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' Q3 and 9 Months Results 2021 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. Rajesh Chawla, 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 state that some statements made in today's call will be forward-looking in nature, and a detailed statement in this regard is available in the results presentation shared with you earlier. I will 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 you and your families are keeping safe and healthy. I hope all of you had the opportunity to go through our results presentation. This provides details of the operational and financial performance for the third quarter and 9 months ended 30th September 2021. We are delighted to share that we have reported a robust performance during the quarter with a top line growth of 33% and a PAT growth of 60% year-on-year. The results were supported by strong volume growth of 28% driven by uptick in demand across markets. Even on a 2-year CAGR basis, our organic volumes were higher by 11%. Wide vaccination coverage in the country, along with the resumption in day-to-day activities, supported demand momentum in the domestic markets. On the profitability front, we were able to maintain a healthy EBITDA margin of 21% during the quarter backed by higher operational leverage despite an increase in raw material prices. While the industry practice is that any input cost increase is passed on, we have also worked on our cost efficiencies. For example, we are undertaking measures to light weight PET preforms. This will not only assist us in reducing cost in the near term but the benefit would be structural in nature. We are continuously monitoring the input prices to sustain our margins that will enable us to further strengthen our position in the beverage industry. In addition, we continued to reduce our debt as well as rate of interest, which helped us in improving our net profit margins during the quarter. Following easing of lockdown restrictions and improving macro trends, we witnessed enhanced traction in the domestic demand environment and exceeded pre-pandemic level. Out-of-home consumption registered an uptick driven by increase in travel and resumption in offices. On the whole, we remain optimistic on the demand environment given improving macros, onset of festive season and a growing sense of normalcy across domestic and international markets. I would now invite Mr. Gandhi to provide highlights of the operational and financial performance. Thank you.

Thank you, Mr. Chairman. Good evening, and warm welcome to everyone joining us today. Let me provide an overview of the financial performance for the third quarter and 9 months ended 30th September 2021. Revenue from operations adjusted for excise/GST grew by 33% year-on-year in quarter 3 '21 to a level of INR 23,981.6 million. Consolidated net sales volume registered a solid growth of 28.4% to 153.3 million as compared to 119 million cases in Q3 2020, primarily on account of strong uptick in consumption and demand. CSD constituted 90% (sic) [ 70% ]; juice, 5%; packaged drinking water, 25% of total sales volume in Q3 calendar year 2021. Realization per case improved by 3.6% to 156.4% (sic) [ INR 156.4 ] per case in Q3 calendar year '21 driven by higher realizations in international territories despite increase in share of water in the overall mix. While gross margins declined by 278 basis points year-on-year at quarter 3 calendar year '21, primarily because of increase in PET prices, the company was able to maintain a healthy EBITDA margin of 20.6% in Q3 2021 as higher volumes assisted in the company to achieve better operating leverages. This resulted in an increase in EBITDA by 29.9% to INR 4,946.6 million in Q3 calendar year 2021 from the level of INR 3,807.9 million in Q3 of the calendar year 2020. Depreciation increased by 2.9% to INR 1,384.9 million as compared to INR 1,345.9 million in Q3 of calendar year 2020. Finance costs declined by 26.4% to the level of INR 426.9 million from the level of INR 579.9 million (sic) [ INR 579.6 million ] in Q3 of 2020. The company continues to focus on reducing its debt and lowering its average cost of borrowing. Backed by strong volume growth, higher operating leverage and a reduction in finance cost, PAT increased by 59.7% to the level of INR 2,579 million in Q3 2021 from the level of INR 1,614.7 million in Q3 2020. During the quarter, an amount of about INR 200 million from the total foreign currency provision was reversed to other income due to corresponding reduction in the total foreign currency liability in Zimbabwe. On the whole, the company's financial position remains strong. We have a healthy month-on-month trend in sales and consumption, and the outlook remains positive for all our products categories over the medium to long term. Overall, the focus remains on generating strong free cash flows over the ensuing quarters and coming years. 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.

Can you hear me?

Yes, Vivek.

A few questions. So first off, the gross margins outlook. This quarter, obviously, gross margins, I think, contracted to almost a 6- or a 7-quarter low. What is your outlook on gross margins in the context of, let's say, oil prices still moving up and thoughts on -- views on taking up product price hikes to manage this kind of input price inflation? So that's first one.

So I think what is happening, Vivek, as we said, first of all, because of oil prices, the PET prices are going up. And one immediate effect we have done with consultation with Pepsi is we have light-weighted our bottles, which is going to save us quite a reasonable amount of money, which will help in mitigating the cost increase. Secondly, as we have said that we normally pass on the increase to the consumer, which when need be, we will pass it on, but I don't think it is going to affect our margins.

And Mr. Jaipuria, that comment is at the gross margin level you are saying or at an EBITDA -- because you have managed your EBITDA margin well in this quarter. But gross margins, do you think that this quarter seasonally adjusted reflects the bottom or there is still more pain given that Brent still is moving up?

On EBITDA margin level, so I think as long as we can maintain our EBITDA at the level we are -- as we have said, we are still one of the highest EBITDA margin companies in the beverage industry. And if we can maintain this and grow our top line, there's nothing better than that.

Yes, Vivek, this explanation is for gross margin. Otherwise, as far as the EBITDA is concerned, you might have noticed by going through our accounts, EBITDA margins we have already improved and performed much better as it is. So that has -- as if there is no change in the gross margin. So EBITDA in any case is on this journey to growth.

Got it. Got it. Second question on the -- can you elaborate on the rationale on putting this Bihar unit? What is the capacity utilization levels, let's say, in the adjacent plant? And what was the thought process?

So if you know when we bought the Bihar territory, we bought the territory without the plant. So this is one of the large states where we don't have a plant. And we have been supplying into Bihar from our neighboring territories and incurring a huge amount of freight. And our market share, when we took over from the previous bottlers, was so low. And as the market share was going up, we got hit with 2 years of COVID. And to grow our market share to the level which we are all across the country, we needed to have a plant, which was in the state. Otherwise, bringing goods from different parts of the other neighboring states, it was not being practical. And we were always running out of products, and we were not able to service the market properly. By putting up this plant, we expect very good growth there. And it is a 110 million population state which we couldn't afford to leave alone.

And this is an underpenetrated state where per cap is hardly [ 8, 9 as against 24 ] in the country. And putting up the plant will help growing the market, then our share. And for your information, these 4 underpenetrated states of MP, Orissa, Bihar, Jharkhand and Chhattisgarh, in these 9 months of the current calendar, growth had been to the tune of about 60-plus percentage, precisely 63%.

Okay. Interesting. And Mr. Gandhi, what is the CapEx and the time line that you are looking at?

For Bihar.

For Bihar, the CapEx is around INR 270 crores.

INR 285 crores.

INR 285 crores, yes. And we want to make it up for running next...

For next year's season. We are targeting to get this plant ready for our next season.

Next season means in 6 months from now?

That's right. Less than 6 months.

Okay. So all this INR 285 crores gets spent in next 6 months. That's what you mean?

Part of it is already spent, and the balance will be spent in the next 6 months.

Got it. Got it. And 2 small bookkeeping questions. First is, this GST impact of INR 40 crores, where is it accounted in the P&L?

See, GST, the revenue always is captured net of GST. So the GST…

No, I'm talking about this INR 40 crores adjustment, Mr. Gandhi.

So it's the same practice is adopted for this also. There is no change. So it's adjusted out of our top line.

Okay. Got it. And the other bit is what is the debt as of 30th September? And if you can help me with the debt at Varun Beverages level as well as at RJ Corp level?

Our debt as on date is approximately INR 2,400 crore, which is a figure INR 600 crores lower than the corresponding figure of last year. So that much debt has been reduced. And at the group level, outside Varun, including all the operating, nonoperating holdco subsidiaries, India, overseas, global, should be to the vicinity of about INR 200 crores, which again is represented by investment in other listed securities which you are aware, RJ Corp has investment in a few companies.

So fundamentally, apart from Varun Beverages, the debt level is very low and less than INR 100 crores in all our entities.

Sorry, just a follow-up to that. So at the peak of the pandemic, if I recall correctly, you had called out about INR 1,200 crores, INR 1,300 crore debt at RJ Corp level, if I recall correctly. So you're saying now what is left is about INR 200 crores?

INR 1,000 crores has been paid off.

[Operator Instructions] The next question is from Chirag Shah from CLSA.

Unfortunately, we have not had a normal season since we acquired South and West territories. But now that things are normalizing, can you just give us the context of the growth differential that we had between South and West? And how do we -- our level of preparedness to gain market share in these territories.

So you see the actual working what we had started doing for the South and West, we've never really got the opportunity to fructify it. But still, our organic growth in South and West is reasonably high, and we are growing at about 37%. So I think once we get a one normal year, our growth will be much higher, and we expect to rationalize and hopefully get to the level of share which we should be.

Just on that, I mean, can you just give us the context, from where you started to now, what has been the change in terms of the distribution infrastructure that you have put on ground?

So what has happened is actually when we took over the territory, the distribution system was quite weak. And as we started adding more vehicles, more routes, more people, unfortunately for us, we could not even face one real season. So we took over the territories in May '19. And in both '20 and '21, both the years, our peak season, which is April, May, June, got spoiled because of pandemic. But still, as we had added our go-to-market and added our vehicles and our distributors, we are still growing at about 36%, 37%, which is a huge growth. And we feel, if we would have had a one season under our belt, we could have shown more confidence to the distributors, and we could have progressed much faster than this.

Sure. That's very helpful. My second question is just continuing on the gross margins front. Now last quarter, we mentioned that we have covered a lot of the PET for the full season, right? So far as Q3 is concerned, did we have the full impact of higher PET prices flowing through the P&L? Or was there any low-cost inventory cover that was still left from Q2? And correct me if I'm wrong, but we normally have higher stock of PET inventory going towards the end of the year. So what is the impact from that on the raw material price volatility going forward?

Well, there is an increase in the PET price which we all know. But I mean this quarter, the higher PET price is already taken into account unless until, of course, in the next 60 days or 90 days further, it flows up, which, of course, has not been taken into account. But we always take in a large quantity of stocks during the off-season, which is when the best pricing of raw material is available to us. And that's why our inventory levels go high ending December, which is our calendar year.

And Mr. Jaipuria, can you just also give some feedback on the dairy portfolio launch that you have done in North India?

No, dairy is doing extremely well. Again, the same problem we had, as we launched the products, we could not really spread it properly because the peak season, we lost it. But the growth is still at about 40% of what the growth has been. And the dairy beverage growth overall has been about 57%. So our Tropicana growth has been close to 40% whereas dairy beverage has grown at 57%. And we expect if 2022 is normal, we should have a very healthy year for the dairy business. And we have launched 2 new flavors, which will further add to the growth of the dairy business.

So I know it is early days, but are there any learnings that we have? And do we have to go back to the drawing table in terms of the dairy portfolio that we have launched?

I don't think -- the only learning unfortunately was the pandemic, which affected the overall distribution. And whenever you are launching new products and you can't distribute properly, it affects it. But since the pandemic, when we started -- the market has started opening, it's showing huge traction. And 57% growth is a huge growth, and we expect it to get much better than this going forward.

Right. And Mr. Gandhi, I mean do we have a large exposure to the Sri Lanka market as well? So I mean given the fact that the country is facing a lot of ForEx issues, is there any risk that we have to our business?

Well, Sri Lanka is very small within our total portfolio. But luckily, what we did is -- our learning 2 years back was we have made these companies, all our foreign subsidiaries debt-free. So whatever is already invested and capitalized properly. Some it takes -- as the foreign currency translation comes in, but that effect is not going to be large because our investment in that country is going to be the lowest.

Got it. And one last question, if I may slip it in. Can you guys just give us a sense of where we see the promotion activities today? And is there a big bounce-back that we are seeing on the promotion activity side?

Promotion -- I didn't get the question properly. Can you speak a little slowly? You are not coming through properly.

The promotion activity, Mr. Jaipuria?

Obviously, the promotion activities have been reduced slightly, and discounting will be reduced slightly as the conditions will prevail, so that we can be competitive also but, at the same time, not over competitive. And we have to be careful on the margins, and we are being quite careful. And the cost escalation is to everybody. So everybody is being conscious now.

Got it. I'll just get back into the queue. All the best for the dairy business launch as well.

Thank you.

Thank you, Chirag.

[Operator Instructions] The next question is from the line of Nihal Jham from Edelweiss.

Congratulations to the management. Sir, 2 questions from my side, on the volume growth side. Recently, obviously, we used to break the business in terms of out-of-home and how in-home has transferred specifically during COVID. Now given the strong organic volume growth that we've seen, is it right to say that out-of-home is basically back to the pre-COVID level and the in-home has sustained, and that is what has led to this 11% CAGR? Is that the right way to break it up? If you could just give some more color around it.

Absolutely. We used to have a major portion in out of – on-the-go. And home consumption used to be much less before the pandemic. And as the home consumption has gone up, that has failed. Whereas out -- on-the-go market has again come back. So that's why we have seen such a robust growth. Both in-home has grown and is sustaining and out -- on-the-go is again coming back to normalcy.

That's helpful, Mr. Jaipuria. A related question to that is that for this 11% number, is it that the exit number in September was much higher or this was more or less similar through the quarter?

When you say 11% -- I didn't get it.

The organic -- 2-year organic volume growth that we achieved overall.

So that is comparative to '19 what we are talking when there was no pandemic.

Yes, this is CAGR over '19 because many of you are interested in knowing if there was no pandemic. So this growth instead of...

What we are actually showing is even after we went through the pandemic in the peak season, we have still grown over a nonpandemic year.

Absolutely. Sir, what I was trying to understand is that, was it that by September, this number was much higher? Or was it more or less similar for all the 3 months in this quarter?

In fact, all the 3 months had sustained, growing the...

No, what he is asking is, this quarter, was it higher? Am I right?

Yes, just asking that -- was it that the number must have been 7%, 8% for the months of July, August and, specifically, September would have seen a growth of 14%, 15%, and we see them...

July, August, September, all 3 were pretty good for us, and they've all grown at a reasonable pace. What we are showing is still about 11%, give or take 0.5%, 1%, up or down.

Understood. That makes it clear. The other question, Jaipuriaji, was that, again, looking at the volume growth category-wise, are there any specific brands or categories which have done much better? We see that a lot of the growth has come under CSD segment. Is it that -- as you've discussed about Sting specifically in the past, is it the one that is adding a lot of incremental growth over, say, 2 years back? Or anything around that, that can add any color to this.

Yes. Our energy drink, Sting, has really outperformed the market and our own portfolio. We are growing close to 700%, which is 672% we are growing in Sting. And that has really outperformed. And we expect -- and this is when the on-the-go was not quite rampant in the peak season because this is all small bottles. This is not large bottles, which is not had at home. So we expect this growth to continue because we will have the peak season hopefully next year. And the other product which grew well for us was Tropicana. We grew at about 40%. And Gatorade was the other product, which grew at about 53% for us; and dairy beverages, which grew at 57%. So all our new portfolios have grown tremendously well, including our core portfolio, which has grown healthily.

That's helpful. Just one last question from my side, considering the new planned CapEx that we've announced, how to look at CapEx for the coming 2 years?

Partly, it will depend on the growth also. And if the growth is so well accelerated, then there will be some more CapEx, which is a very positive sign. But otherwise, the guidance which we have given is close to the depreciation value, is what we are looking at CapEx, unless until, of course, we go to a new country or a new product like dairy. Dairy expands hugely. Tropicana expands hugely, then we have limited capabilities and we'll have to expand on a greenfield plant.

But the guidance say that in the long run, if you have to see what the figure is going to be, for a longer period, it's going to be equal to the depreciation figure.

So this CapEx also fall in that side of the [ P&L ], the depreciation...

In longer term, yes. In the year by year, it may not be. But in the longer average, yes.

The next question is from the line of from Dhruv from Monarch AIF.

Congratulations on a good performance. Sir, if you can tell us what would be the capacity at the Bihar greenfield plant?

We can firstly tell you the lines which we'll be putting out. At CSD PET line, 720 BPM.

So our CSD line we'll build with a capacity of 720 bottles per minute. Our juice line would be 300 bottles a minute. Our water line will be 300 bottles a minute. And our glass line will be 600 bottles a minute. So these are the 4 lines we are putting there, which we'll be able to service totally at Bihar territory and maybe the outskirts of West Bengal.

Okay. That's great. Any projections at peak capacity and in a normalized year what this revenue contribution could become this time?

See, this is going to expand like anything because the penetration in that space is really lower. And normally, our plant will be in full capacity basis. CapEx and the revenue ratio is about 2.5x when they get matured, which, of course, it will take a few years. But ultimately, it will INR 185 crores into 2.5x.

INR 285 crores.

INR 285 crores into 2.5x.

INR 285 crores into 2.5x.

I feel in a place like Bihar, it might be much faster than the normal few years it takes because it is very lowly penetrated, and we believe once we have the plant there, our growth will be much faster than we have anticipated.

Okay. That's correct, sir. And sir, also, I wanted to know about this customer facility that you are putting up for the plastic preform and closures. So what would be your CapEx over there and the time lines for commissioning this plant? And also, I assume this will be close to your Pathankot plant, so there would be some savings in your logistics cost as well.

Absolutely. So this would be approximately about INR 190 crores, and we expect this to be operational by next year. And the biggest advantage we'll have is all the new acquisitions we have done did not have a backward integration, which was acquired from PepsiCo. So this will take care of the backward integration for the new plants which we have acquired also.

So sir, commissioned by next year, any particular month, first half, second half, if you could say?

For peak season. It will be before the season, so we are looking at by March.

Okay. So again, less than 6 months' time.

Yes.

Okay. And sir, in the first 6 months, I remember in the last call you had said that our debt was reduced by INR 625 crores. So in these 3 months, any debt repayment that you have done?

It was 2,400 and it stayed at 2,400. In this period, some of the CapEx -- or capital work in progress has happened, dividend payment has happened and some tax payment is happening. So debt that way is not reduced.

Because part of this expansion, what we are seeing in Bihar and Kathua, this has been already paid out from this quarter without increasing our debt.

Correct. Correct. Got it. Got it. And sir, just lastly, on the average cost of debt, what would it be currently versus, say, December ending in 2020?

Today, it's maybe around 5.5% average cost. And last year, maybe 6.5%.

Okay. 6.5%. So almost 100 bps cut there?

That's right. And the marginal debt which we are borrowing is to the tune of something, 4.2% like.

Okay. This is the borrowing cost currently?

This marginal which we are borrowing.

Our average borrowing cost is about 5%, 5.5%. But marginal cost what is -- temporary which we are borrowing is at 4.2%.

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

Congratulations on a great set of numbers. Sir, we have seen a 10% increase in international realizations so far in 9 months. So firstly, what has led to improvement in realizations in these markets despite higher share of water?

Morocco has started performing -- Morocco was one of the territories where we were struggling. And from last year, Morocco has started performing well. And this year, it has performed extremely well for us. And we've had huge growth there. And partly, the growth is because of water. So that is one part. And then exchange rate has...

Okay. In fact, purchase realization, if you're asking -- if your question is specifically for that, it's because of the currency translation. The currency in Zambia has improved. And the realization purchase in Morocco, there’s reduction, and the discounts have gone up.

Yes. [ In Zambia, it's 14% ].

Sir, can we assume that these levels are sustainable? As in what is the viewpoint that you guys are having as of now?

Of course, we hope to even make it better because our lines in Morocco, the expansion lines only came into production in end of June. So they should be much better actually next year.

Sure. That's encouraging. Secondly, we booked about INR 90 crores to INR 100 crores of other operating revenues in the top line as it relates from state government. What is the run rate that we should assume for this going ahead?

Whatever rebate is getting captured, that's long term, still maybe 6, 7, 8 years left. There are a few selected -- a couple of plants, where these are entitled to. Rest all there is no such exemption.

Okay. Lastly, sir, our business shall generate a lot of cash going ahead. So post debt reduction over the next 3, 4 years, can you suggest as in how you plan to utilize this cash generated in the business post these 3, 4 years?

So we are hoping for some additional territories. We are working with PepsiCo. And as and when we get some new territories signed up with PepsiCo, we will inform you. But we are going slow because India mostly we have already got everything. So we have to know. The territories which are left for us is mostly Africa. And we want our exposure to be very limited. And as Indian business keeps expanding, we will keep on adding maybe one country by one country in Africa.

Sure. Sir, I have one last question. Can I go ahead?

Sure.

Carbonates category grew faster than water and juice categories. So if you look at this 11% CAGR number, carbonates have grown at 12% and water, juice, on a 2-year basis, have grown at 7% to 9%. So general, in terms of trends, if we see a focus on hygiene and health should lead to higher growth in juice and water, can you help us understand how do you see growth trends in these 2 segments going ahead?

Well, water, juice and dairy, they will all grow substantial. It is basically -- this year is not the right year to judge anything as the go-to-market has reduced in the peak season. So obviously, as people were not going out, they were not drinking any mineral water. Our populations don't drink mineral water sitting at home. So that is one of the reasons. And as I said, the energy drink or the smaller packs, even the smaller dairy packs, which we are -- what we call our flavored milks and other dairy products, they were all slow partly -- although fast enough but slower than what we had anticipated. So I think you will see huge growth in the noncarbonated products also next year with the go-to-market increasing.

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

Yes, sir, this time in your opening comments, you mentioned that the 2-year volume organic growth was 11%. Now it's been about a couple of years before which we did the acquisition, and 2 years were fairly difficult. And considering that this year also we missed the season, is it fair to assume that incrementally, considering the white spaces that you have in South plus the normal growth, we should register a fairly significant double-digit organic volume growth on our total portfolio in India, is my first question. My second question is until a couple of quarters back, we were mentioning that we did not require CapEx and a lot of the CapEx would be maintenance. Just wanted to understand this Bihar CapEx, is it that we never had a plant or we were not servicing that region and we are putting it? Or any other reason for coming up with a INR 300 crore CapEx? And lastly, on your operating...

Can we answer this because I'll forget the other questions?

Okay. Yes.

First, I'll answer to the Bihar part, what you asked me. See, Bihar, we never had a plant, and Bihar is a large territory, although very lowly penetrated. We have plants around in other states, and we were servicing it out of UP. But unfortunately, you can never do servicing properly when you're bringing product from other states and trying to -- and especially for a large state like Bihar. And our market share was so low in Bihar that we feel the growth opportunity in Bihar is going to be so large. And unless until we put our own plant there within the state, it will be impossible to garner there. And being a 100 million-plus population state, we don't want to let it be. So that is one of the key reasons why we are putting up a large greenfield plant which we would have otherwise maybe not put.

Okay. On the volume growth outlook, do we see a case where...

If you look at the volume growth post pandemic, if you look at the last quarter also, it's clearly showing what the growths are looking like. And we hope we can maintain this. I can't say that it will be as robust as this. But we feel the market is ready, and there is enough demand in the market. And I hope we should do extremely well next year.

Okay. Sir, the question on operating leverage, this EBITDA per case. We were always of the opinion that considering the fact that we have spare capacities everywhere, this INR 30, INR 31, INR 32 EBITDA per case should move higher. Is there any change in the thought process there? Or what are we doing to improve the profitability of the business?

See, we have always said that 21% EBITDA margin is one of the highest. We can always keep trying to do better than that. But to really say that or assume that we will do much higher than 21% is going to be very tough because every year, there is some new challenge or some -- like this year, the PET prices are higher. But we are taking corrections as and when, whatever is happening, to at least making sure to maintain our 21% margin. And this year, we have taken the initiative of reducing the rate. Now this rate reduction is going to be permanent. It's not going to be for the year when the petroleum prices are higher. So as the petroleum prices rationalize, this will definitely add to our margins. But we never want to say that we will do better than 21% because as it is, 21% is a huge and very high margin. So if we can keep increasing our top line with the growth, what we are seeing, I think the 21% margin will be very, very reasonable.

Okay. And sir, last I wanted to check, a bookkeeping question. I was searching the presentation, I couldn't get. What is the 9-month India volume growth and what is the 9-month international volume growth?

India, last 9 months is 36.4% volume growth; and international, 29.7%.

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

Just one issue. I mean Varun Beverage has been a phenomenal execution machinery. We have put out different products. We have diversified into categories with both territories, and now we are putting plants at locations which will help us, which were not penetrated well. So all of these things have been at the back of the execution machinery that this business demands and that Varun has provided all along. Now if you look at 2019 calendar year, the peak season, turnover was INR 2,500 crores, that is April to June. 2020, clearly, because of the challenge, it slumped to INR 1,400 crores. And 2021, again, unfortunately, the same challenge, but we still did better at about INR 2,000 crores. Very hypothetical question I want to ask. Given our preparedness, given our strength of the manufacturing, distribution, product portfolio, diversity of the category, territory acquisition and everything, if -- supposing in the current calendar year, if these Wave 2 were not to occur, that INR 2,500 crores in '19, would it have look like INR 3,500 crores to INR 4,000 crores? What it would -- really, hypothetically, just trying to understand your mind.

Well, technically, yes, I mean if we can grow at 25%, 30% during the other -- after pandemic in July, August or September and what we have done in '19, there is no reason why we should not have grown in the quarter when the pandemic happened. So theoretically, yes, what you are saying is it can happen and should happen, but I don't want to say it will happen because it...

In fact, that should not be taken as a forward-looking statement. But what I can draw, if I extrapolate the Q3 of this year, which is 11% CAGR, and the same on 2,200, if we apply 11% CAGR next year, meaning about 35%, 36%, so automatically, we reach to the level which is expected. And as you rightly pointed out that our execution is going to the better margins or one of the best, I think we can definitely reach that and meet our expectations.

So Raviji, if we take that hypothetical conjecture a little further. To repeat, INR 2,500 crores in '19, INR 1,400 crores in '20, INR 2,000 crores in '21 and if you look at the other period, once we leave out the challenge of calendar 2020, but given the way we are doing it in 2021, if 2022 season is normal, would it be fair to say that a 20% compounded growth from '19 to '20, it should take us actually closer to INR 4,000-odd crore in the April to June season of 2022. Is that a possibility or it's a wild guess on my part?

It's a possibility, but wild possibility. And I'm sure if we have a decent season and we don't have any pandemic, there is no reason why we can't. And especially after increasing and expanding our go-to-market in South and West and in the East, and with our plants coming up in Bihar, which was one territory, which was being underserviced and a decent-sized territory, there's no reason why we should not be able to expand in a very healthy way. But the exact numbers, obviously, I can't tell you. But if we can grow in the other months, there's no reason why we should not grow in the peak season. We have enough capacity.

Yes. No, sir, I'm just thinking the same kind of a growth rate that we are now clocking when we still don't have a full normalcy. But our growth rates are reflecting very healthy robustness. So I'm saying even if we do, supposing from 2019 at 12%, 13% kind of a compounded growth, in the 3-year period, that should take us to INR 3,500 crores. And if we are talking of something like 16-odd percent compounding in these 3 years, it should take us to INR 4,000 crores. So I'm saying about 12%, 13% to 16% compounding, if this pandemic was not too intervening in 2022, in your opinion, it's not a wild conjecture, it is a possibility?

Absolutely. Absolutely.

[Operator Instructions] The next question is from the line of Aniruddha Joshi from ICICI Securities.

So just one question. We are having a pretty strong revenue growth, and it's likely to continue in the coming quarters, too. So how do we see the investment in distribution expansion? This CapEx we are doing, how do we see the distribution because the retail touch points has remained at around 2 million for almost a couple of years. I agree, COVID may not have allowed the opportunity to expand the distribution. But what is the plan on that? And is the company working with any distribution expansion plan? Or lastly, is the 2 million count in a way sufficient to drive the growth in the coming quarters?

See, we are expanding our distribution. But unfortunately, because of COVID, a large number of stores shut down. So going forward, definitely, if next year is a clear year, there will be expansion of a number of outlets because without expansion, we can't work and we are targeting to increase between 10% to 15% number of outlets, so which would be close to about 300,000 outlets.

Okay. And so these would be in any particular region you're looking at or it would be...

It will be in the regions where we are very big. Obviously, we have less penetration. And as I said to you, the newly acquired territories and the markets where we have been weak, which is East, West and South, we will have to expand our outlet base much faster. And we have already started expanding, but obviously couldn't do justice because of the 2 bad years of -- in the peak season. And that is why you're actually seeing the growth coming even after the peak season is over.

Right, right. And lastly, what will be our e-commerce plus modern trade contribution and how it would have changed Y-o-Y?

It's 5.6% for the organized restaurant and the modern trade, together.

5.6%, sorry, sir.

The modern trade as well as the organized restaurants put in together.

See, a lot of the restaurants shut down this year. There was a lot of -- the reduction in the number of outlets in restaurants, I mean most -- half of them have still not even applied for licenses. If you read in the newspapers, a lot of the individual restaurants or people could not even apply for relicensing. So there has been a big jolt in this category. It's basically the fast food, which are really growing fast, which are large and big brands, but the small restaurants have -- a lot of them have shut down.

Okay. Okay. Sir, e-comm number, if you can share? E-commerce?

It's part of the modern trade. Volumes of this traditional trade is where we are -- major volumes are coming. E-comm and modern trade is still very low.

Next question is from the line of Vicky Punjabi from JM Financial Services.

Sir, firstly, just trying to understand the capacity utilization here. So when the IPO happened, there was a thought process that the capacities were underutilized. We've seen CapEx over the years, and there is always a tussle between optimizing freight cost and expanding capacities or increasing utilization. So if we were to understand these limitations, what's the kind of optimal capacity utilization that the company can target? And versus that, where are we currently?

If you look at it, the expansion you are seeing is either in the back end which we did not have when we acquired PepsiCo plants because they didn't have any back-end capacities. And the other -- second expansion you are seeing is basically in a territory where we bought without the plant. So Bihar was the only territory we bought which we did not buy with a plant. So we did not pay for it. Our CapEx was very low in Bihar to acquire the territory. So to make sure that going forward -- and that is why you are seeing a greenfield. So both the things are not related to our existing capacities but to the additional territory which we had bought or the back end which we want to make sure, because if we don't have that next year, a lot of people are going to have trouble getting the back-end support as we see logistics are becoming a nightmare. So we want to foolproof ourselves and make sure that we are not lacking into anything.

Sure. My question is a little on the side of what do you think would be the optimal capacity utilization, where are you currently? And once possibly that optimal capacity utilization is reached, will that CapEx guidance of being equal to depreciation actually go higher?

No, it's good. But if we can achieve that, our profitability and bottom line will go up simultaneously because as the turnover will go up, as the EBITDA will go up and if we are growing faster than a certain pace, then we'll have to keep building the new capacity. It doesn't have to be greenfield. They can be brownfield. So it's the margin and the volume growth are faster than what our anticipation is, then, of course, our CapEx will also go up.

Sure. Sure. No, no, I was just thinking from the perspective of the cash utilization in the business. So I just wanted to understand whether we expect reaching an optimal capacity utilization?

See, Vicky, here it is that as the guidance -- elevated guidance is given. One is when we are reaching to the new territory or if we buy the territory without plant or we are the company, which has the maximum margin because we 100% backward integrate. And also added to this one, one thing you can also see, when we go to the territories like South and West where the seasonality is lower so lesser CapEx is needed, then North and East were higher investment is needed, CapEx is needed because of the seasonality. And now there is new angle, which is the juice or the dairy. The special kind of equipment are needed. And like 57% in this quarter, we have grown and in the pandemic year. And if that opens up simultaneously, continue growth like Sting, 100-plus percentage for a couple of years, we will have to repeat these plants in South and West also. I think it becomes very difficult to project at this moment. However, quarterly basis as and when there is -- any demand comes, with -- we will see better utilization, we keep on evolving and giving our CapEx plan. So the guidance is that -- as in the last 2 sentences, which is given, applies all over. And one more thing is that earlier, 100% of the mix used to be glass, which came down gradually. Today, the glass is about 15%. And the capacity at the time of IPO, which was mentioned on an overall basis, now you have to dissect that for glass, which cannot be interchanged with PET. PET is growing like anything. Glass for last 5 years has not grown at all. So that capacity cannot be -- it's not fungible to PET. Same thing with the capacity for dairy or for Tropicana, it's not fungible with the carbonated juice. So these plus minuses are to be seen, maybe some CapEx in advance and some maybe later. However, whatever is invested sooner or later in a vast country gets utilized, so we have to be broadly on track. I can only say that. And therefore, the omnibus guidance what we perceive today is that the CapEx is going to be around depreciation figure for modeling purposes, which if we see for the last 5, 7, 10 years’ analysis, it will come true.

Yes. Sure. Okay, sir. And just one more question. I wanted to understand, South and West territories have been impacted during the peak season. In the nonpeak season, I mean, in this quarter, you've done something like a 37% growth. Would you have any idea on how these territories themselves have grown? And was there any kind of market share gains here?

I’'ve talked about the market share. But as the Chairman had initially said that South and West has grown some 36.9% or 37% in the current year.

Yes, yes. And the market growth, any clues on that? How has the market been?

We don't have the exact figure.

Just at the end of the year...

On a quarterly basis, we don't get that figure.

I now hand the conference over to the management for closing comments.

Thank you. Thank you, everyone. 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 thanks for taking the time to join us on this call. Look forward to interacting with you soon. Thank you very much. And wish you Happy Diwali.

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