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 Q3 CY 2024 Earnings Conference Call. We have with us Mr. Ravi Jaipuria, Chairman of the company; Mr. Varun Jaipuria, Executive Vice Chairman and Whole-Time Director; and Mr. Raj Gandhi, Group CFO and Whole-Time Director 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 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 hope all of you had the opportunity to go through our results presentation that provides details of our operational and financial performance for the third quarter and 9 months ended September 30, 2024. We are pleased to report another strong quarter despite the challenges posed by excessive rainfall in India. We achieved consolidated revenue growth of 24.1%, including contribution from BevCo driven by our expanded distribution network, increased product penetration and favorable demand trends in market -- in key markets. Enhanced operation efficiencies led to an improvement of 117 basis points in our EBITDA margins resulting in a robust 30.5% growth in EBITDA and a healthy 22.3% growth in PAT for the quarter. On the operational front, we are excited to share the successful commissioning of our greenfield facility in the Democratic Republic of Congo, DRC, in response to strong demand and our limited presence in this region. We have swiftly ramped up the facility to 100% utilization on 3-shift basis. This performance has encouraged us to move forward with the expansion plans, including backward integration in the second facility expected to commence operations in the next calendar year. Furthermore, we are making significant progress on new facilities across India, which are on track to be commissioned before the key season next year. These developments reflect our commitment to capturing high-growth opportunities and enhancing both our domestic and global footprint. As part of our commitment to long-term growth, the Board of Directors has approved the proposal to raise funds through the issuance of equity shares with an aggregate amount not exceeding INR 7,500 crores via QIP, subject to shareholders' approval. The capital will be instrumental in supporting our growth plans, including expansion into new territories, potential strategic acquisitions and further strengthening of our balance sheet. Overall, our focus remains on sustaining healthy growth in both Indian and international markets. The Indian market with its growing consumption class and evolving consumer preference continues to be -- continues to offer immense opportunities. Meanwhile, our global operations, particularly in Africa, are positioned to drive further growth as we capitalize on emerging demand trends and enhance our operational capabilities. Our proven execution capabilities have been instrumented in delivering exceptional value to all stakeholders, and we remain committed to sustaining this momentum well into the future. I would now like to invite Mr. Gandhi to provide the highlights of our operational 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 third quarter and 9 months ending September 30, 2024. Revenue from operations adjusted for excise GST grew by 24.1% year-on-year in Q3 calendar year 2024 to the level of INR 48,046 million. Consolidated sales volume increased by 21.9% to the level of 261.5 million (sic) [ 267.5 million ] cases in Q3 2024 including about approximately 34 million cases from South Africa and DRC markets. The Indian market grew by 5.7%, primarily impacted by heavy rains throughout the quarter, while international markets grew by 7.9%. CSD accounted for 75%, juice accounted for 4%, and packaged drinking water accounted for around 21% of the total sales volume in the quarter 3 of calendar year 2024. This is at a consolidated level. Non-carbonated beverages portfolio, which includes juice based drinks and value-added dairy beverages, sports drinks, et cetera, in India has grown by 23.9%. This is about non-carbonated beverages in the 9 months. They are up by 23.9%. Our gross margins during the quarter improved marginally by 22 basis points, raising to the level of -- rising to the level of 55.5% from the earlier level of 55.3%. This is reflecting our continued focus on cost management. This, along with higher operational efficiencies led to a 117 basis point expansion in he EBITDA margins rising to the level of 24% from the earlier level of 22.8%. This is driving a robust 30.5% growth in EBITDA, which has gone to the level of INR 11,511 million during the current quarter. Depreciation increased by 50.2% primarily due to the acquisition of BevCo and the establishment of new production facilities in India and the plant in DRC. Finance costs increased by 89.7% reflecting the impact of the new CapEx on these facilities, the BevCo acquisition and higher borrowing costs. PAT grew by 22.3% to the level of INR 6,288.3 million in the quarter 3 of calendar year 2024. This is compared to INR 5,140.6 million in Q3 of calendar year 2023. This is driven by volume growth and improved margins. The other income in India more than doubled on account of INR 310 million dividend received from Sri Lanka. This is a maiden dividend declared by that subsidiary. This is for the first time and is non-taxable under the Income Tax Act. In conclusion, the company continues to maintain a solid financial foundation. Our focus on expanding into high potential markets, enhancing our product portfolio and investing in new production facilities positions us well to drive long-term growth in both India as well as international markets. Following the integration of BevCo this year, we are also focused on driving our presence in the South African market. With efforts already underway, we are confident that this will provide additional avenues for growth in the near future. Additionally as covered by the Chairman, the Board's approval for a QIP of an amount not exceeding up to INR 7,500 crores, subject to shareholders' approval, will further fuel our growth plan. The funds will be raised to enable the company to repay debt and enhance profitability across PAT level. This will also strengthen the balance sheet and prepare the company to pursue strategic acquisitions. The net debt was around INR 6,000 crores. This was including CWIP on capacity for calendar year '25, season to implementation of plant at Kangra, Himachal Pradesh; Prayagraj, Uttar Pradesh and Buxar, Bihar and Meghalaya. On that note, I conclude my opening remarks and would now like to ask the moderator to open the forum for any questions or suggestions. Thank you.

[Operator Instructions] Our first question is from the line of Aditya Soman from CLSA.

Two questions from me. Firstly, on the India volume growth, which has decelerated sharply. Is there -- are there any sort of regional or brand level nuances given the relatively sharp slowdown? While I understand, obviously, the rains have been very uneven in the quarter and this quarter is not very large seasonally, I just want to understand if there were any differences between different regions. And secondly, just in terms of whether there's been a recovery in October. And the second question is on competition. Now Tata Consumer, in their call indicated that they were impacted by the higher trade margins offered by Campa Cola. Have we seen any effect of this?

Let me answer you. First of all, the third quarter and second quarter normally should be looked combined together. Because the rains can shift one month this way or that way. And sometimes the second quarter becomes heavier rains, sometimes third quarter becomes heavier rains. So rain affects a big portion of especially the rural part of the business and which is what has happened this year. And that is one of the main reasons we see. We don't see any other major challenge in the growth of the market. So as far as competition is concerned, as I have always said before, Campa is a formidable competition. We are in the market. But we are improving our go to market. So it has not affected us at the moment. And going forward, they will take a part of the share of the total market. Who is going to get affected first? I'm not sure. Maybe it will be the smaller B brands, maybe the people who are stronger in cola, I don't know. So it's very difficult to answer, But they are a formidable player and they will take up -- but the India growth story is so large that I think there is enough room for everyone to grow. And if we look at it, you're looking at 12 million outlets in India in FMCG and only go to close to 4 million outlets. So there's so much room for everyone. That's what I can say at the moment. There's enough room for them to grow, for us to grow, for our competitor to grow. Everybody has room to grow.

No, I agree, I think on the growth opportunity. The question was actually more with regards to sort of trade margins. Was there any change made by trade margins by us as well in the reaction to Campa?

Telling you, our EBITDA has gone up?

Yes, which is -- yes, which is why the question, yes.

I can't answer more than that.

Our next question is from the line of Abneesh Roy from Nuvama.

I have two questions. First is on the QIP INR 7,500 crores. So will it be largely used for acquisitions and, if possible, mostly Africa? Or will it be for debt reduction given INR 6,000 crore debt is there? Historically, you have been much more focused on the expansion part of the business. So will it be half-half? Or any clarity if you can give on how you think in terms of use of the QIP? .

It will be used for both. It will be for reduction of debt as well as we are looking for acquisitions. We are always open to acquisitions. I'm sure we've been getting opportunities. I hope we'll keep on getting opportunities. We want to have war chest available with us so that when the opportunity is available, we don't have to go back. Secondly, we are also looking at expanding our snacks business in Africa, which we have a huge potential. So that will -- and plus, we are expanding our capacities in India also. So it will be partly used in different, different areas.

Sir, my second question is on the India business. So of course, this quarter, almost every beverage company was impacted because of the rain. My question is, would you need some inventory correction? If you see Dabur saw very sharp inventory correction because for them 2 back-to-back quarters was on the higher side. Your volume growth in the previous quarter Q2 was 22% and now 5.7%. And your base is quite high. Your base is almost 19% in December quarter. So if you could comment on how you see December quarter. No specific guidance, but given La Nina effect and given high base, And would you need some inventory correction given the kind of scenario current you have?

No, we don't carry that much inventory and we can correct our inventories any time we want in 30 days. So it's not something that we have to hold for 6 months or 8 months. Sometimes when we see a favorable pricing in a raw material or category which can be stored, then we pre-buy it and store it. Otherwise, we can correct our inventory any time. We don't have an issue.

Sure. And the last quick question on Campa Cola. So in terms of INR 10 pricing, in how many states would you have that in terms of your key products?

We don't sell at INR 10. We are not selling anything at INR 10, except glass bottles.

Given Campa Cola's entry, at some stage, would you need to shift to INR 10 pricing also? And from glass to PET, how do you see the customer preference? Because PET bottle, obviously, you can carry it. Obviously, much cleaner option. Glass also would have some advantage. So could you share your thoughts?

Glass sells in restaurants and eateries. All the eateries and they get -- make better margins, so they prefer to carry glass. And PET sells on the go. So we have our products which are differentiated totally from what Campa is selling. And there is enough room for everybody, as I said. They can expand the market, they are putting chillers, which is good enough.

Your PET will be INR 15, INR 20, right, currently?

Our PET is INR 20.

Our next question is from the line of Jay Doshi from Kotak.

Could you give us some more color on what's your -- based on the early success you've seen in DRC, the road map ahead? I know you've shared some details in the presentation, but I want to broadly understand how big the market is and what is a reasonable market share to have in a market like DRC? So that's one. And second is I think in the 6 months so far, you've clocked about 60 million cases -- 58 million, 60 million cases in South Africa. So what is the seasonality in that market? Because the next 6 months will probably be peak season there. And hence, what should we expect from the first 12 months of operating perspective from July to June, if you were to think that way?

Two things. One, I think South Africa, the first 6 months which was -- we were basically correcting our back end. And it was low season, it was like our winter here. So now the peak season is starting from this October onwards, till March, it is peak season. And we have corrected most of our back end. So we expect a reasonable growth. I think we are improving our go-to-market. So I mean, it's a bit early to say because October has just started. But I definitely believe we should do a reasonably decent job. And as far as DRC is concerned, so we have -- the capacities we put are sold out. So we are expanding our capacities, which will be happening by -- part of it will be happening in early January, February, and the balance will be in July, August.

So this is doubling down of capacity at the current plant will happen in Jan, Feb and the new plant that you're opening in the other part -- in other territory within...

It will be -- overall, it will be more than doubling the capacity.

Okay. And currently, it is -- nameplate capacity is 25 million cases, right? While you're operating 3 shifts, so you may be doing more.

No, it is about 35 million cases approximately.

Okay. So by this time next year, your capacity for DRC will be 70 million cases or more than doubling is what you indicated?

Should be, could be more.

Sure. And just a follow-up there. So in India, typically, the seasonality we see is that this first half tends to be a little over 60% of annual sales. Is that something we should expect in South Africa as well, that the next 6 months should be more than 60%, 65% of annual volumes?

See, I can't give you exact details because this is our first year. So you need to give us a little bit time to really -- because we are making the changes. We are going -- making the changes to enter the markets which were not entered properly. So hopefully -- but the seasonality is 60-40, what you have said.

Right. Understood. And just one question more, if I may ask. Lately, we are seeing the Jeera Masala Soda seems to be doing quite well in many markets, and we see in some small retail outlets as well in Mumbai. What are your thoughts on the opportunity in some products like that and whether there's a case for you to have something coming?

We should have something next year. You are asking Pepsi and hopefully, we should have -- we have Nimbooz Masala Soda already which we are launching back. And hopefully, we should have something with Jeera also. But this depends on Pepsi, when they are ready. .

Basically it will be under PepsiCo portfolio.

Yes. See, the Jeera was not allowed by PepsiCo because of the high sodium level. So they are working on it. .

Understood. And how big is the market today?

For?

For Jeera. So I was under impression that Lahori Zeera is very close to...

Doing well. A lot of -- expanding and it's doing well. So a lot of people are looking at this category, and we are also seriously looking at it. And I'm sure we'll come up with something next year, early next year before the season.

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

First question is on India gross margins which have dipped about 120 basis points in this current quarter. So I wanted to check if this is due to raw material or increase in revenue mix, if you could just highlight.

The gross margin increase, you are saying.

No, dip, Mr. Gandhi, in India stand-alone gross margin.

Yes. So that is, firstly, at the gross margin level because of the raw material that's the PET prices, which from the last year was lower. And second is the operational efficiency which further has increased margin at EBITDA level. And are you referring here the -- just one second. Quarter? Yes. So here, there are two things, Devanshu. One is the water cost, which was earlier taken as the cost at the operating level, has been classified from last quarter into the COGS. So that has made the difference.

So that 1% has actually shifted upwards from SG&A expenses. .

That's only a shifting, yes. .

Understood. And within South Africa, so that seems to be doing pretty well for us. So what are the few initial steps that we have taken in the market? That is number one. Secondly, is the existing distribution network for foods businesses for PepsiCo in that geography also helping us? So I just wanted to check on that geography specifically.

No. PepsiCo's food business is completely separate than our business. We are doing our own. But we have improved our go-to-market, and that's what we are focusing, which we have done in India over the last few years. And that's what we are focusing there also. And we have corrected the back end. So the cost, the lines which were running inefficiently, we have corrected all of them, and now all our lines are running reasonably efficiently.

Understood. Last one, bookkeeping question. Till June, our CWIP was about INR 1,200 crores. What is the number as of September end?

CWIP today is around INR 400 crores. All these assets have been capitalized already.

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

So just on the international margins, basically, I wanted to know they've improved actually Q-on-Q and both Y-o-Y. I mean -- and if I even look at the realization per case, it's gone up. So my understanding was South Africa was a slightly lower margin, at 12%, 13% when you acquired it and even realizations were much lower than the average international realization margins. So have you already started seeing improvement there?

No, improvement will come. We are already -- so if the lines were running at 50% efficiencies, we have already corrected it to run proper efficiency, which should happen in -- which is in our system. So we are making sure the cost efficiencies will start coming, the advantage of bulk buying where we buy totally together as one group. Those advantages will start coming. So -- and the key issue is the sales have to go up, which is the go-to market. So we've already started doing it. We have seen the improvement in September itself. And we hope now the peak season is starting. But we will see this quarter onward the difference coming. So we are quite -- very helpful -- hopeful. And we are really expecting a reasonable bump in South Africa. And DRC also, as I said, in the first 4 weeks, we have been sold out. So that's very -- we were not expecting that actually, and it's done better than what we had expected.

Got it. And on DRC, I mean, can you break up what was the volume between that 34 million? I mean how much did DRC do this quarter?

5 million. We have only 1 month operation, 1.5 month operation.

Yes, yes. Got it, got it. Perfect. And on the other parts of international business, Zimbabwe and all. You've had that transition of that sugar and all. That is now completely behind. You are already back to good growth?

Obviously not. But Zimbabwe, that's why it didn't show a growth this year. But Zambia is doing a very healthy growth for us. I think it's growing as well. It's growing close to 30% for us. Sri Lanka is growing for us. So I think overall, international business is doing great for us. .

Okay. And one last question for me. For the India business, I mean, what would be let's say, your market share overall in the carbonated space? And let's say, I mean, some percentage changes, let's say, over a 5-year period since you acquired South, West and now. I mean, can you share any market share change that would have happened on an overall basis?

I'm not very sure. I think we are doing reasonably well.

Okay. Would it be fair to say over the last 5 years since South, West acquisition, you would have gained a decent market share?

We have gained. And I think our presentation also shows that we have gained more than 3% shares. .

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

Congrats on good set of numbers. My question is a little bit hypothetical, but I guess we might have to start thinking along those lines. So in a situation where, let's say, Campa is able to make inroads and is, let's say, gaining share. what would be our response? And what would be our priority? Would we sort of prioritize sort of market share and therefore try and come lower in the pricing or would we prioritize our margins given that there are other brands also at a lower pricing, and we would just probably treat Campa in the same bucket? So what would be the top-down thought process on this?

I think the first thought process would be to expand the market. As we are expanding, we are adding 300,000 to 400,000 outlets every year. And Campa just entered the market. So for Campa to also reach a large portion of the market, it will take some time, like it has taken us. And there is enough room in the market. As I said, from 12 million, we are only reaching 4 million. I'm sure there are enough outlets available for Campa also to go where we are not reaching or Coke is not reaching. But again, they are playing a different play. We have -- our products are different. Our go-to-market is different. Our brands are different. So we have to pursue our go-to-market. And if need be ever, then we'll make a range which can fight that pricing also.

Sure. Because see, one major difference between a Coke and a Pepsi versus a Campa is that they don't have to pay any sort of concentrate charges, which is like a form of a royalty. They don't have that cost. So they save on that.

That's not large my friend. That's not so large my friend. So that cannot change the pricing.

Okay, okay. Got it. Sir nextly, I just wanted to understand the South Africa ramp-up. I believe when we took over, the Pepsi market share was low single digit. And they had some private labels and the total market share of that company was, I think, in low double digits, if I'm not mistaken. So has there been any ramp-up to those numbers? I know it's very early, but like in DRC, we saw even in the first month a very big sort of very material ramp-up. Just wanted to understand, have you seen any kind of ramp up in South Africa versus the situation when we took over?

Absolutely. We are ramping up. Our Pepsi share is increasing. And -- but it's still too early stage. So last quarter, we have grown at 12% already. And if you look at September, we have grown at 20%.

Okay. And this is on a Y-o-Y basis, right?

Yes. So as we are ramping up our -- the system, it will take some time, but September has given us the go forward what is possible. And we are very happy with the 20% growth which we have seen in September. And this season has not even started.

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

So can you talk about the overall the growth we have seen, 6% volume growth. So how is the Tier 2, Tier 3 cities and rural doing compared to urban?

No, see, when there is heavy rains, rural always gets disturbed first. So this quarter has been very unprecedented rains. So rural has definitely got disturbed this quarter. But similarly, the second quarter, rural grew faster than the urban. So that's why the -- these 2 quarters have to be taken together and not in isolation. Because depending on the rain, soft drink business plays a bit of a role in India specifically.

And when you talk about the margin expansion, the operational efficiency we are talking about, in last couple of quarters we have seen the benefit of low sugar usage and also the thickness of a bottle. So how -- currently, we have, say, 49% low sugar. And also in bottle side, we are also reducing the weight of bottle. So when 2 -- what quarter we can see this kind of improvement in margin from these two activities?

We'll keep on seeing improvements because all our new plants, large plants which are coming up, they are much more efficient than the older plants. Secondly, there, we have now tried to do a complete backward integration in our bigger plants. So there is a freight savage -- save. We save freight on preforms, on caps. We are not transporting. We don't transport boxes. So they are minor, minor savings. But when you start adding up, it all starts becoming a large number. So we are trying to do whatever is practical. And so Mr. Gandhi gave me, 17 plants so far are backward integrated. Now that is a big difference to what it used to be. So as we keep on -- like 4 more plants are coming up now. So all these new plants which are coming up, our cost of production is much lower. Our lines -- the same lines which used to produce at one time 100 bottles and 200 bottles a minute now are producing 800 and 900 bottles a minute. And the number of people required are the same.

And many, many beverage companies, we have seen subdued performance and some companies we have seen beverage industry degrowth also, and we have grown 6% volume growth in domestic market. So what differentiation we have seen in our company and our business model?

I think the main thing is that, one, we -- a lot of people may not be putting enough money in the backward integration or putting -- expanding plants. So when we open a new plant, our distances come closer. We save on freight. As I said, we don't transport preforms and caps from other plants. We save on that. And at the same time, there are larger plants, so the production capability is much higher. So we don't do unnecessarily extra manpower shifts or we are not working on Sundays if we don't need to. So you don't pay double wages. So these are all small, small things, but when you start adding up, they are all positive. And then as you have said -- as I've said before, we are adding close to 300,000 to 400,000 outlets every year. So we are expanding our go-to-market and which is the main game in the soft drink industry. If I could reach 8 million outlets instead of 12 million outlets, then my sale would not double, but at least would go up by 50%. So question is how fast and how fast I can ramp up the system.

And lastly, the rPET size, the industry, it is a mandatory to use 30% rPET. So how -- what is the status on that?

We are under full construction. Our first plant will be under production by second quarter of next year. And we will be producing enough rPET ourselves what we require for the government mandatory.

The next question is from the line of Nihal Jham from AMBIT.

Sir, I had a couple of questions on the food business. If we look at the food arrangement that we have, say, for Zambia and Zimbabwe, where we both do the manufacturing and distribution, would the business model and the way things work be similar to how the India Beverage business operates?

Similarly, yes. It's a franchise like we pay concentrate, we will pay for seasoning for our snacks. So it will be the same thing for Morocco and Zambia, Zimbabwe. Morocco would be the first plant coming up.

Got that. And the second question is Pepsi's food portfolio, obviously, is present in much lesser number of countries versus beverages. So when we are looking at incremental opportunities as a part of the QIP and potential food expansion, would it primarily be focused only in countries where Pepsi has a food portfolio or we could be entering countries where Pepsi is not present with foods at this point in time?

No. Africa, Pepsi doesn't produce anywhere except South Africa. So all the other countries are open technically. And you cannot transport air. Africa, the distances are too fast. So that's why they have decided to give us to manufacture because it doesn't work to import or to bring it from one plant to the other. It's too expensive. So slowly, slowly, wherever we can ramp up, we will try and ramp up.

With the manufacturing and distribution and not maybe only distribution because of the limitation of transporting food.

It doesn't work. It's too expensive. I mean you can do a niche product, you can go to the modern trade and just sell basics and only the rich people can have it, but that doesn't give you the market.

The next question is from the line of Sanjaya Satapathy from Ampersand Capital.

Congratulations once again for a great set of result. A couple of things. One is that this fundraising that you are doing, is it essentially to complete this transaction that is South Africa is to fund this transaction? And or the company is kind of looking at some more transactions or very lastly, like is the company looking to become a debt-free kind of a company?

See, I've answered this question where we are looking at it partly reduction of debt, partly expansion, partly we are always open to new acquisitions if anything comes in our way. So we want to have our war chest ready.

Got it. And sir, my last question is that though I understand that the company has done great things in terms of expansion as well as cost rationalization. Anything big like thing which can be expected in the next couple of years?

As soon as it comes out, I'll let you know. I promise you.

How do one think about it? Because...

It's a good thinking, but I promise you as soon as it comes out, I'll let you know. We have enough things to play with enough things to work with. And Pepsi is always innovating new things.

The next question is from the line of Onkar Ghugardare from Shree Investments. .

Congrats on good set of results. My question is regarding what could be the CapEx for the next upcoming year?

We have during the last call, stated INR 2,400 crores, which is primarily for the implementation of our facilities at Kangra, Himachal Pradesh; Prayagraj, Uttar Pradesh; Buxar, Bihar and in Meghalaya.

I mean now that you are considering -- I mean, you have approved the fundraising, would that change anything, the CapEx guidance?

It's a little early. We are firstly waiting the resolution to be due by 8th November, then going to the market. As Chairman said that we always are -- the opportunities we keep on analyzing. And let's see. It's a little early to predict for next year.

Okay. And you have mentioned that debt reduction is one of the things which we'll be doing with the QIP proceeds. So at what debt-to-equity level you are comfortable with? Right now, I believe you are at 0.7.

That's right. And if there is opportunity M&A, we would like to have max 1 to 0. And otherwise, as the Chairman mentioned, we want to create the war chest so that in case anything comes, we can raise debt at that point of time instead of carrying the debt when we can pay it.

Sorry, I missed the number, which you just said.

No. I stated that debt equity max in case a good opportunity comes, we can go up to 1. But in the meantime, proceeds of the QIP shall be used for the reduction of debt as we -- so that we are able to create war chest to get the opportunity whenever it comes on our way.

Okay. And in this presentation, you have not mentioned anything about the food and snacks business. I mean, what -- where do we see about -- what do we see about that?

I mean we have said that 3 plants are going to come next year, hopefully. And that is Zimbabwe, Zambia and Morocco. Those are the 3 snack plants where we have signed. We are looking at more opportunities in that in different more territories in Africa. But at the moment, only 3 have been agreed, and that's what the next year plans are.

So the plant would be commercializing the operations next year, right?

Next year, yes. .

All the 3 plants, right?

Yes, that's what we are planning. I mean one plant could be a lap-over of early '26. But we are -- maybe it will be next year itself. So we are not sure of the third plant.

The next question is from the line of Shirish Pardeshi from Centrum Broking.

Just 2 questions in the beginning. In this past commentary, there is no mention of Sting. So I was more curious if you can break this 5.7% volume growth, carbonated soft drink versus non-carbonated, specifically for India? And maybe if you can give a little more color of each segment, how the growth has happened in quarter 3?

In fact, Incidentally, all the 3 segments in India, CSD, juices and water, there's not much difference. They have grown equally.

So largely, you are saying that our growth is similar because we are now expanding our distribution in South, and that's why the growth is normalized?

That's right. We are just expanding the number of outlets in different areas, not only South, in North also. There's still a lot of room everywhere. As I said, and I have repeated the numbers, 12 million to 4 million is a huge scope everywhere actually. The reason South and East is because the acquisition -- before acquisition, they were very lowly penetrated by us. Now of course, we are penetrating even in Gujarat was very lowly penetrated for us. So those territories which were not penetrated properly, we are growing faster. But other, we are adding outlets everywhere, including North.

That's helpful. Actually, you're pushing me to ask a little different question. This penetration-led growth will last for next 4, 5, 6 quarters because I think in India, we have enough supply.

It should last for next 4, 5, 10 years, 5 quarters.

Okay. So maybe my second question is...

In front of you. I can only add 300,000, 400,000 outlets. Whatever I add, the market grows by that many outlets. So I'm still minus 8 million outlets.

The reason why I'm asking for you rather than putting our vehicle on street, the distribution-led model is quite penetrated in the beverage industry, if I go back when we work together in this slurry. So I think there is a good amount of distributorship, which is happening because high throughput is happening. So is it that difficult why we cannot grow maybe 5x in 1 year?

You can't because it's not easy to add so many outlets. You need basic coolers, you need people, you need trucks. It's a full gambit. It's not just one thing. You need capability of production. Everything has to be done. You can't go -- just to add 400,000 outlets you're looking at 3,000, 4,000 people being added. Where do you get so many people, train them.

Sure. Okay. My second question is on BevCo. We also had a non-Pepsi products there. So I just wanted to understand, in the new outfit, how those businesses will get scaled up?

We are scaling up. We are scaling up the whole portfolio. Pepsi is growing faster than our own portfolio, but we are scaling up the whole portfolio. Okay. Pepsi, when we have said we have grown how much in the last quarter? 12%. So we have grown 12%, but Pepsi has grown 20% last quarter. Mix is 20%.

And just last question in India, what would be the contribution for Sting as of 9 months?

It's slightly more than 15%.

The next question is from the line of is Vismaya Agarwal from Citi.

I had two questions here. So one is more strategic. When you talk about the opportunity of expanding territories and growing and you've maintained that as a key growth lever, now on that front, where do you -- which is a bigger priority? Is it expanding new territories into beverages like that you've done in Africa? Or do you think that the India business itself has some white spaces in adjacent categories that you could look at? And I'm mentioning adjacent because, again, you've always maintained that you're not getting into any category that competes with PepsiCo's portfolio here. So more separate from beverages. So just your thoughts on that, please.

So if you look at it, we are expanding as fast as we should in India. I mean more than this would be really putting more CapEx and not getting the right return for it. So we have to make sure we keep on getting a return for our investors also in what we are expanding. And similarly, the opportunities you get outside India, Africa is the next horizon where the growth is going to come from. And going forward, next 20 years, Africa is looking very bullish. There are some challenges, but that's why we don't put all our eggs in one basket. We are going into different, different countries. Each country might represent 2%, 3%, 5% of our turnover, which does not -- so one country has an issue, cannot affect us.

Got it, sir. And if I may follow up on that. So what I understand is India, you're happy with the portfolio here, while yes, you did mention earlier on the call that Jeera is, say, a subcategory that you could look for, but nothing beyond beverages at the moment in India, right? So it's predominantly Africa where...

I'm saying we are -- right now, we are doing everything which is right. And when the opportunity comes, we might look at something else. But right now, it's -- that's what our focus is, and we will not do any beverage which competes with PepsiCo.

Got it, sir. Understood. Very helpful. And sir, secondly, on profitability in India. Now in the past 9 months margins have been well ahead of something that you've done historically well ahead of the guidance that you've maintained always. So just the question there, like is it a time where you probably look at revising the guidance upwards? Or do you see some risk on the RM side like we've seen this quarter?

We have never given guidance upward of that. 21%, 22% in soft drink industry is the best you can get. We are trying -- we are always trying to improve on ourselves, and we'll keep on doing that, but that would not be our guidance.

Got it. But sir, do you see any risk on the RM side because we just saw this quarter, the gross margins dip a bit in the India business. So is there something...

I mean, we have not seen any major -- I mean, I can't look at the world what is where it's going. Suddenly, the oil prices go up. I can't answer that, to be honest. That is something totally not in our hands or you get a fun -- complete drought year where the sugar prices go up. So -- but that is also getting covered now as our portfolio is getting reduced from sugar, 49% of our portfolio is low sugar. So I think we are covering ourselves from every side. Minor changes can happen. This is -- so that's why I don't give you a guideline of more than 21%, 22%.

The next question is from the line of Jay Doshi from Kotak.

The 3 snacks plants that you're setting up in Africa, what will be the turnover at full capacity that you expect to do from these 3 units? .

$100 million.

About $100 million. .

This is the potential going forward. We have in our presentation, which was put up when this was last agreed, country-wise, the industry size in U.S. dollars. And we have also given data the investment. And it has in a couple of years once these plants are operational, the potential of about USD 100 million where the revenue from these 3 plants can go up.

Sure. That's helpful. Second is, can you give us some indicative sense of how would margins in snacks business at optimal scale compare versus beverages? And what about return ratio? Because I assume that asset turns will be much higher in that business. So how would return on capital employed look...

That's the only reason Pepsi doesn't give it to other people. This is less CapEx, more turnover.

Understood. So ROCs will be better, even though margins could be a little lower?

You can say what you want. That's what I said. Yes, they are much better.

Thank you. Ladies and gentlemen, we will take that as a last question. I would now like to hand the conference over to the management for closing comments. .

Yes. Thank you very much. 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 out to join us on this call. Look forward to interacting with you soon. Thank you very much once again. Thank you.

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