Varun Beverages Limited (VBL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the 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 Q4 and 2020 Earnings Conference Call. We have with us Mr. Ravi Jaipuria, Chairman of the Company; 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'll 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 state that some statements made in today's call may be forward looking in nature, and a detailed statement in this regard is available in the results presentation shared with you earlier. I would now request Mr. Ravi Jaipuria to make his opening remarks.

Good afternoon, everyone, and thank you for joining us on our earnings conference call. I trust that you and your families are well and safe. I hope all of you had the opportunity to go through our results presentation, which provides details of our operational and financial performance for the fourth quarter and year ended December 31, 2020. We have ended the year 2020 on a steady note despite an unprecedented and challenging macroeconomic environment. The spread of COVID-19 pandemic in early March 2020 caused significant disruption in our production levels, supply chain and overall business operations, which significantly impacted our performance during the seasonally strong period of April to June quarter. However, the staggered unlock announcement from May onwards, we saw a faster than anticipated recovery across key markets in the second half of the year. This, combined with our operational efficiencies, enabled us to restrict our total revenue de-growth at 9.5% year-on-year for the full year. For CY 2020, total sales volumes stood at 425.3 million cases. On the profitability front, we were able to largely sustain some of the cost optimization measures implemented during the pandemic period that enabled us to report steady profitability in quarter 3 and 4. I would also like to highlight here that even in a seasonally soft quarter, our losses in quarter 4 2020 was significantly lower in comparison to quarter 4 2019. This was mainly on account of better business efficiencies, cost rationalization strategies and healthy recovery in international territories. From an operational standpoint, I'm happy to share that we have recently introduced a new product variant under the powerful brand, Mountain Dew. It is a lemon fruit juice-based drink, namely Mountain Dew Ice. We are encouraged with the initial response that these products have received, and we remain highly confident of the long-term growth prospects of this new variant, especially in the upcoming season. As we look forward, we are seeing sharp economic recovery across our key territories, with an improved consumption trend being witnessed on a month-over-month basis. This bodes well for our product categories over the medium to long term. On the whole, we believe we are on a strong footing operationally and financially, and remain confident that further stabilization of the macroeconomic environment will translate to gradual and sustainable growth across our business model going forward. On that note, I would now invite Mr. Gandhi to provide highlights of the operational and financial performance. Thank you.

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 fourth quarter and year ended 31 December, 2020. Revenue from operations adjusted to excise, GST grew by 9.1% year-on-year in quarter 4 2020 to the level of INR 13,308.9 million. With faster-than-expected recovery witnessed across our territories, we managed to close the pandemic-hit year with a decline of 9.5% in revenue from operations to the level of INR 64,501.4 million in CY 2020. Total organic sales volumes were up 5.7% on year-on-year at 87.1 million cases in Q4 2020. For calendar year 2020, total sales volume declined by 13.7% year-on-year to 425.3 million cases. This is for the year. And organic sales volume declined by 20.8%, primarily because of a significant decline in volume in Q2 2020, due to lockdown restrictions. Realization per case has improved by 4.8% approximately in 2020, essentially on account of favorable mix and improvement in realization in the international markets. CSD constituted 72.6%, juice constituted 6.3%, and packaged drinking water constituted 21.1% of the total sales volume mix in calendar year 2020. On the profitability front, we were able to sustain certain cost optimization measures implemented during the pandemic that enabled us to report improved profitability in Q3 and Q4. Gross margins improved by 472 basis points during the Q4 2020 and by 231 basis points in calendar year 2020, led by favorable pet chip prices, which saw approximately 12.5% decline and a higher mix of CSD in total revenues. EBITDA increased by 48.8% to INR 1,722.3 million in Q4 2020. Our EBITDA margins improved by 346 basis points in quarter 4 2020. For calendar year 2020 EBITDA decreased by 17% to INR 12,018.7 million from the level of INR 14,476.5 million for the full year as against calendar year 2019. Depreciation increased by 1.6% during the quarter -- sorry, decreased by 1.6% during the quarter. However, it increased by 8.2% in the calendar year 2020 as the effects of acquisition of South and West India subterritories was with effect from 1st May 2019 in the base year. Finance cost declined by 21.6% during the quarter -- of quarter 4 2020 and by 9.2% in calendar year 2020, due to repayment of debt partially as well as lower average cost of borrowing. Our losses reduced significantly to the level of INR 72.4 million in quarter 4 2020 from the level of INR 539.5 million in Q4 2019, backed by sustained cost control initiatives and strong performance in international territories. I would also like to highlight here that in Q1 2020, we had an exceptional item component of INR 665.3 million, representing provision of impairment in the value of certain plant and equipment, glass bottles and plastic shells, et cetera. In addition, during Q1 2020, the company had revisited the outstanding deferred tax balances and taken back an amount of INR 731.85 million to the statement of profit and loss. So on the whole, for 2020, PAT stood at a level of INR 3,572.7 million. On the balance sheet front, net debt stood at the level of INR 30,158 million as on December 31, 2020, as against INR 32,461 million as on December 31, 2019. Our debt-to-equity ratio stood at a healthy level of 0.84x and debt-to-EBITDA ratio stood at 2.51x as on 31st December 2020. I would like to add here that CRISIL has reaffirmed the credit rating for our long-term debt as CRISIL AA and for short-term debt as CRISIL A1+. Working capital base increased marginally to form approx 26 to 31 days as on 31st December, due to lower sales volume, which affected the denominator in this case. On the CapEx front, our net CapEx included INR 3,200 million approximately towards brownfield expansion at certain plants in India, Zimbabwe and acquisition of assets for value-added dairy beverages in Zambia and -- plus approximately INR 2,000 million for expansion, primarily at Bharuch, Sricity and Tirunelveli plants from investment fund received from PepsiCo in calendar year 2019. This 200 crores was -- which was funded last year. And 40 million -- INR 40 crores or INR 400 million towards capitalization of implementation of Ind AS 116 accounting standard for leases. Overall, even in the challenging years, we had reported a resilient and steady performance. Our operational and financial profile remains solid and stable, and our focus remains on generating strong free cash flows over the coming years. On the whole, we look forward to delivering a sustainable operational and financial performance going ahead. On that note, I come to an end of the 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.

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

A few questions. So first is on the volume trajectory. So let's say, CSD, if I read out just the previous 3 quarters' number, minus 40 to plus 3 to plus 6, whereas juice minus 50 to minus 14 to minus 20 and water is minus 77 to minus 23 to plus 12. I mean, can you just elaborate on why there is such a big difference in the growth rate for the 3 segments? And why juices has continued to -- in fact, has on a Y-o-Y basis declined more? Can you just talk about this across the portfolio?

First, for water, for example, water mainly is consumed on the go. I mean, very few Indian customers or families actually consume mineral water at home. So when the quarter -- in the second quarter of April to June, when the complete lockdown was there, there was no on the go. So that is what made water decline drastically. And slowly as the market started opening up, water started recovering. And in the October to December quarter, water has completely recovered, except from large hotels and some restaurants. Otherwise, water had practically fully recovered. So that's the reason of the numbers and change in water. And -- yes. So juice, fundamentally, again, the main reason was lot of juice is being consumed in the -- on the go, which, again, the April quarter was very bad. There was no on the go. And then we recovered a reasonable portion of it in the second quarter -- third quarter, which we came down to 16%. But unfortunately, in the last quarter, we could not cover up completely, but it has recovered, and we are doing well this quarter. So hopefully, now we will not see any negative in juice.

Sure. And CSD plus 3 to plus 6 in the context of, let's say, how water has done on the go comment that you had...

Yes, because what happened is -- because when the market was completely shut, in-home consumption increased, and people were consuming only CSD, not water. So water sales went down and CSD sales went up. So mainly and large packs went up and small packs on the go reduced. So that is what made the big change. So in essence, CSD went up quite a bit. And that is why we could sustain it. But all the parameters in the last quarter, they are all back to pretty close to normal, and juices are coming back to normal now.

Also, the farmers protest in North India affected a bit actually the movement of goods in North India.

So if you see that on-the-go reduced from 60% to 44% in 2020. From '19, it was 60%. And in-home consumption was 40% in '19, which went up to 56%, and that was mainly for CSD.

Sure. That is very helpful. The other thing was on the gross margins, although Mr. Gandhi did mention about the packaging costs, but is mix also playing an important role because the gross margins are all actually comfortably above its highest in 8 quarters, for example.

No, the mix is playing a part because glass volumes have reduced quite a bit. And all the growth is coming out of PET. Because of the pandemic, people are not feeling comfortable drinking glass bottles, which have been had by somebody because they are recycled, whereas PET and other is one-way packaging. So they felt more comfortable. Nobody is -- less people are touching it. There is no mouth which has been touched that bottle. So it makes a difference and people are very much more comfortable having PET than glass. So glass volumes declined.

So in the last quarter, also the mix of water is higher where there's no condensate and there is no sugar, but other expenses of freight, discount and other things stayed the same. So ultimately profitability at EBITDA level although is same, but at gross margin level, it plays a role.

Got it. Got it. Sure. And the last question, just curious about this introduction under new -- this one, Mountain Dew lemon. So is this -- I mean, you have already had a product Nimbooz Masala Soda. So is it kind of competing under the 7Up umbrella? Or is it like pitted against the Limca?

So this is a Mountain Dew variant. It is a Mountain Dew variant. We have added a product under the lemon and lime category, which is the largest category in India and close to 600 million cases of lemon and lime category is there in India. And this is -- basically, if you look at to compete against our products, which is Limca and Sprite. So we have come out with this new product, and it is liked by everybody, although we have recently launched it, and it has got lemon juice in it instead of just carbonated and we feel this should become an important category. Similarly, it's like we had launched our energy drink a couple of years back, and if you look at it, we had, even with the lockdowns and everything, we had close to 250% growth on it from '19 to '20 in our energy drink, which is Sting, and we believe it will grow again at the same level this year.

Sure. And a small follow-up, Mr. Jaipuria. So why -- I mean, you have Nimbooz Masala Soda under 7Up. So is it just about strengthening the brand Mountain Dew? Is that the reason why you have done it?

No, no. But Nimbooz Masala Soda is a different product. I mean, it has got masala in it. There's no masala in this. So it's a different product altogether. And obviously, each brand name has its own salience.

I see. Okay. Okay.

When you put the name Nimbooz, it's basically looked at only a summer drink. So that's a different category altogether.

The next question is from the line of Chirag Shah from CLSA.

I think Mr. Jaipuria answered my question on the energy drink part. But just a quick one on the CapEx. I just wanted to ask, do you think that CapEx for FY '20 was a bit higher than what we initially estimated? I think it ended at about INR 560 crores, if I am reading the number right on the cash note. And there was some value-added dairy beverage acquisition in Zambia, which is included in CapEx. If you can just elaborate on that? And then the CapEx going ahead into the next couple of years?

No. You see, part of it, we have received money from Pepsico in '19. So about INR 200 crores was that was which was committed to Pepsi was spent this year, and that is why it is showing a higher CapEx. And another INR 40 crores was...

Ind AS accounting.

It was accounting adjustment. So if you take out these 2 categories, it comes down to INR 320 crores.

46 crores Ind AS adjustment.

So actually, it is not higher than what we had planned. So that is where basically the main reason.

Sure. And then the CapEx -- so CapEx, going forward, because if I'm right, minus the juices, we don't really have too much of CapEx going forward. Is that still true? And what will be the number?

No. It is still true except if the growth happens in certain territories, which is higher than what the plant's capacity of that territory is, then you have to go into brownfield plants. So you have to add one line or just add some production capabilities in that area. And the only one additional plant, we will be getting greenfield would be basically in Bihar, which was a territory which we had taken, but it's not going to be this year. It is going to be for next year.

Got it. Okay. Sure. And just on the dairy side, what is the plan going forward now? Now that things seem to be settling, what is the plan to roll out the dairy drink?

Well, dairy is doing well for us. But what has happened is because of pandemic last year, we slowed it down. And now it is back on track and the products are light. And it will be still a very small part of our business, and we want to see it properly put in the market and see the results from the market before we will go for an expansion in the next territory.

So fair to assume that CY '21 will not see large investments happening on the dairy side?

CY '21, yes, won't be a large investment in dairy side. You are right.

The next question is from the line of Percy Panthaki from IIFL.

My first question is on the recovery in sales, the trajectory. So if I look at your India business, you had done minus 2% sales growth in the September quarter and now we are at 0%. So there isn't much of a recovery here. And we've seen across all other FMCG segments and even consumer discretionary also that the recovery in December quarter has been much sharper than September quarter. So what is the reason for this in your view?

I think the numbers are not correct. Because quarter 3, we were minus close to 7%. And in quarter 4, we are positive by 1.2%. So there is closely...

Okay. So you're talking about the volume. I was talking about the value. That is the bit.

So volume, I'm talking because volume -- because in quarter 4, the water sales picked up, so the value comes down. And that is our smallest quarter. So also, it's effective. It can't be very big.

Fair enough. Fair enough. Sir, second question is on the CapEx going ahead. So for juices, we had put a CapEx of about INR 550 crores in Pathankot. And typically, we have held in the past that at seasonally adjusted peak capacity, we are able to do a sales turnover of about 2x, which would mean that the Pathankot plant should support about INR 1,000 crore plus kind of turnover in juices. We are nowhere close to that. We are actually less than half of that right now. So why are we even thinking about or talking about putting up a second plant now in juices?

Where have we said we are putting up. First of all, INR 500-and-odd crores was for dairy, juices and soft drinks; it was not only for juices. So we are producing all the 3 categories there, and our turnover this year will be very close to what you are talking for the investment, and maybe I think...

Okay. Okay. Okay. I stand corrected in that thing. And lastly, on international business, very good performance. Could you give some color on the geography-wise performance and also the story behind the numbers, what has led to this robust sales growth?

See in Nepal, in quarter 4, we have grown at 25%. In Sri Lanka, we have not grown. We have gone negative because of the lockdowns. So if each country is not really giving the right picture because it depends on which country opened up, which country did not open up. Morocco, we are at par because lockdown was still very stringent. Zimbabwe, we have done extremely well. We have grown at 40% practically. And Zambia, we have grown at 17%. So the lockdowns were much milder or very little in Zimbabwe and Zambia. Whereas Morocco was much more stringent because it was close to Europe and the position was very bad in Europe.

Okay. And sir, all these are volume growth numbers, right?

I'm giving you volume numbers, yes.

The next question is from the line of Devanshu Bansal from Emkay Global.

Congrats on a good margin performance. So sir, PepsiCo indicated market share gains in beverages segment in India in their earnings call. So -- and there has been a healthy Visi-cooler addition for us in Q4 as well as we did take some pricing actions as well. So how should we raise this on market share gains in the upcoming season for you, guys?

Well, I hope we can gain market share. I wish I could tell you ahead of time, but it all depends on how Coke performs and how -- we are trying our best, of course, to gain market share, but let us see. But the season has started off -- the year has started off well, and we see healthy growth coming this year.

Right. But PepsiCo, in the last call, indicated that they have gained market share, sir?

That is right. Last year, we have gained market share.

Okay. And second question from my end. Since we are maintaining the CapEx guidance of less than 50% depreciation, and if we are on an improving trajectory, then according to my estimates, we should be generating a healthy amount of cash in the upcoming year. So any sense on the amount of debt reduction we can see in CY '22 since we are going low on the CapEx side?

Very right. For this year, there will be -- excess cash will be used for reduction of debt only. That's correct understanding.

And we will be maintaining a similar amount of dividend payout?

That we will be putting up at the appropriate time before the Board to decide on that. But our policy on the dividend is very clear, and we have been adopting that consistently for last 4 years.

Okay. And on this new product introduction, since this is a juice-based product, so will it be falling under the lower GST plan? Is this the right way to think about it?

Yes. It will be.

Okay. And last question, last bookkeeping question. So tax rate was low for us in the last calendar year. So what should be the level of tax rate we can assume for CY '22?

CY '21, actually, because we follow the calendar year, the first thing. Secondly, it should be around 24%. In the current year, there had been profitability in overseas, which was substantially good at least in the quarter and where we had carryforward losses. And in some countries, there is no MAT concept, so it was lower. But going forward, 24% tax blended is a good assumption.

Okay. And one last from my side. Can you provide the annual volumes from each of the international territory?

For 2020?

Yes, yes.

So Nepal was close to 16 million. Sri Lanka was about 10.5 million. Morocco was about 18 million. Zimbabwe was 34 million. And Zambia was 9.2 million.

The next question is from the line of Yogesh Patil from Reliance Securities.

Am I audible, sir?

Yes.

Yes, yes.

So sir, what was your realization in this quarter compared with the last year same period? This is my first question.

Okay. It was 3.2% higher than the last year's same quarter, from INR 148, it is INR 152.7 per case.

Okay. And second question is related to PET prices. As we know, the crude prices touched to $53 per barrel. Do you see increasing product prices? And how much impact do you see in the first quarter over the CY '21 at EBITDA margin level, if any loss estimates are there?

I don't think we will see much changes because we have reasonably covered for the major portion of our year. So we have covered ourselves. So I don't see a major issue for us, although PET prices have gone up drastically, but it won't affect us.

The next question is from the line of Shantanu Basu from SMIFS Limited.

I would like to know your other operating revenue for CY '20. So that's my first question. And the second question is, I mean, what plans do you have for further international expansion in organic opportunities in CY '21 or beyond?

So we are always looking for expansion, but it depends if we get anything. Last year was a year which has been washed off. So we are not in a rush. We want to reduce our debt this year. And also, if we get a good opportunity and Pepsi offers something to us, we are definitely always open to it. It all depends on the pricing and the territory. So there's very little to acquire in India now. So it has to be outside whatever we get an opportunity.

Right. Any special -- any focused territories, any countries that you are looking at?

Right now, we are still looking at it because last year, we were more keen to make sure that everything went well at home. And because of the pandemic year, we were not on the prowl. So I think this year, we'll start looking at it once our debt is reduced.

So would it be fair to assume that it would be in Africa or in Southeast Asia?

Well, those are the only 2 territories possible. It will be either Southeast Asia or Africa. We're not going to acquire U.S. So that's what it looks like in case it comes.

Okay. And the other operating revenue figure for CY '20?

It's INR 89.6 crores. This is -- there are a few plants where we get the grant, which before the GST era, which was here. So this is a figure which will keep on happening. Plus at the consolidated level, small revenues booked under this rate. It's a combination of all those things.

So it's INR 89.6 crores?

INR 89.6 crores. Yes. That's right.

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

So sir, just wanted to know about 2 things. One, what is our current market share at the end of December? So definitely, it would have got impacted during COVID. But now considering the situation is more or less stable, so what is the market share position at December '20 versus December '19? And secondly, again, about the performance of the 1.25-liter product, which we had seen good success. So overall, how is that product performance in the quarter?

Yes. Well, I think COVID affected both of us, our competition as well as us. So COVID had very little to play with it because market share-wise, it has affected both the companies. And as your predecessor, some of the people have said that Pepsi has said that we have gained market share in 2020. So our market share is higher than what it was in 2019. And we have done well as far as market share is concerned in 2020.

So sir, I mean, is it possible to quantify what will be the gain or like that?

No, that's very difficult because the figures -- the last quarter figures are still not out. So it's very difficult to say.

And moreover, the basis of this is PepsiCo Chairman's statement in their quarterly results presentation and their quarter doesn't coincide with our quarter, so that also will never make it comparable. Secondly, we do not have 100%, we have 85% of India. And thirdly, within India, this keeps on some gain or loss. Net-net, yes, we are on the positive side. And like I told in the last call, the overall blended share between Pepsi and Coke with Limca and acquired brands, 1/3 for Pepsi and 2/3 for them, on all-India basis, including the territories of south and west, which were underpenetrated acquired last year, all 5 subterritories acquired in the Eastern India of Bharuch, Chhattisgarh, et cetera. So it's 1/3 and 2/3, broadly we can take it.

The next question is from the line of Pavas Pethia from Enam Asset Management.

Can you give some color on the month-wise recovery in 4Q? How has been October and November and December? And how has been the months of January and February so far?

See October, we had a slight growth. November, we were minus a little bit. But December, our growth was close to 34%.

And the months of January and February so far, how has that been?

January? January, I think we are recovering back to normal what it used to be. I can't give you the exact numbers. But we -- the year has started well for us.

Okay. And in terms of numbers of southwest, which we acquired and the rest of the geographies, if I had to split the growth, how that has been?

About -- it is about the same. It's not a major gap between the new territories and the old territories. I don't have the exact number, but it is about the same. About 1% up or down, but nothing much.

The next question is from Pritesh Chheda from Lucky Investment Managers.

Yes. I wanted to understand the cost optimization that we have done, let's say, in the year gone by, how much of the EBITDA per case should benefit versus, let's say, your historical averages that we see at about INR 30 to INR 32 EBITDA per case consistently for the last 4, 5 years? But this number post cost optimization should move to what number, if you could help us understand it.

Pritesh, it's a very detailed question, I tell you. What has happened is, we take pride in this thing that in spite for COVID in the busy season, when our EBITDA is 23%, 24% in peak months of April, May, which got affected, we could retain a major portion of our EBITDA margin with a small decline. So the efficiencies brought us to a level to catch up to that in spite of that loss. So if in those 2, 3 months, where 23% blended 20% for this year, 3% if it has come down to less than 1% decline on overall basis, maybe 2% gain in the balance 6, 7, 8 months. So this is a good recovery. Secondly, the mix also has undergone a change on a month-to-month basis. For example, in the peak quarter, water was very less, plus was not there. And then in the last quarter, water has come in. And the growth -- substantial growth of 30-plus percentage gain in the month of December, which is a weak month, but percentage-wise it is good. It's a combination of various things, but overall cost reduction definitely was there and helped us. And this year to 25%, which is going to be permanent in nature, a Bargarh plant, which we took a shutdown and we started selling it from other places, and then we are shutting down 1 or 2 more plants. INR 20 crores to INR 30 crores net-net in spite of a bit of freight adjustment, each plant is going to be permanent in nature, saving in the fixed overheads.

Each plant, right? So if there are 2 plants...

Yes.

So INR 60 crores, which means 1% or as a percentage of sales?

That's right. Maybe 1% or 0.5% to 1% of expenses are going to be permanent in nature. That's right.

Okay. My second question is, we had partial consolidation of south in the calendar year '20, right? So I just wanted to know, had the full consolidation happened in a normal year, what would have been the extra volumes that could have got added? Or the other way around, how much volume on annualization basis should happen in CY '21 purely on account of full consolidation of south?

See south and west was acquired in May '19. So 2020, there was a full year for all the territories. There was nothing -- it's only that we had a bad quarter, which was April, May, June because of the lockdowns, but the complete territory was with us. There's no change in territory from 2020 to 2021.

Basically, Pritesh, you can look it slightly differently. In spite of double-digited growth, which we normally get it, we ended the year with, I think, a 10% volume de-growth. So there would not have been degrowth, there would have been growth. So that much is what is lost across buyers.

Okay. But sir -- was South not there for 3 months at least for this year?

No. This year, full year, it was there.

Okay. So what 33.7 crore cases that we see includes the full year consolidation of all the geographies?

Yes. Yes.

The next question is from the line of Sumant Kumar from Motilal Oswal.

So my question is regarding the new territory you acquired. So how is the penetration in that acquired geography? How are we doing there currently?

We are doing okay. But the real expansion, what we had planned and the go-to market which we planned, we could not do too much last year because of the pandemic. So that part we will do this year. So that's how we expand -- plan to expand the territories which we've expired -- which we have acquired in 2019. So what we had to do, which should have been done in 2020 is going to be done now in 2021. So we definitely expect growth and expansion of the market.

So what differently we are doing versus what the previous guys who are not doing?

Well, I said earlier also, I think our go-to-market was very weak before when PepsiCo is running it. And we are strengthening that, expanding our routes, expanding the number of Visi coolers and basically making sure our reach becomes much better than what it used to be. And we are adding a number of outlets, which they were not going, and that is what is going to make our reach go much better. And of course, we are trying to make sure that our cost doesn't go up simultaneously.

Okay. The second question is regarding the margin outlook, you have already discussed. But can you tell me whatever the cost savings we have done due to pandemic and all? What kind of margin we are assuming that some cost is going to be reversed. So what kind of margin is going to be for CY 2021 ?

As Mr. Gandhi said, that we expect about a percentage savings, which we have -- which we are doing by shutting down 1 or 2 plants and by making sure the efficiencies or wherever we could cut costs, we feel that will continue going forward.

So we are going to maintain the margin, what we have currently?

Yes.

Definitely.

Of normal year.

Yes, of normal year, we will maintain the margin.

Okay. What we have done in CY '20?

No, '20 was not a great margin because we lost our peak season. So what our margins used to be in '19 or before, we are going to do slightly better, hopefully, by cutting some costs, which is going to be permanent in nature.

The next question is from the line of Nikunj Gala from Principal Asset Management.

Sir, my question is with respect to the freight cost. What kind of a pressure we are seeing on account of increase in the fuel cost? And are we looking at a price increase next year?

No. We are not looking for a price increase -- in. The freight cost with slight variance will not make any difference to us. I mean, we will manage in our -- that's why we are not saying that the cost-cutting will be so high because of some of the costs will go up, some come down. So these are all part of the -- so I don't think we have to change any -- we are not changing any prices. We expect our margins to sustain.

Okay. And on the RM side, apart from PET, are you -- what kind of inflationary pressure we are looking -- we are seeing at, right now?

So we are not seeing -- in sugar, we are not seeing any major inflation. So we are okay. And even in freight, because we were able to cover a certain amount of PET prior to the season, so we will -- on an average, we will not see any major issue. So our costs will not be higher.

The next question is from the line of Rakesh Roy from Indsec Securities & Finance Limited.

Sir, my first question is regarding your dairy business, dairy production. But last time you said, you will relaunch the product in November -- January, February. Can you say anything about this product, sir?

No. So we have relaunched our product, and the product is doing well, and we expect the product to do reasonably well. But because one year has been delayed, so we are not looking for any expansion in this for the time being.

Okay. But why I'm asking because last time you said because you were going to relaunch this product. So there is no relaunch after this one?

No. We have already relaunched it, and product is already in the market again, which we had slowly reduced it because of the pandemic. But now we are putting it back in the market properly, and it has started to do well.

Okay, sir. Sir, my second question, sir, last week, 1 week earlier, a recent announcement by your manager -- management is for a new plant in northeast. Can you highlight on this, especially Arunachal Pradesh?

No. We never announced anything like that. We are looking at it, but we have not announced anything.

Yes. So the new plant in...

The CM -- we went to meet the Chief Minister for land and for looking at start and putting up a plant, but nothing has happened as yet. I mean, they announced it on their own, not with our consent. .

[Operator Instructions] The next question is from the line of Devanshu Bansal from Emkay Global.

So my question is on slow recovery in juices. You mentioned about the demand side aspect of it. So we have always maintained that there is a huge scope for penetration improvement, particularly for this category. So were we slow on this part as well because of the pandemic in the last year, and we may accelerate our penetration in the coming year?

No, no, absolutely. We have already started expanding our penetration. And what we were supposed to do last year and we couldn't do, we are doing this year. So we will expand our territories going into the smaller villages, going into the rural which is where the maximum growths are coming.

Right. And any new SKU launch for juices?

No. We have just launched -- we just said Mountain Dew Ice, which is a juice, carbonated juice category, which we have recently launched about 1 week, 10 days back. And we expect it to be a reasonably large category.

[Operator Instructions] That was the last question in queue. I would now like to hand the conference back to the management team for closing comments.

Thank you. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarifications or would like to know more about the company, please feel free to contact our Investor Relations team. Thank you once again for your interest and support and for taking the time to join us on this call. Look forward to interacting with you soon, hopefully, in person. Thank you.

On behalf of Varun Beverages Limited, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.