Varun Beverages Ltd — Q3 FY24
Varun Beverages reported a strong Q3 CY2024 with consolidated revenue growth of 24.1% YoY to INR 4,804.6 crore, driven by expanded distribution and product penetration.
bullish
high
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Bear Cases vs Reality
The market's top concerns about Varun Beverages, tested against this quarter's numbers.
! Still alive
India volume growth deceleration due to weather
The bear thesis
Excessive and uneven rainfall in Q3 CY2024 led to a sharp deceleration in India volume growth to 5.7%, raising concerns that weather disruptions could persist and impact full-year growth.
What the numbers say
India volume growth in Q3 CY2024
India volume grew only 5.7% YoY in Q3 CY2024, a significant slowdown from 22.9% in Q2 CY2024, confirming the weather impact.
India volume growth dropped sharply to 5.7% from 22.9% in the previous quarter, directly validating the weather risk. Management expects recovery as rains subside, but the impact is real.
Source: From analyst Q&A
↓ Weakening
Competitive pressure from Campa Cola
The bear thesis
Campa Cola's entry with aggressive trade margins could erode Varun Beverages' market share in India, especially in price-sensitive segments.
What the numbers say
India volume growth and management commentary on competition
India volume grew 5.7% YoY, but management stated there is room for all players and they are adding 300,000-400,000 outlets annually. No direct evidence of market share loss.
While India volume growth slowed, the slowdown is attributed to weather, not competition. Management's confidence and continued distribution expansion suggest Campa Cola has not yet materially impacted market share.
Source: From analyst Q&A
↓ Weakening
Execution risk in Africa expansion
The bear thesis
Rapid capacity expansion in DRC and South Africa, along with new snack plants, may face operational or demand challenges, potentially delaying returns.
What the numbers say
DRC facility utilization and South Africa growth
DRC greenfield plant is 100% utilized on three shifts and sold out; South Africa Pepsi brand grew 20% in September. Snack plants are on track for 2025.
Strong execution in DRC (100% utilization) and improving trends in South Africa (20% growth in September) suggest that Africa expansion is on track, reducing near-term execution risk.
Source: Market narrative
↓ Weakening
BevCo integration and margin drag
The bear thesis
BevCo's lower realization per case and higher working capital days are dragging consolidated margins; turnaround may take several quarters.
What the numbers say
Consolidated EBITDA margin and South Africa performance
Consolidated EBITDA margin expanded 117 bps to 24.0%, and South Africa showed 20% growth in September, indicating improving trends.
Despite concerns about BevCo's margin drag, consolidated EBITDA margins improved significantly, and South Africa's growth suggests the integration is progressing well, reducing the drag.
Source: Market narrative
↓ Weakening
Raw material cost volatility squeezing margins
The bear thesis
Higher PET prices and water cost reclassification caused India gross margins to dip ~120 bps, and future input cost spikes remain a risk to profitability.
What the numbers say
India gross margin change in Q3 CY2024
India gross margins dipped ~120 bps due to higher PET prices and water cost reclassification, but consolidated EBITDA margin expanded 117 bps to 24.0%.
Although India gross margins dipped, consolidated EBITDA margins expanded due to operational efficiencies and backward integration, mitigating the raw material impact. The risk remains but is partially offset.
Source: Market narrative