And similarly, the large packs are doing much better than the single serves. So both of these things are continuing as the pandemic, during the pandemic time, both these things continue to remain. As far as your rural or urban is concerned, So last year, rural was very strong. Even this year, rural was good but not as strong as last year.
I mean, urban did quite well this year compared to last year.
So you give us the delta of how the rural has grown versus the urban this year around versus the last year?
So I don't have the exact number, but I can tell you only one thing. Last year, the complete growth, most of it was coming out of rural. Now it is balanced. And I think rural as well as your urban is growing at about the same pace. Otherwise, it was completely skewed on
the rural side. Basically, the total business, including the growth pattern, sales mix is coming something like pre COVID like. There has not been any much of a change, including market discounts, penetration, excess to few items like Horeca was absolutely shut and May was through key shut. Other months out of 7 months of the current election.
So what happens in the summer months, the rural grows much faster, which is the basic change we saw that urban was doing all right and rural did not grow as fast as what we had expected.
Sure. This is very helpful. So going forward, can we then say that gradually urban will start picking up over the rural region growth? Or it should remain in the balanced territory of growth?
Right now, I think it will remain balanced because the peak season is off. And after peak season, always the urban sales are better than the rural.
All right, sir. Thank you so much and wish you all the best.
Thank you. Thank you. Thank you very much. I now hand the conference over to the management for closing comments.
Thank you. 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 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 very much. On behalf of Workhorse Barun Beverages Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.