Varun Beverages - Q1CY22 First Cut - ICICI Direct

(CMP - Rs. 1073, MCap - Rs. 46,464 crore)

Varun Beverages reported robust Q1CY22 results with 26.2% revenue growth & nearly doubling of earnings.

Q1CY22 Earnings Summary

- Varun Beverage saw strong revenue growth of 26.2% to Rs. 2827.5 crore led by 18.7% volume growth & 6.3% realisation growth. The company clocked a volume of 180 million cases during the quarter, which includes 70% volumes from Carbonated drinks (CSD), 7% from juices & 23% from water. The growth was driven by strong demand conditions across geographies. Realisation increase came from price hikes in select SKUs in India & higher realisation from international territories

- Gross margins contracted by 427 bps during the quarter mainly on account of higher PET chip prices. Though, the company has reduced the weight of bottles & procured high inventories of PET chip before the season, the incessant commodity inflation adversely impacted gross margins. With the operating leverage benefits & cost cutting measures, VBL saved 511 bps in overhead spends & 91 bps in employee spends in Q4. This led to 39% jump in operating profit to Rs. 531 crore with 175 bps expansion in operating margins

- High growth in operating profit & 19% dip in interest cost, net profit grew by stupendous 98.2% to Rs. 271.1 crore

- VBL commissioned new beverage manufacturing plant in Bihar & new backward integrated unit in J&K during Q1CY22. It also entered into the agreement to manufacture "Kurkure Puffcorn" for PepsiCo India. Also, the company has written off (Rs. 14.6 crore) plant & machinery (CSD glass & cane line) at Roha, Maharashtra & moved the packaged drinking water line to Paithan plant. The plant was running on sub-optimal capacity utilisation

Varun Beverages has been able to grow the volumes at a splendid pace after two years of disruption due to covid-19 during summers. The growth was aided by low base & early onset of summer season with extreme heat in North India. Further, the company has also got the benefit of acquired Southern & Western territories two years after acquisition. VBL was agile in procuring key raw material (PET chips) well in advance to safeguard from volatility in commodity prices. We believe higher volume growth would result in operating leverage benefits, going forward, as well, which would help it sustain operating margins despite pressure on gross margins. We like the strategy of introducing new products (sting, milk based beverages) to grow through volumes over the longer period. We maintain our positive stance on the stock

We will be coming out with the detailed update after the conference call with the management.

Shares of Varun Beverages Limited was last trading in BSE at Rs. 1059.05 as compared to the previous close of Rs. 1037.05. The total number of shares traded during the day was 126550 in over 7552 trades.

The stock hit an intraday high of Rs. 1101.00 and intraday low of 1045.00. The net turnover during the day was Rs. 135756350.00.

Source : Equity Bulls

Keywords

VarunBeverages INE200M01013 Q1CY22Result FirstCut ICICIDirect