Varun Beverages Limited (VBL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Varun Beverages Limited Earnings Conference Call. [Operator Instructions] 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, sir.

Thank you. Good afternoon, everyone, and thank you for joining us on Varun Beverages Q1 2020 Earnings Conference Call. We have with us Mr. Ravi Jaipuria, Chairman of the company; Mr. Varun Jaipuria, Whole Time Director; Mr. Raj Gandhi, Group CFO and Whole Time Director; Mr. Kapil Agarwal, CEO and Whole Time Director; and Mr. Vikas Bhatia, CFO 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 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 earnings presentation shared with you earlier. I will now request Mr. Ravi Jaipuria to make his opening remarks.

Good afternoon, everybody, and thank you for joining us on our earnings conference call. I hope all of you had the opportunity to go through our results presentation, which provides detail of our operational and financial performance for the first quarter ended March 31, 2020. We started the new fiscal year on a strong note with healthy demand and robust volumes, growth across our domestic and international markets. This enabled us to deliver a top line growth of 23%, EBITDA growth of 24% and PAT growth of 50% during the quarter. However, a country-wide lockdown and similar restrictions in many of our international geographies, during the last 10 days of March, moderated both our domestic and international business, performance during the quarter, which would have otherwise been even better. Total sales volume were up 26.2% year-on-year in quarter 1 2020. We registered double-digit volume growth in the month for January and February, however, organic sales volume got severely impacted in the last 10 days of March due to the lockdown measures. As a result, organic volume for the quarter declined by 13.7% in India and 9.3% on a consolidated basis. Over the last 2 months, worldwide economy and various industries across India and international markets have been facing an unprecedented situation due to the COVID-19 pandemic. Our primary focus during this challenging period has been towards undertaking all necessary measures to shore up our cash flow, ensure safety of our employees, business partners, communities and to overall safeguard the interest of all our stakeholders. On the operational front, in compliance with government authorities, advisers, we have temporarily closed operations at our office across India and have already implemented work from home. As for the relaxations provided by the government of India for essential services and particularly packaged food and beverages, VBL has got the permissions from respective state governments to operate its certain production facilities. These units are currently operational at a lower utilization level, and we are undertaking all necessary measures to ensure and maintain the highest standards of hygiene and social distancing norms at our plants. In anticipation of the favorable uneconomic season, we had built up additional stock of inventory in the month of March. Encouragingly, we have been able to sell most of the inventory. Furthermore, with recent relaxation in lockdown measures, we have also started to see an initial recovery in demand. And in sync, we have steadily started production in most of our facilities. Our teams are also actively in contact with all our distributors in order to ensure streamlined deliveries and supply. Our business model consisting of owned logistics supply chain systems and end-to-end infrastructure facilities provide adequate cushion to our business operations despite an industry-wide supply chain disruption in the country. We are also very encouraged that VBL has a healthy balance sheet and strong financial status, which we believe most certainly should see us through this disorderly time. To conclude, while we are currently witnessing curtailed demand, both in India and in our international geographies, as a result of the ongoing macro situation, we believe in the near term, there should be a gradual bounce back in volumes. This will be enabled by easing of lockdown restrictions and restoration of consumer sentiment as they will, once again, have normal access to beverages purchases, especially in a favorable summer season. Given the increasing demand that we are witnessing for our products prior to the lockdown, we are confident that once things stabilize, we will once again see encouraging growth, and we will further strengthen our position as the leading player in the beverage industry. I would like Mr. Gandhi to provide highlights of the operations 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 the financial performance for the first quarter ended March 31, 2020. Revenue from operations adjusted for excise/GST grew up 23.3% year-on-year in Q1 2020 to the level of INR 16,764.4 million, while EBITDA increased by 24.2% to the level of INR 2,711.6 million. Total sales volume growth was robust at 26.2% at 114 million cases in Q1 2020 as compared to 90.3 million cases in Q1 2019. CSD constituted 67%; juice, 7%; and packaged drinking water 26% of the total sales volume in Q1 2020. The sales volume growth was supported by a steady performance in India as well as in the international territories in the months of January and February. However, post lockdown restrictions imposed by the government due to COVID-19 pandemic, organic sales volume was severely impacted in the last 10 days of March. Resultantly, organic volumes for the quarter declined by 13.7% in India and 9.3% on a consolidated basis. Realization per case has come down by 2.3% in Q1 2020, essentially on the -- on account of lower sales realization on dollar conversion in Zimbabwe. On the profitability front, EBITDA increased by 24.2% to the level of INR 2,711.6 million in Q1 2020 from INR 2,183.8 million in Q1 2019. EBITDA margins were steady as the major part of savings in raw material cost was offset by higher fixed cost amid negligible sales during the last 10 days of March. Gross margins expanded by 300 basis points year-on-year due to favorable PET chips prices. Depreciation and finance costs were increased by 36.4% and 47.3%, respectively, in line with the increase in scale of business post consolidation of South and West India sub-territories with effect from 1st May, 2019. The exceptional items for the current quarter represents provision for impairment in the value of certain plant and equipment, glass bottles and plastic shells amounting to INR 665.3 million. I would now like to update you on the tax front. Following the changes in the corporate tax structure, we have made an assessment of the impact and decided to continue with the existing tax structure until utilization of accumulated minimum alternate tax, credit and expiry of other fixed benefits, tax holidays available. In accordance with the Ind AS 12 Income Taxes, the company is also required to re-measure its deferred tax balances for amounts that are expected to reverse in future when the company would migrate to the new tax regime. The company has re-measured its outstanding deferred tax balances and written back an amount of INR 731.85 million to the statement of profit and loss. To conclude, in these challenging times, as an organization, we have instituted some cost rationalization initiative and optimum working capital measures to conserve cash flows and ensure steady profitability. The company has also not availed moratorium for the debt repayments and has been timely servicing all its debt obligations. Overall, VBL is solid and stable for our focus, and our focus remains on generating strong free cash flows over the coming years. On the whole, we look forward to delivering the sustainable operational and financial performance going ahead. On that note, I come to an end of opening remarks and would like to now ask the moderator to open the lines for the Q&A. Thank you.

[Operator Instructions] The first question is from the line of Vivek Maheshwari from Jefferies India.

My first question is on -- if you can give some color on April trends that we have seen on the ground? And where would be -- if you can quantify where would be capacity utilization at this point of time? So anything on how things are on the ground right now will be really helpful.

See, it's very difficult to give you exact because every day, 1 state is opening, 1 state is shutting down. So to give any prediction where we are going to be -- but the only thing we can tell you, all our plants are operational now. And we are not running 3 shifts, that is for sure. But all our plants are operational, and we are in a position to supply whatever the demand is, which is picking up every day as the markets are opening up.

Okay. Sir, are you suggesting that it's not that every day is better than yesterday to that extent?

Well, every day is getting better because as the markets are opening up, but it's so early to say because the markets have just started opening up from yesterday. So I think it will take a few days. Once we see what the normalization of market happens, but our volumes are going up, and we are quite satisfied the way it is going in the circumstances what they are.

Okay. The second bit is on the -- no, Mr. Jaipuria, how concerned are you about, let's say, institutional and out-of-home segment? Because that is the piece which will take time to come back, right? And how big is the impact for, let's say, our company for the industry as a whole? And what are your thoughts on that segment?

Well, institutional, clearly, there is no -- very little institutional sale because all hotels, all restaurants, everything is shut. So there's no question of institutional sales happening. On the go has reduced drastically because there's no people on the market. But as I said, we are in peak season. They have started opening. People have started coming out, and that's what we need to see in the next week, 10 days, how it is going to react and how many people are allowed to come in the market. So to predict anything without actually seeing what is going to happen in the market is very difficult.

Okay. And how big, let's say, institutional and out-of-home would be broadly?

No, institutional is not so large for us. It's under 10%. So it's not so large for us. And on the go is definitely large. But on the go, there is some sales which are already happening. People are -- some markets are open. Some states are becoming COVID free. So it all depends how many markets -- now they are talking of opening the markets in green and orange zones. So if they start opening, we'll see most of our sales coming back. Of course, not 100%, but I -- to really actually guestimate anything at the moment is very difficult because I can't predict how many markets they are going to open.

Sure. Sure. I understand. The other bit is on the gross margins in this quarter and with oil prices moving further down and generally a pullback in soft commodity prices, what will be your outlook on margins?

Well, margins are definitely looking much healthier. The only thing is because the volumes are going to be -- top line is not in our hands, but we are still going to maintain our margins. So even with lesser volumes, we'll still maintain our margins. So because of soft -- I mean, resin prices have come down drastically. Sugar is also down comparatively, not that much difference, but it makes a big difference to our performance. So that is going to help us this year.

Okay. And lastly, Mr. Gandhi, what would be the repayment in 2020 on the debt side and current debt and current cash position on the balance sheet as of 31st March?

Luckily, if I had to provide this sequence, the COVID 1 was basically more -- we were focused on the cash flow, repayments, obligation, bank covenants, which when Chairman pointed out, we are having a very healthy balance sheet and with a strong cash flow. Idea was that first, we ensured that. And today, our 100% of cash credit limits are all available. They are vacant. And we have -- with yesterday's opening up of few territories and the cash flow coming in, we have already started giving [ revolver ]. So some STLs are there. We have started asking banks if they can accept the prepayment, so that we want first, either by whatever level cash flows are coming or by way of conversion into the long term, certain loan. Because what had happened is we got the exist arbitrates, and there were certain loans in anticipation of term loans, which were even for '21. So we had prepaid in January. So although after that conversion, we are -- we have already broadly 90-plus percentage there come in point where in 10 days, we will have 0 obligation to be serviced as far as the debt obligation is concerned. So that was the first objective. Second, on the margins, when you were saying, and you highlighted that because of the softening of the commodities, we will have some advantage in our margins. You're very right. But on the other hand, operating leverage on a higher volume, which is normally available to us in the busy season of quarter ending April to June, will be partially gone away. But both -- along with the marketing expense or the -- because today, people are happy if they are having the material available to them. So if we are able to ensure the delivery to them when they need it, we don't have to do much of push or spend on the push of the product. So wherein these things -- the second idea has been that we maintain our margins. The third thing is on revenue. Your question which has been coming that how much we will be doing whether way of capacity or the sales or demand. I mean that is something which is beyond anyone's control today. If we have taken care of the first 2 things, I think we give a pat at our back.

8 Right. Right. And could you quantify the debt number, please?

Our debt obligation out of term loans was INR 476 million. And some prepayments happened yesterday. Some are going to happen this week. And these -- I think by this month end, hopefully, we will have taken care of fully. There were small STLs also, which, again, to a large extent, would have been provided by this content.

Right. And March '20 debt was how much gross debt in cash?

Gross debt was around INR 3,200 million, INR 3,300 million. It was at the same level. It didn't go up.

We'll move on to the next question that's from the line of [ Sushant Sardar ] from [ ADIA ].

Sir, you explained about the improving demand incrementally, but just subjectively, I mean, obviously, it is difficult to point out numbers, but subjectively, given that people are wary of drinking cold things at this point of time, is it looking like a tough situation for volumes for the next 3 months altogether because this is an important season for us?

Well, it's not looking great, but at the same time, I think it is reasonably -- we are reasonably in good shape. And as the markets are opening, I don't think people are shying away from drinking cold drinks, and the demand is improving on a day-to-day basis. Our volumes are going up. And I think if we can continue like this and the government keeps opening up the territories, I think -- and with the additional margins because of the raw material prices being cheaper, I think we'll be not in a bad shape. And our margins will be quite healthy.

So on the same line, sir, this business being very distribution-intensive, and I think even distribution at this point of time would be impacted. So from both perspectives, the financial health of your own distributors versus your competitors' and your ability to reach to your distribution points or your distributors' ability to reach the market, is it any different between you -- is there any difference between you and your competitor at this point of time?

Well, I don't want to answer my competition, but we are able to reach the market. We are -- we come under essential commodity, and we are able to reach to our distributors and our distributors, except in red zones, which is completely sealed in pandemic, apart from that, they are able to go everywhere, and we are able to distribute. It's only that the number of outlets, which used to be there are not that many outlets are not open. So we are servicing whatever outlets are opened. And as more outlets are opening on a daily basis, our sales are going up.

Sir, you made a passing comment about the support -- about the working capital requirement that you are servicing faster and therefore, probably working capital requirements -- the inventories are getting drawn down. But have you seen any demand from your distributors for any working capital support? Have you extended any of that?

No, they have not asked for anything, and we are supporting our distributors wherever we feel it is necessary, but it is not that bad. And it's not looking so challenging as -- because the volumes are dropping, but not to that level that we'll have to have a crisis.

Okay. And what is the typical inventory that your distributors would have at any point of time, in number of days?

Normally, a distributor carries between 5 to 7 days' inventory.

Okay. Okay. Sir, on cost savings that you talked about, which are the areas of large cost savings? And if you could talk about the raw material decline that has happened? Typically, what happens is that in -- whenever there is a cost decline, we start getting -- seeing more offers in the market. But this time, the situation is different. Everyone is struggling. Is it likely that the gross profitability would be -- would actually be improved to take care of this challenging time by the industry altogether?

See, our sales, the major components, I will highlight, there may be smaller areas in the wake of time of crisis, people walk line by line. But the biggest thing, one is the commodities which are softening. And the second is, the focus is on availability of the growth spin, getting any theme or promotion. So those are another heads under which there will be sales. And third is it for plants. Our offices are shut. All the overheads or administering overheads, starting from power, electricity, transport, conveyance, travel, travel is totally blocked. So all those things are becoming savings and helping us. And then apart from this, on your question of distributors' credit, distributors, we don't sell on credit. And normally, when they are in this trade, they plan their working capital on a larger scale. When the base is smaller, and they're coming to us for replenishing goods means they have realized their product, they don't sell them on credit. And they are not stocking as much as they normally in the season month. So rather -- there is no question of working capital shortage with our distributors coming in.

Okay. On the -- the last question on the EBITDA margin outlook that Mr. Jaipuria give, that would be protected despite drop in volumes because of cost savings. So we are talking about EBITDA margins have been stable.

EBITDA percentage. We are making sure that our EBITDA percentage remains protected because of advantage in commodities and raw materials. Volume, of course, there will be a gap, so -- which we can't answer what the volume gaps are going to be so -- but percentage will be protected.

[Operator Instructions] The next question is from the line of Prashant Kutty from Sundaram Mutual Fund.

Sir, firstly, just a bookkeeping question. There was an exceptional item of INR 55 million mentioned in regard to the provision for impairment. Could you probably provide a little more on the same thing? What was it regarding?

In fact, it's noticed there are 3 items. Third actually some of the note in -- I don't know, I'm not sure is there or not. One has come in, in the accounting centers, 12 Income Tax to take care of September 2019's ordinance. We are supposed to recalculate our deferred tax liability, and if there are intentions of switching over to the new regime of tax laws. So any excess deferred tax liability needs to be reversed in the imports. And if you see last quarterly accounts, when this question came up from our auditors, that time, it was that because the financial year of the government, the assessment year is going to be a start of that is going to happen after 31st March. So we will do at the year-end. So now this time, when we were making a review, INR 73 crore and all figure was coming as deferred tax liability. So that is provided on the tax thing. So second item, which is in the accounts, which is a big ticket item, which you are highlighting and your question is around, that is the exceptional item. That is the glass items, the glass bottle whose mix in the COVID-19 was reduced. So we use this as an opportunity. And as a prudent policy, we decided to take an impairment because we had enough profit. And the -- also in Odisha. Odisha needs actually only 1 plant, but we have 2 plants there. So there was a glass line and 160 bpm, all of the new lines because of the operating benefit, we put 600 bpm, that was 60 bpm. So these 2, we have taken an impairment. This was a bought out plant 2 years back. So idea is, if we can reduce our fixed cost of that plant going forward, so we have taken impairment of these 2 things. The land building is absolutely in order and can be used either for warehouse or whatever purposes. So that has not been impaired, but the plant, machinery glass bottle, half depth shelves have been written off -- has been provided -- impaired in the books. And the third item, Prashant, you will notice last time it was discussed. If you will remember, we have, I think, on 21st of December when stock exchanges had informed, there was a press report in Nepal on the taxes of certain merchandisers, certain vendors of the merchandise, they have not deposited that over a period of 6 years, amounting to INR 55 crore 80 lakhs, so on which the investigation department account them and served them notices. And after that, they had filed chargesheet against the company also apart from those vendors. So this directed them to -- also to the court, and the chargesheet stated that income tax also should have been levied and interest equivalent amount and penalty totaling to about INR 40 crores. This became a substantial amount. And before even we were serviced any -- demand on the company as a record has not come even till date. But however, there is a chargesheet. We got a copy of that. And what we have done is we have provided for this amount, although on the auditors insistence, last year, we had shown it as contingent, but this quarter, we have provided fault. So these are the 3 big exceptional items in our accounts, so which I just stated.

Okay. So this exceptional that you pointed, it also includes the provision for this chargesheet filed as well, right?

No. This exceptional is only for the impairment. The third is INR 40 crores. This is the third one. This narration of this is sort of finding -- you did see in my presentation but I therefore thought I must highlight this in the call.

Okay. So that has not been taken in this particular quarter.

No. This is another item because this is not coming under single item. This -- provision of this -- the tax portion, there may be income tax provisions. That will be above the line. Interest is under the impaired portion. So the penalty will be again above the line. So all those things, because the treatment of this has to be -- and is something maybe sitting in, of course, 100% of this actually which is sitting in the Nepal balance sheet, Nepal calendar. But in a consolidated manner, I thought all these big ticket items, I must narrate.

Sure. So moving on to questions from my end. One is basically, like you said, as part of essential, I believe juices and packaged water will be essential. So to that extent, sir, how would have April and maybe in terms of until now in terms of activity from packaged water some consumption...

Yes, Prashant, packaged water is essential, no doubt. But somehow, we have noticed during the pandemic that its consumption and the sales mostly comes on the move or in the events or parties or at the institutional sales. Unfortunately, all these were blocked. So the mix of water you will find is coming down with a low-value items because the sale price of the water is about 30%, 33% of the beverage sales. Margin-wise, it may be -- percentage-wise, it may be same. So that is declined, if we will see a decline in the volumes in the next quarter. So when we say we are attempting to at least protect our margin profile, so one of the comforting sectors other than the cost of the commodities or the marketing or promotion expenses, the third is that the mix of a low-value item also is going to be lesser in this quarter. So that's another line item, which is going to help us in maintaining our margin profile.

Sir, at the company level, one is to probably assume, let's say, April and May, in terms of -- obviously, this is the quarter where you almost go about 45% to 50% of the business. So...

Precisely, on a global basis, this quarter is 39%. India is 41%.

Okay. 40%. Okay. So in that case, sir, given how your production facilities have been operating initially, [indiscernible] operating at even 1 shift as well. On an average, what is the utilization level?

Selectively, we are using. It's not that regularly on every day basis. And see all plants we've got approval. We have got into. We have organized, we have followed the protocol to start. And as and when wherever from trade as well as the demand that we need, we hit the production. And if it's not needed, we don't still -- in that case, we don't run it, because we don't want to pile up finished goods in the entry.

Okay, okay. And last question from my side, between urban and rural, what would be your urban-rural split, sir? And secondly, how rural been doing as compared to urban because rural somehow, I believe, the extent of COVID impact is far more lower. So how would that trend be the [indiscernible].

Well, again, it's very difficult to answer because each state is completely different. Some states, the rural is open. Some states, they're completely locked down. So obviously, rural market comparatively is more open, but we are actually just making sure because of our vast distribution that whichever outlet is open in rural or urban, we are making sure our products are available. And because of that, we are getting reasonable volumes of sales, which are coming now. And from yesterday, they have improved slightly. And I hope in the next couple of days, we see some major improvements.

Okay. Okay. How much would be rural, sir, for us?

It's very difficult. Before it used to be 30%.

Before it used to be 30%?

Yes.

Okay, okay. And in terms of, sir, overall -- sorry, one last question, if I may actually. In terms of realization and in terms of EBITDA per case, while you spoke about that your EBITDA margins and EBITDA -- on percentage basis might remain. But in terms of EBITDA per case or realization per case, what's your take on that, sir? How do you see that...

It has improved because our discounting has come down drastically, main reason being the supply is the main issue, availability is the main issue. People are not fighting for discounts right now. They are more fighting for making the products available. So we are also going on that basis and making assure our products are available. And our marketing or discounts have reduced.

But sir, if I look at from an EBITDA per case perspective, volumes are down. Needless to assume that the EBITDA per case will definitely be far more impacted, especially with this quarter being...

That would be better. EBITDA per case would be better.

Prashant, you're right rationally in the normal circumstances. But this is what we had actually worked upon. We have done extra effort to maintain in spite of lower margins and where we will be sacrificing the economies of scale. But still, we are able to maintain to these things. That had been our endeavor. And this is what I was saying, once if we are able to do that, we are very happy and that's going to be a very happy situation basically.

We'll move on to the next question, that is from the line of Varun Goenka from Nippon Mutual Fund.

My question was just answered actually. But what I was looking for was maybe our top 10 cities as a sale for our entire India operation. Maybe however we define internally top 30 cities or beyond that. So urban or semiurban, rural, if we have any thoughts on that?

So top 30 cities would be all urban. I mean -- and in urban, it all depends which city becomes more red zone or which city becomes green or orange zone.

No. I was asking on CY '19 basis, not the current -- on a normal CY '19 basis for the entire VBL, so West South and all the force put together.

Yes.

What would be our distribution of sales between, let's say, top 10 cities, the next 20 or top 30 cities and the rest of India?

But it's very difficult to answer. This is exactly what I'm saying because every day, it keeps changing. Someday, they feel Delhi, someday they feel Chennai. Sometimes they feel...

Can you mention...

No, no, I meant to ask Ravi ji on a normal operation. So CY '19, I'm not asking about the current month, on a CY '19 basis...

Yes. CY '19, what are you saying?

CY '19, what was our distribution of sales, let's say, top 10 cities or top 30 cities versus the rest of India?

I think, see, I can give you the answer for this slightly modified. We have stratification under 3 heads with you also stated, urban, semi-urban and rural. Rural is 30%, another 30% is on the semi-urban. Semi-urban designation for us is which is urban, but a population less than 5. And there, you can see, I mean, another 30% or 25%. So the balance, 45%, 50% is delegated to the urban.

The next question is from the line of John [indiscernible]

I want to ask, have you been talking about distributed, whether you can approach them from other franchises? Because there are some talks about risk. Do you think that they are risk at large distributors might not be as [indiscernible].

We can't hear you. The question is not coming out clear.

Is it better?

Yes. Maybe.

Okay. Please go a little slow, maybe it will be better.

Actually you've been talking about poaching distributors of other franchisees? And are there risks that large distributors who might not be as well capitalized that part of business?

Not exactly.

Well, we have not lost any distributor of ours. So I don't know. And we are pretty well presented all over the country. So at the moment, we have not had a problem like that.

Okay. And what is your level of [ condensates ] in your inventory? And how long could they last in like the warehouses? Sir, I was told that condensate last during like 3 to 6 months. Is that correct?

No, no. That's the validity of the product. But normally, we don't carry inventory more than 30 days. And that is also in the beginning of the season. Otherwise, we carry inventory less than 15 days. So we are not going to face any challenge on inventory being stuck with us. Because all our plants are now in production. So we are providing fresh goods. And if there is some movement required from 1 state to the other, we are doing that to make sure that none of our products become BBD.

Okay. And 1 last question. Have you spoken to PepsiCo? And how -- are you guys working together on anything? And what are their thoughts of the environment, maybe in India? I mean, you have other countries in like Africa as well? How are you guys working together?

We have spoken to Pepsi, but each country is different. Some countries in Europe and USA, that's a lot of the -- the modern trade is all open. So a lot of their consumption is at home and modern trade -- so their effects are much lower. Africa, the effects are not that big. It has come down but very slightly because none of the markets have shut down. So each country is completely different and Pepsi, they're with us, and they are fully wanting to support if we need their help.

Okay. And are they offering any supports? I mean, maybe you don't need it...

No we have the quantum is -- I mean, we will understand it if whatever is required, I'm sure they will be being one of the largest bottlers of their system, I'm sure they will come and support if we ask for something.

The next question is from the line of [indiscernible] Asia.

Can you hear me there?

Yes

Just 1 from me. I mean you've indicated thus far that it's more an issue of ability to supply as opposed to maybe demand. But I'm just wanting to get a sense, I'm not really clear or have a handle on the affordability of your products, to what degree it's an essential -- I mean, it's obviously more of a discretionary, but a small ticket discretionary item. So given potential demand damage, unemployment, income loss, to what degree should we be worried? Or are you concerned about potential demand destruction?

Well, I don't think so in the long term, this will come down. Our products are such small ticket. We're talking of INR 20 and INR 30 products. I mean, the demand which the person is going to cut first is houses, cars, whiteboards, expensive, air conditioning or depending on what his capability are. But nobody is going to start cutting on INR 20 products. Of course, unless until the whole country becomes unemployed, then, of course, I can't answer you. So I don't think we have seen actually the demand going down. Wherever the shops are open, they are all selling our products and people are enjoying our products. So I don't see that. It's just the question of making the product available because there's so limited number of outlets open. And of course, the hotel, the institutions are shut. So that demand has come down. And our go-to-market has slightly come down because the go-to-market is not happening right now. So those demands will affect. But as it starts opening up, people start coming to the market, I think we will be able to capture most of our demand.

The next question from the line of Rahul Ranade from Goldman Sachs Asset Management.

Just 1 clarification on the point of the EBITDA margin. So are you saying that EBITDA margin will be protected for the calendar year '20?

We are talking of EBITDA margin being protected for -- in percentage terms.

Yes, that's right. But is it for the year? Because for the quarter, the June quarter is like exceptionally big for you. So I don't think...

We're not able to hear you.

No, the percentage terms even in this quarter, even though it's in [indiscernible] protect our margin [indiscernible]

Sorry, sir, my line is bad. So you're saying in percentage terms, I didn't catch you.

In percentage terms, our EBITDA margin will be protected because even though the volume will be -- the top line will be smaller because of our conservative cost cuts and also the raw material and prices being softer, we'll be able to preserve our EBITDA margins.

[indiscernible] kind of margin on the EBITDA level. So like are you saying this level of margin will [indiscernible]

Sir, we've lost the audio from your line.

You are not audible. Sorry, I can't hear you.

Ladies and gentlemen, the line of the current participant was dropped off. We'll move on to the next question. That is from the line of Vikas Shah from Ostrum Asset Management.

Most of the questions are answered. But 1 question I had was on the distribution side. Mr. Jaipuria, you mentioned that you haven't lost. On the distribution side, you mentioned that you haven't lost any of the distributor. But my question was, are you looking to acquire distributors from your competition, which is not as organized as you are, also people switch multiples franchises?

Well, not really. But because we have good distributors who have been with us for a long time. And unless until any distributor leaves us, we are not looking for acquiring a new distributor. I mean, once in a while, there are so many distributors, some changes happen, but not to any major consequence.

Sure. I mean, on the global side, any particular challenges that you see, which would be balance sheet challenges, currency challenges, which will be far more severe than India?

No. They are much better than India right now. Africa is not shut down.

Last question. In terms of -- do you see any possibility of stock return because of expiry issues or like back from the areas which are largely red?

No. We don't take any goods back, and there's no expiry position because wherever there was extra stock in 1 state, we have moved it to the other state so that there is no chance of any expiry.

The next question is from the line of [indiscernible] from Morgan Stanley.

Congratulations for a quarter. Good quarter. Most of my questions have been answered. I just want to -- if you could give some quantification on -- based on the new business plan for this calendar year, what is the growth target you have? And secondly, how do you see the logistics business maybe utilization of [ pilots ] in the business over the coming quarters?

I think this is a very -- this is a question which nobody will be able to answer because I don't know how bad COVID is going to be, how many people are going to be affected, how lockdown the country is going to be, very difficult to answer this question at this stage. Because it will be all theoretical, whatever I answered.

Okay. And secondly, on how do you see the utilization of the logistics, the pilot utilization, the overall logistics in the country [indiscernible]

Pardon me.

How do you see any impact of COVID on the logistics front in the coming quarters or year?

No, we are not finding any logistical challenges. So we don't see any issue.

I think we need to divide it. One, what happened in April, it was a lockdown or post lockdown. Post lockdown, broadly, the situation is going to be normal. How long does it take? 1 week, 2 weeks. But beyond that, once the life is normal, single digit comes back with the vengeance. That's the beauty in India. So -- but how much will be affected, 300-odd districts out of 733 are already in the green zone. Orange zone, gradually should get added in a fast speed. Barring few states, I think the top 8 states are -- 90% of the additions of the cases are coming from the 8 states. So yes, there, it will be much longer. And all questions, whatever you're saying are applicable to those. But for the balance 20 states and 9 union territories, I think life should come to normal sooner than later.

Okay. Okay. Sir, my question was more on the side of, let's say, are you facing any challenges related to truck availability, driver availability, et cetera?

No, no, we don't have a problem. We are not having a problem. We didn't have it even when there was a complete lockdown. And even now, we are not having a problem.

That is the advantage of owning 2,500 trucks in the company.

The next question from the line of Pritesh Chheda from Lucky Investment Managers.

Just in our category, what would be the extent of on-the-go consumption contribution to the category? And what would be the extent of out-of-home consumption of the category?

The whole category is changing. Everything is changing. All the logistics, all the way of thinking, all the way of drinking, everything is changing. It's very difficult because a lot of consumption is happening at home now, which never used to happen. So I think it's too early to...

No, no. Sir, until last year -- sir, my question is not about this year. But let's say, until last year, was on the go...

Last year, 30% to 40% of the consumption was on the go.

On the go. Okay. And my second question is that for April, there was virtually none of the plants operational, right, for us. Or were there any...

Some started operational by 20th of April.

By 20th of April?

Yes.

The next question is from the line of Anand Shah from Axis Capital.

Just a few questions. Firstly, if you can break down the 114 million cases that you did in terms of the domestic and international as to what was the number?

Yes. Just 1 second.

India, we did 94.

India was 94 million.

India was 94 million. Okay. And the rest...

Balance was international.

Okay. And within this, you did highlight that despite Jan-Feb being double-digit, March, obviously, was a drag, and hence, there was a 14% odd organic decline. So I mean would that equate to what 60%, 70%, 80% decline in March? And would that mean even pre COVID, before the 10-day lockdown...

March was negative by 31%.

31%. Okay.

Yes, but being March being a bigger month and January, February is effective overall.

So the skew within the quarter itself, March would be more like 40%, 50%, perhaps? Within the quarter, I'm saying.

Close to it, maybe not 50%, but maybe 45%. 40%, 45%. Because actually the business starts after Holi.

Okay, okay. So the preloading for the summer and all starts [indiscernible]. Yes. So that's why the bigger impact on the [indiscernible] also.

Yes.

Okay. And if you can give any color prior to the COVID, I mean, in terms of Jan, Feb, how Southwest was playing out? I mean, in terms of you were investing in terms of scaling it up, kind of traction that you're seeing in the business, any share gains or any initial signs of business getting strengthened there?

I mean, if you look at January, February, we grew practically 100% in each month.

Okay. Are you saying the Southwest business practically down...

Overall, we grew. But organically, we grew at about 14% in January and about 42% in February.

Okay. Okay. And lastly, the organic growth in the international business, how much was that?

International has been 8%.

So that clearly is tracking much better there. So I mean, are you seeing a similar traction there in terms of the lockdown, not be as stringent as India in some of the other markets?

Well, unfortunately, April lockdown was severe in Nepal and Sri Lanka as bad as India. So that will pull down slightly, but Africa has not been locked down as badly. So it's not -- the numbers are not affected that much. Also Africa is winter season for us. It's the opposite season. So our volumes for that season is much lower.

The next question is from the line of Aniruddha Joshi from ICICI Securities.

So sir, in terms of going forward, as utilization, at least the plants are operating right now, so let's say, for me, what would be the plant -- or what you are looking at in terms of capacity utilization? Or what was it for April, too?

Again, it's -- what you are asking is, if I knew when they will open up the full country, it's very difficult. It will all depend on how the government decides then how they open up the country. The plant utilization will be based on the opening of the country.

Okay. So -- but -- so in terms of March, we have seen that there was a 31% volume drop. So are we saying that the situation in April and the situation in May is relatively better than what we had seen in March?

So April couldn't have been better because April was shut down in the first 15, 20 days completely. But hopefully, May, we are hoping it might be better. We don't know. We are hoping -- it all depends when they say they are going to open up. We are all hoping and -- if they open up, yes, it will be better.

Okay. Okay, sir. And in terms of driving the sales, are we having any additional schemes, et cetera, for the dealer to push the sales to gain market share?

We are rather cutting schemes, not giving additional schemes because right now, the dealer is more interested in making sure the product is available more than the scheme.

Okay. Okay. So we have cut the trade schemes, which will help...

We expect our margins to be better.

Yes. Okay. And lastly, if you can just rediscuss the INR 40 crores provision -- tax provision. So sorry, I could not hear it properly. But that is provided in this quarter. Is it correct? And as we move from 35% tax rate to 25% tax rate, so whatever the deferred tax adjustment needs to be done, that is also done in this quarter. Is it correct?

Yes. The tax provision with reference to Nepal, the deferred tax liability to give effect of the accounting standard April is being issued, that is for India. And the third exceptional item we mentioned was about the impairment. That's correct.

So that INR 40 crores liability is, in a way, we have accepted that whenever -- if the demand comes, we would be paying that liability. Is it correct?

We have not accepted the liability. We have just provided.

It comes, if we receive the demand, the first thing is the chargesheet filed. And the party is the third party. But 1 option is that we don't provide and go ahead. Another is we have provided. We have kept a provision in our books, and we are moving ahead. The payment will actually happen once demand increase and we exhaust the right under the prevailing law, which are available to us that will arise only then. This is something, if you take into Q out of our earlier calls, if you see Zimbabwe, there was a time foreign exchange liability every quarter we were providing, and we had a provision for the exchange variation over 2 quarters, totaling to something like INR 130 crore. Later on, the government of Zimbabwe, Reserve Bank of Zimbabwe had even a undertaking that because this foreign exchange was listed in this country on our commitment, and we will honor the repayment additional rate. So we are keeping that provision also still actually when it materializes. So these are the few things as a prudent policy, we go by that advice. And we have provided, but we have not accepted.

Yes. Sir, lastly, is the impairment of the asset plants that we have done, is it over? Or do you see some more write-off in June quarter too?

I think if we have made a review as back as 1 day back, if it's going to come in next June, we would have done considered that right away. Impairment is something which you actually see a lot of things.

No, I think we've already done the impairment. I don't think there's anything.

The next question from the line of Bharat Shah from ASK Investment Managers.

Yes. March '20 gross borrowings is INR 3,200 crore.

I can't hear you.

March 2020 gross borrowings are INR 3,200 crores. What is the current figure?

Current figure is the same.

It's the same.

As on 31st March. Today's figure maybe same or maybe slightly lower.

And what is the level of cash on the balance sheet?

We have -- actually, we don't have cash, but we have cash credit limit for INR 476 crore, which are totally free.

The next question from the line of Kunal Shah from Carnelian Capital.

As far as the cash credit limit of INR 476 crores, so just wanted to understand, have we utilized anything or this is something that is completely available? Nothing utilized as of now?

It is available to us.

Okay. And sir, the other part of the question you answered before, but just wanted to confirm. We won't see any balance sheet risk since the operations are very small when it comes to our international operations. Is that understanding correct?

There is no -- we don't see any risk at the moment.

The next one comes from the line of [indiscernible] from Principal Mutual Fund.

So my first question is, is the employee expense of INR 800 crores approximately in CY '19...

Hello.

Mr. [indiscernible] are you able to hear us?

Yes, yes. Sir, my question is, our employee expense of approximately INR 800 crores in CY '19, how much would be the temporary or contractual labor expense? And how much would be the permanent expense -- permanent employee expense?

Maybe around 60% is permanent and the balance is...

60%.

Third-party or distributors or the...

It's about 60%.

Okay. And sir, secondly, ex employee cost, how much would be our fixed overhead per month?

INR 75 crores.

About INR 75 crores.

Okay, INR 75 crores per month. Okay. And then lastly, sir, I just want to understand from the capacity perspective, last time when we acquired 2 territories in Southwest, can you just help us with the breakdown of the capacity CSD and Motor and juices segment in million case would do?

Basically, the south and west was about 50% of our existing footprint of India. And exact...

As their capacity utilization was quite low, so there is enough headroom there.

No, no, no, sir. No utilization. I'm just asking from the absolute capacity perspective, how much would be the Southwest?

I think off-line, if you contact, we will be able to provide you. I don't have the number right now at this moment.

Ladies and gentlemen, that is the last question. I now hand the conference over to the management for their closing comments.

Thank you once again for your interest in call. We will continue to stay engaged. Please be in touch with our Investor Relations team for any further details or discussions. Look forward to interacting with you soon. Thank you very much. All the best.

Thank you. Ladies and gentlemen, on behalf of Varun Beverages, that concludes this conference call. Thank you for joining us. You may now disconnect your lines. Thank you.