Ladies and gentlemen, good day and welcome to Varun Beverages Limited Earnings Conference Call. As a reminder, all participants 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. Anoop Poojari from CDR India. Thank you, and over to you, Mr. Poojari.
Thank you. Good afternoon, everyone, and thank you for joining us on Varun Beverages Q3 CY 2026 Earnings Conference Call. We have with us Mr. Varun Jaipuria, Executive Vice Chairman and Whole-Time Director, and Mr. Raj Gandhi, President and Whole-Time Director of the company. Mr. Ravi Jaipuria, Chairman of the company, has had to excuse himself from today's call due to personal reasons. We will begin the call with opening remarks from the management, following which we have the forum open for a question-and-answer session. Before we proceed, 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 will now request Mr. Varun Jaipuria to make his opening remarks.
Good afternoon, everyone, and thank you for joining us on our earnings conference call. I hope you have had a good chance to review our results presentation for the third quarter and nine months ended September 30th, 2026. We are pleased to report a strong performance in the third quarter of CY 2026. Consolidated sales volume revenue grew 28.7% with a volume growth of 22.5% in India and 39.9% in international markets. Revenue from operations increased by 33.2% year-on-year to INR 66,075.6 million, while EBITDA grew 25.1% to INR 14,267.1 million. Higher packaging costs weighed on margins during the quarter, although improved realizations and operating leverage from strong volume growth helped partially offset these pressures. In India, we continue to witness healthy volume growth during the quarter, extending the positive trend seen since May.
This performance was supported by our extensive distribution network, expanded manufacturing capacities, and ongoing investments in chilling infrastructure. We also saw improved realizations supported by growth in higher-value categories such as dairy and the introduction of premium offerings, including Ad Rush and the Evervess mixers range. Our international business continued to make strong progress during the quarter, with Africa remaining a key continent for expansion. With effect from August 1st, 2026, the merger of Twizza with Bevco has been completed, and we expect to unlock significant operational synergies in the coming quarters. During the quarter, we have also stated beverage operations in Kenya and introduced two new beverage brands, BOLT UP and XTREME FIZZ, marking another step towards strengthening our footprint in the fast-growing African region. We also entered into an exclusive distribution agreement with Mondelez in Zimbabwe, further broadening our product offering in the market.
We are also taking measured steps towards diversifying our business into adjacent categories. The incorporation of KIVA Spirits and Company Limited marks an important step in exploring opportunities in ready-to-drink beverages, alcoholic beverages, and allied products. Our approach will remain focused on pursuing opportunities that leverage our execution capabilities and offer attractive long-term growth potential. In line with our dividend policy, the board of directors have approved an interim dividend of 25% of the face value, 50 paise per share, resulting in total cash outflow of INR 1,691 million. Looking ahead, our focus will remain on driving growth across our existing markets, supported by investments we've already made over the recent years. Alongside this, we will selectively pursue opportunities to broaden our business while maintaining a clear emphasis on profitability and long-term value creation.
I would now like to invite Mr. Gandhi to share the key highlights of our operational and financial performance. Thank you.
Thank you, Mr. Vice Chairman. Good afternoon, and a warm welcome to everyone joining us today. Let me take you through the financial and operational performance of the third quarter and nine months ended 30th September 2026. Revenue from operations net of excise duty and GST increased by 33.2% year-on-year to the level of INR 66,076 million in quarter three 2026. For nine months in CY 2026, revenue grew up by 23.3% to the level of INR 218,146 million. Growth during the quarter was primarily driven by a 28.7% increase in consolidated sales volume to the level of 354.4 million cases in India. Volume grew by a strong 22.5% during the quarter, while international territories recorded robust growth of 39.9%.
Consolidated net realization per case for beverages improved by 2.2% year-on-year, supported by a 0.5% increase in India on account of growth in high-value categories and further launch of premium categories like Ad Rush, Evervess mixers range, calibrated discounting, and efficient price pack architecture. In international markets, realization per case improved on account of improved realization in South Africa and foreign exchange impact. In terms of volume mix, carbonated soft drinks accounted for 73.3%, juice-based drinks to the level of 4.8%, and packaged drinking water for 21.9% of total sales volume during the quarter. Coming to margins, gross margin moderated by 334 basis points year-on-year to 53.1% in Q3 calendar year 2026, primarily due to higher packaging material costs, including preform, shrink film, closures, cans, arising from geopolitical disruption. However, packaging cost contributed approximately 300 basis points of pressure on gross margin.
In addition, sales of non-beverage products such as preforms and caps in India increased by approximately 104% during the quarter. Given their higher cost, these products had an impact of approximately 100 basis points on gross margin in India. The impact of around a 16% increase in sugar price was largely offset by a higher proportion of low-sugar and no-sugar products in India, with their share increasing from 44 levels in the corresponding Q3 of 2025 to the level of 88% in the Q3 of 2026 in India, almost double. This is after accounting for the sharing of sugar reduction benefits with PepsiCo through concentrated cost as part of the transition to a low-sugar portfolio. EBITDA increased by 25.1% year-on-year to the level of INR 14,267 million in Q3 of 2026, with EBITDA margin at 21.6%.
The margin moderated only by 140 basis points in spite of higher material costs year-on-year, primarily due to the contraction in gross margin, primarily offset by operating leverage from robust volume growth across India and international territories. Importantly, despite the supply chain disruptions and input cost pressures arising from geopolitical developments, EBITDA margins in India remained broadly stable on a year-to-year basis during nine months 2026. PAT increased by 13.5% year-on-year to the level of INR 8,306 million in Q3 of calendar year 2026, compared with the INR 7,315 million in the corresponding quarter last year. Depreciation and finance cost by 34.5% and 53.5% respectively, primarily on account of acquisition of Twizza in South Africa and the associated debt funding. Other income declined by 18.8%, reflecting relatively stable currency movements during the quarter.
For nine months calendar year 2026, EBITDA increased by 19.9% to the level of INR 52,746 million, while PAT grew up by 15.5% to INR 32,023 million. Looking ahead, we are encouraged by the strong volume growth delivered across India and international markets. Our endeavor will be to sustain healthy growth over the longer term, supported by effective utilization of our expanded capacities and market infrastructure. At the same time, we will remain focused on managing input costs and improving operating efficiencies to support profitability as we scale our operations. On that note, I will come to an end of our 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, sir. Ladies and gentlemen, we will now begin with the question-and-answer session. Anyone who wishes to ask questions may please press star and one on your touchtone phone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking your 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. Please go ahead.
Yeah, thanks, and congrats on strong volume growth in India and overseas also. My first question is on the gross margins. What will be the outlook for next quarter, if possible, within the March quarter? Coming specifically to this quarter, earlier the information sharing was that sugar, that change has happened, so very low sugar usage is there in terms of the portfolio, plus in terms of the packaging, lot of the buying has been done for the September quarter. So wanted to understand where things stand versus that initial comment. On your specific comment that non-beverage has grown very sharply, preforms, caps, et cetera, so what is the reason for that? Could you bifurcate how much is the packaging increase, sugar increase, and this non-beverage increase? That can give us more clarity. Thank you.
Abneesh, good afternoon. Abneesh, as you know, in the opening remarks, we have clarified the sugar has not affected much because of the portfolio change, innovation from 44% to 48% low sugar or no sugar. That has been managed very well. However, with the geopolitical factors, the cost of packaging has gone up. Your comment is correct, but that was relevant for the The war started on 28th February or so. That time, we had stated that we are totally covered for the next quarter. Last quarter, you might have noticed there was no impact on the gross margin. But after that, all the purchases going forward are at the revised, increased, enhanced prices. We didn't stock for much longer period than the quarter, which we could manage last quarter, but now the prices are definitely higher.
How do you see outlook?
Outlook, see, this is a macro factor. Both are macro factor, sugar and the packaging. But in our case, in spite of that, through the innovation, we are able to manage sugar very well. As far as material cost is concerned, cost-wise may not be possible to give any comment. However, how we will mitigate the way we, out of the 4% or 3%, we have mitigated more than half of this by reduction in cost. I think if your question is directed towards that, we will definitely be able to answer that. How to preserve our margins definitely will be pointed and easier for us.
I think, Abneesh, looking at the geopolitical situation, nobody really knows, right, when this war is going to end and what is going to happen with the fuel prices coming down, perhaps only Mr. Trump, which has the answer. The question is that the industry, of course, for two quarters has been feeling the pain of the cost going up because the raw material cost is increasing. I think there is enough chatter within the Beverage Association, which is all the players who were there, in terms of if the prices do remain high, then what other measures they will take. Because over two quarters, we usually do not act so fast on price pack architecture. But there is conversation, if the pricing stays high, do they downsize certain packs, do they take certain pricing up, or will there be a trade margin reduction?
We'll have to wait and see what happens on that.
Abneesh, just to add, what. Yeah.
Yeah, go ahead, please.
What he was thanking.
Yeah.
Abneesh, just to add what Mr. Varun Jaipuria has stated, we have already brought Sting from 300 ml- 250 ml. So, depending upon the market condition, competitive scenario, et cetera, the other portfolio also, from time to time, will be reviewed.
Thanks. Just one quick follow-up. This is extreme geopolitical situation which comes, say, once in 10 years and 20 years. Generally, Pepsi is known to have discussion on how they can help here, especially given the new cola player having in-house, obviously one of the largest PET supply. They can absorb this cost while you and the other legacy players will have to face that. Any talks with Pepsi to handhold in this scenario?
I think it is too early. That is what I said right now. We are all figuring out what price pack can we do. Of course, cost is increasing not just for us. I am sure for PepsiCo as well, backend cost must be increasing. Hence, for the industry, the cost is increasing. We are going to wait and watch. I think, if you look at this quarter, we have done fairly very well in terms of volume and negating the 400 basis points of cost increase. Going forward, if we believe that we are not going to be able to negate it, then of course, the whole industry will take some action on price pack for sure to negate it.
Sure. Second and last question on this Mondelez relationship in Africa, in Zimbabwe. Any numbers you can share from a longer term, three to five years? What can be the opportunity here? Do you see more markets getting added, adjacent markets in Africa from Mondelez?
See, it's very nascent, right? Mondelez is one of the best brands you can work with, right? We're very fortunate to partner up with them. They already have an existing business of about $11 million in Zimbabwe. Of course, it is the local partner they were working with. I'm sure he was not able to harness the full potential of the market. Hence, we're partnering up with them. So, I think once we are in the market, since we do understand Zimbabwe very, very well, it was a greenfield project for us a few years back. Of course, we've got a very high market share there, and the volumes are growing. So, I think let us get into it. Let us get our teeth into it.
We're getting the whole portfolio for distribution, and we're quite hopeful once we understand what the whole market is and once we start the distribution properly, we can come back to you and give you some concrete answers on it.
Sure. Thank you. That's all from my side. Thank you.
Thank you, Abneesh.
Thank you. The next question is from the line of Vivek Maheshwari. from Jefferies. Please go ahead.
Hi. Good afternoon. Couple of questions. First is on the competition side. We have had one of the sugar companies which did mention that the competition seems to be abating right now. What are your thoughts on the same issue, please?
Competing would be?
Abating.
Yes, sorry. What is your question on the competition exactly?
What I am saying is, like Tata Consumer on their conference call mentioned that they sounded far more confident on the, let us say, the market structure and how things are evolving. What is your view on the competition in general? Your latest thoughts, please.
No, I think we had subdued quarters due to the seasonality and what we had mentioned. If you see our quarter one as well, we had performed very well. High double-digit growth is what we had. Then quarter two, due to seasonality, obviously had gone down, which we had clarified earlier. Now, again, the weather has been very good. The price pack is holding up in the market. The growths are back. There is no reason why we believe that the growth should not be coming going forward. We have mentioned many times that the per caps in India are still very, very low right now compared to even our neighboring countries. The amount of expansion of growth which is there even for us and our competition today, we all can grow. Hence, if you see today, even if we have grown, I am sure all our competitors are growing.
Even Tata Consumer has given very good numbers, is what I hear in terms of their beverage portfolio. So there is no reason as to why we should all not keep growing.
Got it. Got it. The other thing, Varun, is, when I look at your India unit realizations, in the last six, seven quarters, there has been a downward pressure. We saw that changing in early part of this year, and then we have seen further build-up from there. I know the raw material trends are also, or the trend has been difficult, which is why you explained about the price and the mix and everything. Does that also signal that, like December last year, the unit realization was at the bottom, the worst from a competition standpoint? Does that also signal from this unit realization in India trend?
Vivek, instead of giving a forward statement, I draw your attention. Look at this quarter. That trend is already reversed, and there is increase in realization per case. I think that's a good indication, and you can build on that.
See, I think, Vivek, one more thing I'll add. If you remove the raw material pressure, there's so much operational efficiency what we've built in, and there's so much operational leverage because of growth what we are getting. Even if you see a nine-month trend, we're trading at 16%, 17% growth now largely, right, which is a good double-digit growth. I think there's a lot of initiatives what we've done internally as well. It could be the mid-cal saving what we've brought in, bigger plant operation is what we brought in, lot of distributor consolidation is what we've done. So these are routine things what we keep doing, which gives us huge operational flexibility. Now, we believe going forward, these are routine things which will keep happening.
If the raw material element goes out and starts stabilizing, I think there should be no concerns when it comes to our margins.
Got it. Got it. The second question is on the international business. Obviously, the volume growth, both organically and reported basis, has been very good. Given that it's a geography or the cluster of geographies which we do not fully understand, can we just talk about your outlook from a next few quarter perspective on the international side and anything to call out for any of the geography?
See, I think we're doing very well in Africa. I mean, most of the places, we are out of capacity. We are investing in CapEx in Morocco now because we don't have enough capacity there. We're investing in Zimbabwe since we don't have capacity. We're putting some more-
Yes
-yeah. In DRC, we're putting a line up as well. I think, again, we are sold out in most of the places. I think the outlook is very, very positive. If there's enough and more room to grow in Africa, it's again a very, very decent market. I think if you see the last four, six, eight quarters, there's tremendous growth is what we are seeing, and that's continuing.
Got it. Got it. Anything on the currency side of things, because that's one thing on there hasn't I mean, it has yo-yoed a bit, but is that any of the markets, any worry on that front?
Not large impact.
There is no worry, Vivek. The only thing is last year, there were bumpers. Currency had gone up. Local currencies had gone up vis-à-vis dollar. This year, this is stabilized, and there is a lot of commodities, minerals, metals, those natural resources which are in demand, and those currencies are holding on. In fact, the South African currency has become costlier since we acquired those.
Got it.
And data actually.
Got it. Mr. Gandhi, last thing, which is, in the earlier quarters, you had mentioned about there was some impact of regulatory issues on the energy drink in, I think, June as well as, if I recall correctly, you mentioned for July. How things are on the energy drink side in this quarter?
The energy is coming back. I'm sure you're aware of the whole issue which happened with FSSAI that they had banned the use of the word energy because the registration for most energy brands in India was done under carbonated beverages, not under energy as a category, where energy as a category did not exist in India. The ruling what they had was you can't use energy. Of course, that created some turmoil in the market amongst the retailers and the distributors. But I think that's for everybody, and we see Sting holding a very, very high market share in the energy segment. Sting is coming back here. Sting is coming back. The volumes are looking promising, and it is building back.
Got it. Would you be able to quantify where it is today versus if 100 is the baseline? Because the growth that we have seen, your comment suggests that it is still not up to the mark. Is that a fair understanding, which means the rest of the portfolio growth has been faster than what the headline numbers suggest then?
No, of course, that has to be there, right? Because in the middle, people weren't sure if they want to stock up energy or not from every distributor, not just us, competitor products, and retailers are not sure if they want to stock up energy. Let's assume the negativity was 25%. Now we can say we are slightly positive. I think month on month on a quarter, we're moving towards the positive range versus where we were at least. That puts in the right context for you.
Yeah, this helps. Thank you very much. Wishing you and your team all the very best.
Thank you.
Thank you, Vivek.
Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address questions from all the participants in the conference, kindly limit yourself to two per participant. Should you have a follow-up question, please rejoin the queue. The next question is from the line of Aditya Soman from CLSA. Please go ahead.
Hi, good afternoon. Two questions from me. Firstly, can you give us a sense of the volumes for volume growth that you are seeing for the non-carbonated business? Second, you indicated that you have taken a price increase or what a volume cut for Sting. When was this taken? Broadly, the price increase that we are seeing in the portfolio as well for India, from a timing perspective, should we expect that to play out fully in the December quarter?
Price increase. Sorry, I am not clear. When you say we have taken a price increase in the portfolio, means what exactly?
No, no. So we have seen the net realizations improve in India, as well as you indicated that for Sting, you have reduced the grammage, right? Or the volume.
Yeah.
So, when was this taken so we can estimate better for the quarter?
Aditya, we will come back exact number, but from the top of memory, it is sometime in the last quarter only. The trade spend, these are the two contributors which rationalization of trade spend, these has contributed to the much better realization.
Yeah, because we are stocking the market, right? Distributor stocks, plant stocks, but then they got used up. We will get you the exact numbers, yeah, on those.
Very clear. Thanks.
Thank you.
Thank you.
Thank you, Aditya.
The next question is from the line of Devanshu Bansal from Emkay Global. Please go ahead.
Hi, Varun. Thanks for the opportunity, and congratulations on very strong domestic volume growth. Varun, my question is to better understand how unorganized industry is playing out, right? While the margin is a hit for us, but it is a bigger hit for the smaller unorganized players. So we have preserved our magic price points, so wanted to check if this can lead to better growth for us in the coming quarter or next year. Any views if you could share?
See, the example I give everybody is, if you go to the southern markets, the industry mix in the southern markets, almost 50% of B brands. Whereas if you come to the northern markets, only probably 15%-18%. But if you go there, as for us, we are growing, they are growing, we have been growing. So there are different markets and different consumers consuming our price points versus the INR 10+ price points. Now of course, the margin pressures are high. Our water growths are better because water is where the most amount of pressure is for B brand and local players due to the increase in availability and increase in raw material cost. So I think, I am sure they are growing. I do not have an exact number, but we are looking at a good double-digit growth in terms of what we have delivered.
My question was more from our growth perspective. Can this turbulent period lead to better growth for us? Obviously, because we are not changing our price points. Can we grow faster versus what we were expecting earlier?
See, my only question is, when they are selling full sugar at INR 10, I am not sure how B brands are able to sell. So I have no idea how they are running their business or what they are doing. I cannot be able to answer on that. We know that our growths are coming 20%+ , which we are very happy about, and we are hoping we can deliver better numbers, yeah.
No, fair enough. Thank you so much. Secondly, sir, PET is ballpark 10%-15% of your sales, right? So we have indicated a-
Sorry, your voice was breaking. Could you just repeat that?
I'm saying, PET is ballpark 10%-15% of your sales. We have indicated a 300 basis points margin impact, which sales, the raw material increase is only 20%-30%, right? But if you see crude prices, they are up like 50 odd percent. Wanted to check if this entire crude increase is baked in the current P&L, or we may see some more sort of impact as we go down the lane?
The 100% crude price is already built in, because all these fresh stocks are being consumed, and the prices, of course, when we time our, the thing, which the purchases which help us, and also, if you remember, we had invested in rPET.
Backward integration.
rPET as a backward integration in-house, rPET supplies, which I think about, exact number I will let you know, around 30% or more is rPET, which is much cheaper than the virgin-
Than virgin PET.
That has helped us to keep this pricing under control. Yes, we have the cost advantage, and if it is flowed back in the market, definitely it can also help in increasing share also. That maths-wise works better, but as Varun said, we are happy with 20%+ , and any upside to that comes, we will share with you as and when.
We welcome it happily.
Yeah.
No, that is very encouraging to hear. Thanks for taking my questions. All the best.
Thank you.
Thank you. The next question is from the line of Anand Shah from Axis Capital. Please go ahead.
Yeah. Hi, team. Just a couple of questions here. Firstly, anything you can share on this expansion on existing categories, and especially Twizza? I mean, it is early days, but what kind of capital deployment you are looking at and what kind of plans?
Yeah, so very, very early days. I think alcohol beverage is an interesting space to get into, especially RTDs, the way they are growing in India. I think Africa, there is a huge scope to grow them. RTDs, if you see, they are growing at about 13%-15%. So we are looking to see where can we partner up and get into RTDs. That is the first thing.
Secondly, even global brands like PepsiCo, Coke, all the other guys, they have entered RTD in the U.S., in U.K., and Canada with their core brands, which is Pepsi, Mountain Dew, 7UP, because that is what the younger generation is drinking now. So I think our plans are to enter with RTD right now. That is the first thing. We are also looking, which we are in talks with right now, with a lot of global players to partner up and bring to India.
See, our idea in alcohol is largely going to be, if we do the whole portfolio, we would like to play the prestige plus. So we are not looking at margin-dilutive portfolios. If we can maintain higher margins, work with international brands, get the right brands, and premiumize the portfolio. So it is still a lot of things work in play, and hopefully in the next call we have, we will be able to give you more clarity.
Got it. Here, you will be open to inorganic as well?
Of course.
Yeah. Got it. Lastly, you did call out a little bit of impact on Sting in the interim, and now it is coming back. So while you would have-
Yeah
-some volume impact, you would have also had realization impact, right? Given its higher realizations versus the other portfolio.
Yeah. Nullified as well, because we had 300 ml earlier. Since COGS has gone up, and we did downsize to 250 ml, so there has been obviously some negation of the raw material impact when we did downsize.
Got it. Beyond Sting, any other price pack architecture changes you have done? Like from 300 ml- 250 ml? Anything that you want to call out?
No, not as yet. Not as yet. This year, I think, which was very important for us, was to just maintain and make sure that we get into the high double-digit growth, right? A lot of pack price intervention which we had done was looking at how dynamic the market was. So we wanted stability, but now I think the earlier question, I think Vivek or Abneesh has asked, how do we look going forward with all the raw material pressures? So, we are going to see what the industry does here, and it is a rapidly fast-moving industry. It is not like it was earlier. We are on our toes as well. Our job is to make sure we can maintain our margin as best as we can and offset it as much as we can.
I think we have done a good job this quarter, and hopefully going forward, we will plan in terms of how the industry moves.
Got it. Very clear. Just very last, anything you want to call out on October as well? You were seeing similar momentum sort of continue?
Quarter is still in progress, Anand. I think we should wait.
Okay, got it. Very clear. Thanks .
Thank you.
Thank you. The next question is from the line of Arnab Mitra from Goldman Sachs. Please go ahead.
Yeah. Hi, thanks for the opportunity. My first question was on the Africa business. If you could just let us know the constant currency growth, and how much was the currency benefit on the top line? a related question is that, as you go into the season in Africa, which is December quarter, March quarter, given the capacity situation, do you think the volume growth can taper off from these very high levels, or do you think you have enough capacities to be able to sustain growth even in the season in Africa?
See, there are two questions. One is the currency. This year, we said that the currency is more stable, so there is no effect, negative or positive. If there is anything, marginal and gets compensated within one country to the other. Last year, yes, we called out there was a good benefit of the currency, which we had duly accounted for. The second question of yours is about the capacity. We are preparing ourselves fully because South Africa, DRC, the season is November, December, January, and there we are already running our plants full speed. Morocco, the season was August, where the capacity is short, and hopefully before the next season, at all locations, we will have enough capacity installed. As far as South Africa is concerned, with the Twizza acquisition, we have enough capacity, and I don't think we will face this year a shortage.
The only little bit gap was found in Zimbabwe, which Zambia had overcapacity and will, on monthly basis, will be supporting Zimbabwe from this month itself.
For next year, we are anyways adding more capacity in Zimbabwe as well.
Got it. My second question was on international business margins. It seems to have held up better than the standalone in terms of gross margin also. One is, has it been easier to pass pricing there, or is it more to do with your own initiatives on backward integration? Therefore, will the margins be better protected there because they would also have the same inflationary pressures?
The margin is slightly improved because Twizza has the backward integration, and other places also we have started. The improvement in margins is because of that. Rest, the economies of scale also have started playing in. In the opening remarks, as we stated, Twizza is already, effective 1st of August, is already integrated into Bevco, so a lot of synergies there also have already started showing up.
Just one quick follow-up. The input cost pressure on PET and cans and all, they are fully reflecting in September quarter, even in the international business?
In international, this is 272 basis points as it is around 300 in India. India is looking slightly higher.
It has all been accounted for in the quarter.
Yeah.
Yeah, it has all been accounted for. Yes.
Got it. That is it from my side. Thanks. All the best.
Thank you.
Thank you.
Thank you. The next question is from the line of Jay Doshi from Kotak Securities. Please go ahead.
Hi, thanks for the opportunity. I have a few questions. First one on international, just continuing. This year, you've managed to deliver 20%+ organic volume growth every single quarter. Can this kind of momentum continue for another couple of years? Is this the new normal run rate we should think of for the international business volume growth?
In the world we live in today, who knows what's going to happen tomorrow? But we hope we keep delivering the numbers which we have been delivering quarter on quarter. I think what we normally say is that if we believe that per capita in India are very less because the penetration is very low, and Africa, we believe the penetration is even lower. So, I think the more investment we are putting in, the more countries we are getting into. There's an example what my father always gives. When we entered Zimbabwe, the whole market was 35 million cases. Now we are doing almost 75 million cases after six to seven years, and our competition is doing about 35 million.
I think there it really depends upon how many players you have, what investment you're making, and I think there's no reason why the growth should not continue.
Understood. This is a structural pickup in growth and not season-related or favorable weather or anything.
See, I think, Jay, I think I will come back, because we look at the business quarter on quarter, and I don't believe that's the right way to look at any business of our scale at least, because the penetrations are so low, given it's India as well. The penetrations are so low in most of our markets. There's population growth happening in all our markets. I think when we compare quarter one versus quarter one or quarter two versus quarter two and say it didn't go well, I think we have to look at the business at a long-term consolidated basis. If you see our history over five, six years as well, every year there's a CAGR growth of double digit, profit growth, EBITDA growth. This is a long-term business, and we're here for the next five years, 10 years, 15 years.
This is a story which is going to play out. India consumption story is going to be huge, as we know. Africa is going to be huge as well. Hence, we are very bullish, and we are very bullish to keep investing in both Africa and India as well at the same time.
The same number of 20, in 20s growth in the last 30 years, we have consistently delivered.
You do have the off, raw material prices going up, or the weather going down, or the competition doing something, but I think consistent delivery of shareholder return and profitability has been there along with volume. Yes, we do believe and we're very bullish.
Thank you. The next question is, how has been the consumer acceptance and repeat purchase for low-sugar variants of Mountain Dew and Pepsi across markets? I mean, across states in India.
See, it's been accepted, I would say, largely. 85%-90% of the places, there is huge acceptance. Of course, certain places, they have a palate of high sugar. There, we do have challenges, but then we don't segment into state, into district and see what's happening. As long as the overall brand is growing and doing well, we're very happy with that.
Right. Third question-
Thank you.
You mentioned that Beverage Association is considering price increases if inflation remains elevated. Is the new entrant also a member of this association, or is just the-
No, when I said Beverage Association, means that is there is talk amongst the competition and there is talk amongst the industry that everybody is under pressure, they are figuring out what to do and how do you negate the cost. There is no common conversation which happens in a room, but I am just telling you just say what the general conversation is, because there is margin pressure due to raw material price.
Understood. The last one is, can you give us some color on what is the level of AI adoption in the organization at this point of time? Do you have any efficiency or productivity targets from a medium-term perspective? Where do you sort of score versus other bottlers of PepsiCo globally and maybe other bottlers of Coca-Cola in India in your assessment?
I think we've done a lot of work here in the last few years. We score, at least according to PepsiCo, we're doing a pretty good job. We cover more than four million outlets. All of the outlets are geo lat-long mapped now. Distributors are mapped across India, all the thousands of them we have. All our route operations, route sizing, time to delivery, all of that, speed to delivery is mapped based on the AI tool what we use, which lets us know which distributor should be serving what sort of a outlet base and what the distance should be. Once we put all these in, that has reduced our distributor attrition in the market. We've started having larger scale distributors as well, because distribution has become more stable. That's one big thing what we've done.
The second big thing what we've done is that we have an order management system, which we've done with ERP now. So every single distributor of ours, we have visibility of how many SKUs he's picking up, how often is he taking the trucks, how often the load sizes are going, what brands are going, what we want to push with them. So every day, we get a push report, so that makes it much more easier and clearer, as one controlled our visibility, which we didn't have earlier, and that helps us kind of increase our range and flavor profile as well in the market.
The couple other things what we've done and which we're working on right now, we've come up with a B2B app, we call it Bandhan, because sometimes the PSM or sales guy is not there in the market, then how can the retailer place an order? So we've just launched it not even six months back, and monthly, we've got half a million retailers ordering from it now. The first goal is obviously adoption. Once people do adopt, then we gamify it and see how do we get them hooked on more on the app to give them a personalized service. So that's the other thing what we've done in a big way, team's really working. Another thing which is very important for us is that we've got more than one million coolers in the market now, or we've got a large number of coolers in the market.
We've got an app now which is giving us almost half a million images every month. Now our question is that we want to know what the purity of the cooler is, how the cooler is performing. So, all that data has started coming in now. Now the question is that, of course, we're working with different companies and AI layers, because the amount of data which is coming out is so huge. Our first task was to clear, clean out the data to make sure the right data is there. So, a lot of work is there, and I think a lot of it is kind of benefiting us in terms of increasing our distribution and ensuring that we have a larger range available in the market to the consumer.
Thank you so much for the detailed response. Wish you the very best. Thank you.
Thank you. The next question is from the line of Latika Chopra from JP Morgan. Please go ahead.
Yeah, hi. Thank you for the opportunity. My first question was around a bit clarifying on your comments on margins. Given that you were saying that both for the Indian and international business, the full cost is now reflected in the September quarter, and probably you will look for more efficiencies and hopefully pricing as well. Is it fair to assume that, given the visibility that you have, the gross margins would have troughed in this quarter?
Latika, hi. Based for the present price trends, we can broadly say yes. I hope there are no more surprises on the macro factors. Whatever situation today is there, the answer is yes. Only upside may be there by, as we shape it, price pack architecture, et cetera, like in this thing we have done, how much and how fast we can roll it down to the other packs. That is correct understanding with you.
The second question I had was on price pack itself. Ahead of the upcoming season, how are you thinking about the INR 10 price point, given now the volumes in that pack have come down to 150 ml? Would you take this as a viable opportunity to drive penetration, or would you shy away from pushing this price point because of the margin perspective?
Latika, like I had mentioned earlier, the INR 10 pricing was never part of our larger portfolio play. I think even this quarter, our INR 10 price point would be a 0.2% or 0.3% to our overall volume. So, I do not think so we are focusing on the INR 10 because we believe the pricing and the offering what we have, and the consumer profile which is there right now, will still give us very, very good growth, and which it has this quarter. So, we are not looking to do it because even though you go down to 150 ml, the price and unit economic, it just does not make sense. And we would not like to build a business which is not sustainable in the long term.
With our current portfolio already, it could be dairy, it could be energy, it could be the CSD portfolio, we see all of them growing strong double digits.
All right. The last bit was, if you could share some color on your investment plans, CapEx plans, basically for CY 2027, and where would you see CapEx for CY 2026 landing at? If you could also give us some breakup between India and overseas here. Also clarify if it includes any investment that you plan for the new businesses.
Yes. Latika, as far as 2026 is concerned, the CapEx is already over. Now it is only for 2027. As we mentioned, international markets, we had to add lines in South Africa, Zimbabwe, Morocco, DRC, Zambia, at all these locations. The combined CapEx for all these is under 100 million, maybe anything between $90 million- $100 million for the international markets. As far as India is concerned, the total CapEx, including one greenfield plant at Surajpur,
Surajpur
at Surajpur, Rajasthan, that visas and one PET line at-
It is about 1,000 crores. It is about 1,000 crores in India and about $90 million would be international, correct?
Yeah, that is right.
Yeah.
Sure. Thank you, gentlemen.
Thank you.
Thank you.
Thank you. The next question is from the line of Bhavya Gandhi from Bajaj Alternate Investment Management Limited. Please go ahead.
Yeah. Thanks for the opportunity. Just wanted to understand on the rPET side, because you said currently the cost is lower, so what is the rPET mix in the total packaging as a part of the total volume, if you can provide some number on that? Structurally, second question is regarding the gross margins. Structurally, because you are getting into newer products, in the intermittent period, can we expect that the gross margin could be softened in the intermittent period till you scale those brands, newer product categories? If you can throw some light on that as well.
Our rPET mix, Bhavya, has been about close to 25%, which has helped negate the overall resin cost, what we were mentioning earlier. Your second question in terms of the new product launches, within the beverage portfolio, we're not seeing any margin dilution in terms of what the launches we will be doing or we have done or what we will scale up. The rest of the businesses is too early to answer right now. Once we have a concrete plan, we'll come back to you.
This entire rPET piece is internally sold or because rPET before the West Asia crisis used to be at a higher rate, because the rPET regulation is in place, can we expect that structurally, assuming that the war ends one day, the packaging cost will be on a higher side on a structural basis?
No. We are obviously using a large part of it internally, but we are obviously buying some from outside. At the moment, given the price of oil and virgin PET, it is much cheaper than virgin PET.
Yeah. On a longer-term basis, if then, assuming that the war is not in place, because the rPET regulation is in place.
Yeah, this will definitely go up, and the next plant will be operational in, I think, one or two quarters, and this number will definitely go up. Yes.
Okay.
No, I think-
Thank you so much.
Yeah. Yeah, please go ahead.
Sorry. You wanted to say something, sir?
No, no. Please go ahead. No, that's fine. Thank you.
Thank you. The next question is from the line of Atul Mehra from Motilal Oswal Asset Management. Please go ahead.
Yeah. Hi, good afternoon, and thanks for the opportunity. From a longer-term perspective, like if we look at our history, there has been a great evolution in terms of things we have done, and even at this point in time, you are adding new categories. From a longer-term perspective, how do you guys envisage, like, what this company will look like maybe five years, 10 years down the line? Thanks.
I think the first starting point is that our core business is the beverage business, what we are already doing. That will be inherently a large part of the group, even today, even five years, even 10 years. Hence, bringing back growth in this business and our core business has been of the highest priority. We will be happy to say this quarter has given that result, and at a nine-month basis period as well, the performance has been very good. Inherently, the way we are looking at it, largely we will be an F&B company. Alcobev, again, is what we are trying to enter into. We believe there are synergies in terms of what we do today at a Varun Beverages level versus Alcobev level in terms of the N number of outlets, which is the off-premise outlets is where VBL goes, which is the restaurants and bars.
We do go with a complete portfolio of mixers, CSD, energy, and I think to increase the portfolio as well, if we are able to add in some Alcobev, we go with a consolidated portfolio, and we already do have relationship with most of the outlets where we go, right? Alcobev, it does fit into the scheme of things. Secondly, Alcobev is a fast-growing category, as mentioned earlier as well. Apart from that, we are looking at other expansions, what we can do in the sugar and beverage space. Once that is clear, we will come back to you.
Sure. Sounds good. Thank you, and all the best. Thanks.
If you have any ideas, please let me know.
We will catch up offline.
Done.
Thank you.
Thanks.
Thank you. The next question is from the line of Harit Kapoor from Investec. Please go ahead.
Yeah. Hi, Varun. Good afternoon. Just one question was on the ad and marketing spend. You did speak about rationalization of trade spends, et cetera. I just wanted to understand in the current context, where costs are high, et cetera, do the I know large part of the ad spend doesn't sit in your book, but how does the ad market spend play out and your relation with Pepsi in terms of how does that play out in times of high inflation? Does the ad marketing spend, which is Pepsi's piece, actually stay at normative levels? My question is from the fact that if those levels are still higher, then that's a source of competitive advantage. I just wanted to understand how it works in periods of high inflation.
I think, see, it depends how the industry is moving, right? Today, let's say for us, if there's a trade spend, what we can rationalize by five rupees, hypothetically, right? We're not doing it if the competition is not doing it, because we've got certain price points we can't move away from. There's a INR 10 price point, which we don't play largely. There's a INR 20, INR 50, and there's a INR 100 price point, right? There are inherent price points with which you cannot move away from them. The only lever you have is, because the industry we play in, we give one of the highest margins compared to any other CPG group, right? We are at 16%, 17%, 18% margin in terms of MRP margins in a lot of our packs.
Now, I'm assuming, which we don't micromanage, even with PepsiCo, they do have a calendar full year in terms of their marketing spends and how they look at the business. Of course, I'm sure if the industry is rationalizing or the growths aren't as what they thought, I'm sure they look at their books and their P&L as well, and they manage it themselves also.
Okay. The second bit was on early part of this year, you mentioned that you've done all this distribution in CY 2025. We didn't get the full benefit because it was a tough year. This year, you're going to probably do kind of mid-high teen kind of volume growth for the year. For India, I'm talking about. I just wanted to understand, does your distribution expansion plan start to kick in again from next year? Or do you think there's still significantly, in the current 4+ million outlets, there's still significant amounts of scope? Do you need numeric distribution incrementally? How are you thinking about that?
No, so we are looking at both here. Post-September is when we already start working towards our next year distribution plans. Of course, 2025 wasn't a great year, but hence in 2026, the kind of investment for the distributors I have made was less aggressive, I would say, because they did have the vehicles and the investments in the warehouses they had built. But now looking at 2026 and the performance we have had, again in 2027, for 2027, I would say, we are aggressively planning numeric distribution. At the same time, we are planning weighted distribution also.
So in your opinion, this 4+ million number still has legs to move forward in terms of-
100%. We are already at about 4.2 million as per our last read, which is there, and we are hoping to add a couple of 100,000 outlets every year.
Got it. Wish you all the best. Thank you.
Thank you.
Thank you. The next question is from the line of Anurag Dayal from PhillipCapital. Please go ahead.
Yeah. Hi, thanks for the opportunity. One clarification, just want to understand on the gross margin guide. So we had this 100 basis point impact because of sale of non-beverage, including preforms and caps. Do we expect this impact to continue next quarter as well? Secondly, just want to understand that why we are selling it so much. Do we have some agreement with some third-party facility? Because if it is inflationary, wouldn't it be good to consume it internally instead of selling it higher outside?
This is over and above what we use for ourselves, for the others. This is only marginal and helps us amortize part of our fixed expenses. This is additional contribution coming to us. If we sacrifice this, that much recovery of this expense will not come.
Okay. Do you think it is going to stay at 100 basis points or something or ease from here? What are your thoughts on that?
It depends. If the material is available and we capture, this will help us absolute figure going up. Percentage, it may slightly affect, but till the time it contributes to the bottom line, I think we should continue to do it. Fourth, the escalated figure may look like up to 28th February numbers because pre-war versus post-war, rather maybe one or two months further, because we had inventory up to June, actually.
Thank you. Secondly, on this CALPIS launch, I mean, I am aware we are there. Just planning to do it in the second half of the year?
Yeah. CALPIS, we are still working on the marketing plans, and we will be ready during the December, January and launch the brand.
Do we have any initial plans you could share how we are going to launch it, or you are still under development?
It is pretty much under development because usually what happens is that we tie it up with our marketing calendar. Even with PepsiCo, the entire marketing calendar usually gets frozen around December. We are looking into obviously launch some key markets across India where we have production capability and try out different regions to see what are the taste profiles of the consumer and how it picks up. Then, of course, finalize the marketing calendar, and usually that kicks in around late February or March. So we still have some time.
Sure. I think that is all, I have. Thank you so much.
Thank you. Ladies and gentlemen, we will take that as the last question for today. I would now like to hand the conference over to the management for closing comments. Thank you, and over to you, sir.
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.
Thank you, members of the management. On behalf of Varun Beverages Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your line. Thank you.