Varun Beverages Limited (VBL) Earnings Call Transcript & Summary

Over to you, Mr. Gandhi.

Thank you. We welcome you all in the 30th Annual General Meeting of the company. Along with us, we have our Chairman, Mr. Ravi Jaipuria, Executive Vice Chairman, Mr. Varun Jaipuria, other Board members and our Chief Risk Officer and Group Company Secretary, who have joined through VC facilities provided by NSDL. To comply with the provisions of the Companies Act, including circulars, our company is conducting this AGM through VC facility provided by NSDL without the physical presence of the members. All members who have joined this AGM are by default placed on mute mode by the host to avoid any disturbance arising from background noise and ensuring smooth and seamless conduct of the AGM. The remote e-voting facility was provided to the members to cast their votes electronically on all the resolutions set out in the notice commenced at 9 a.m. on Monday, March 31, 2025, and ended at 5 p.m. on Wednesday, April 2, 2025. Company is also providing e-voting facility during the proceedings of the AGM to enable members to cast their vote who have not done through remote e-voting. During the proceedings of AGM, members may raise query through the chat box facility provided by NSDL. If any member faces any technical issue, kindly contact helpline numbers of NSDL as provided in the notice of AGM. Now I request our Chairman to kindly chair the proceedings of the meeting.

Good day, ladies and gentlemen. A very warm welcome to everyone present today at the Annual General Meeting of the company. I hope you and your loved ones are well. I would like to confirm that all the Board members, including Chairperson of Audit, Risk Management and Ethics Committee, Nomination and Remuneration Committee and Stakeholders Relationship Committee are present in this meeting. Requisite quorum being present, the meeting is therefore called to order. We are pleased to conclude CY 2024 on a strong note through adding geographical presence into new territories of South Africa, Lesotho, Eswatini, along with distribution rights for Namibia, Botswana, Mozambique, and Madagascar. We also started greenfield operations into a new country of Democratic Republic of Congo, DRC. The growth has been driven by organic volume growth and improved product mix. India volumes grew 11.4%, reflecting the strength of our distribution network and operational execution. Consolidated volumes increased by 23.2%, largely led by new territories, resulting in consolidated revenues increased by 24.7%, EBITDA growth of 30.5% and PAT growth of 25.3% for the year. A key focus this year has been expanding our manufacturing footprint and strengthening our on-ground execution capabilities. In India, we commissioned 3 new state-of-the-art plants in Supa, Maharashtra, Gorakhpur, Uttar Pradesh and Khordha, Odisha. In addition to expanding our production capacity, we invested in strengthening our distribution network and chilling infrastructure, which are critical in enhancing product availability and deepening our presence across both established and underpenetrated markets. Integration of our operations in South Africa shall further strengthen our presence in key international markets. Additionally, our foray into the snacks business with PepsiCo in Morocco, Zimbabwe and Zambia marks an important step in enriching our portfolio and leveraging synergies with our existing infrastructure. Sustainability remains integral to our operations. This year, we expanded initiatives like reducing water usage, groundwater recharging, PET recycling, energy-efficient manufacturing and renewable energy adoption. A key focus in sustaining a net positive water balance by replenishing more than twice the water than we use. Our sustainability efforts align with PepsiCo's global PEP+ objectives and have earned us a spot on the CDP A-list for climate and water security, reinforcing our commitment to responsible growth. Additionally, we have set ambitious net zero targets duly validated by the science-based targets initiative, SBTi, with a global achieve net zero greenhouse gas emission across our value chain by 2050. A key milestone this year was the successful completion of qualified institutional placement, QIP through which we raised INR 7,500 crores. The capital raise reflects strong investor confidence in our strategic vision and will enable us to expand into new markets, strengthen our operations capability and reinforce our balance sheet. Furthermore, the company became net debt-free by repaying outstanding debt using the proceeds from the QIP issue. CRISIL has upgraded VBL's long-term debt rating to top-notch AAA, AAA with stable outlook. VBL remains committed to delivering sustainable value to its shareholders to enhance accessibility and broaden investor participation. We subdivided each equity share from INR 5 to INR 2. In addition, in line with our dividend policy and reflecting our strong financial performance, the Board has approved a total dividend of INR 1.75 per equity share for CY 2024, comprising an interim dividend of INR 1.25 per share, face value INR 5 per equity share already paid and a final dividend of INR 0.50 per share face value of INR 2 per equity share. Looking ahead, we remain focused on sustaining healthy growth in both Indian and international markets through deeper market penetration, strategic capacity expansion and continued investments in technology and sustainability. Our focused efforts on strengthening last mile distribution and deploying visi-coolers in underpenetrated regions will enable us to reach a broader consumer base while reinforcing our market presence. In closing, I would like to extend my deepest appreciation to all our stakeholders, including shareholders, investors, bankers, employees and our Board for their support and invaluable guidance. Though there is no negative qualification, observation in the auditor's report, but to follow good governance, I would suggest Mr. Ravi Batra to read the stand-alone auditor's report and Mr. Gandhi to take up the agenda items in [indiscernible].

Thank you, sir. To the members of Varun Beverages Limited, the report on the audit of the stand-alone financial statements opinion 1. We have audited the company's stand-alone financial statements of Varun Beverages Limited, which comprise the balance sheet as at 31st December '24, the statement of profit and loss, including other comprehensive income, the statement of cash flow and the statement of changes in equity for the year then ended and notes to the stand-alone financial statements, including a summary of the material accounting policies and other explanatory information here and after referred to as the stand-alone financial statements. Point #2 taken as read, 3 taken as read, 4, 5 taken as read, 6 taken as read, 7, 8 taken as read. Point #9, the Board of Directors is also responsible for overseeing the company's financial reporting process. Point #10 taken as read, 11 taken as read, 12 taken as read. Point 13, we also provide the [ strong ] governance with a statement that we have complied with the relevant ethical requirements regarding independence and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable related safeguards. Point 14, 15, 16 taken as read. For JC Bhalla & Company Chartered Accountants, Akhil Bhalla Partner, for OP Bagla & Company LLP, Neeraj Kumar Agarwal, Partner. Further all the applicable statutory registers, annual report and other statutory documents are made available for inspection by the members on the website of the company. Now I request Mr. Gandhi to take up agenda items.

Thank you, Mr. Batra. The first -- the notice, along with the explanatory statement dated February 10, 2025, convening the 30th virtual Annual General Meeting and annual report of the company was sent through e-mail on March 11, 2025, and with your permission, I take it as read. Now I will take all the agenda items for your approval. Item #1, to receive, consider and adopt the audited stand-alone financial statements of the company together with the report of the Board of Directors and auditors thereon and the audited consolidated financial statements of the company together with auditor's report thereon for the financial year ended 31st December 2024. The proposed resolution is placed before the meeting to be passed as an ordinary resolution members who have not cast their vote earlier are requested to kindly vote. Now I proceed to the item #2 to declare a final dividend of INR 0.50 per equity share of face value of INR 2 each for the financial year ended 31st December 2024. The proposed resolution is placed before the meeting to be passed as an ordinary resolution members who have not cast their vote earlier are requested to kindly note -- kindly vote.

Myself and Mr. Varun Jaipuria are interested in the next agenda item. Therefore, I suggest Mr. Gandhi to take the chair for next 1 agenda item.

Thank you, Mr. Chairman. Item #3, to appoint Mr. Varun Jaipuria, who retires by rotation and being eligible offers himself for reappointment as a director. The proposed resolution is placed before the meeting to be passed as an ordinary resolution members who have not cast their votes earlier are requested to kindly vote. As Mr. Jaipuria is not interested in any other agenda item, therefore, he resumes the chair. Item #4, to appoint Mr. Rajinder Jeet Singh Bagga, who retires by rotation and being eligible offers himself for reappointment as a director. The proposed resolution is placed before the meeting to be passed as an ordinary resolution. Members who have not cast their vote earlier are requested to kindly vote. Now we move to the next agenda item #5 to appoint M/s Sanjay Grover & Associates, Firm of Company Secretaries in Practice as Secretarial Auditors for a term of up to 5 consecutive years and fix their remuneration. The proposed resolution is placed before the meeting to be passed as an ordinary resolution. Members who have not cast their vote earlier are requested to kindly vote.

Mr. Chairman, may I now request you to take up certain questions that we have received through e-mail or chat box from the members of the company. Please note that to avoid repetition identical questions are grouped and, are, as, under. The very first question which we have received, which is a hot topic nowadays is given that the competitive intensity in the marketplace has increased this year, how do you plan to address competition from the new player that's Campa? Do you see a need to respond with lower priced products?

We believe that the Indian beverage market is vast and largely untapped. India's per capita consumption of CSDs is 30 servings, which is much lower than global average of 131 and even lower than our neighboring countries with Pakistan at 97 servings, Sri Lanka at 46 and Nepal at 101 servings. Although our competitors are strong, but we are focusing on continuously strengthening our go-to-market strategy. Currently, we are reaching about 4 million out of the 12 million FMCG outlets in India. And our focus remains on expanding this reach in the future through investments in visi-coolers and vehicles. We are adding approximately 8% to 10% new outlets annually, which translates to about 3 lakh to 4 lakh additional outlets every year, driving our business growth. As the consumer habits evolves, the market will develop further growth opportunities. We have a further ready portfolio and PepsiCo brands are leaders in this category which are growing faster than industry such as energy drink, sports drink, hydration, et cetera. For example, Nimbooz and our own brand in value-added dairy are growing much faster than industry. We are further enriching the portfolio with new launches for the season such as Sting Gold. The more players there are, the better it will be as it will increase the competition and expand the market. Around 18% to 20% of the market has always been with regional players who have been operating at lower prices -- lower price points since long. These price points help in onboarding new consumers. We have extensively used this strategy in the past, especially in the rural areas through our glass SKUs. New consumers are added at lower price points and gradually switch over to aspiration brands for which our portfolios over the years has strengthened a lot. We have a support of PepsiCo's global brand portfolio. To summarize, given the underpenetration soft drinks market in India is growing faster than any other FMCG category, and there is enough room for us all as well as our competitors to grow.

Thank you very much, Mr. Chairman, for such an elaborate reply. The next question is, are you witnessing a slowdown in urban soft drink consumption in India as most of the other FMCG companies are talking about this. People have apprehension about our industry, too, based upon the conduct of other FMCG companies.

The way we are expanding our distribution reach, many FMCG companies may not be expanding the market at the same pace. We are only reaching out of 4 million outlet -- we are only reaching 4 million outlets out against the 12 million outlets. And we are trying to add as much as 10% more outlets every year. This will give us growth potential along with our organic growth from the existing outlets. We are confident we can achieve double-digit growth consistently, and we see no challenge in that at least for the next few years. We believe the soft drink industry is expanding and is growing much faster than the other FMCG categories.

Thank you, Mr. Chairman. The next question is, could you please share the details of the calendar year 2024 CapEx and outline the CapEx plans for the calendar year 2025.

The net CapEx for CY 2024 stood at INR 4,500 crores, including INR 3,200 crores spent on 3 greenfield facilities in India at Supa, Gorakhpur and Khordha and 1 greenfield plant in DRC. Additionally, on brownfield expansion in international territories, INR 800 crores was invested, particularly in Nepal, Morocco and Zimbabwe, including backward integration at Morocco, Zambia and Zimbabwe. The balance CapEx comprises of land capitalized for future projects, CapEx on visi-coolers, glass bottles, pallets, vehicles, et cetera. The project CapEx of 2025 season as stands approved is about INR 3,100 crores as of December 31, 2024. INR 1,650 crores was already paid towards CWIP and capital advances. Of the total projected CapEx for the season of 2025, INR 2,000 crores is towards setting up 4 greenfield facilities in India at Prayagraj, UP, Damtal, HP, Buxar, Bihar and Meghalaya. The remaining project CapEx is towards snack manufacturing facilities in international markets and includes brownfield expansion across India and DRC.

Thank you, Mr. Chairman. The next question is, we have opened 3 greenfield facilities in the country during 2024 at Supa, Gorakhpur and Khordha. What is the production capacity of these plants such as in cases, liters per day per annum, et cetera. Also, what's the expected increase in peak month capacity for India once the CapEx for 2025 season is completed?

We have enhanced our capacity quite a bit, and we believe with the new greenfield plants coming up this year, we will have enough capacity for 2025 season. Investments made over the past 2 years have significantly expanded our peak month production capacity in India by about 45% during the season 2024 over the capacity of season 2022. With the planned CapEx for 2025 season, our capacity is set to increase by an additional 20% over the peak month of 2024.

Thank you, Mr. Chairman. And now the next question is, what is the strategic goal behind launching Sting Gold? Does it target new consumer segments? And are there any more new products for launching for the upcoming season of 2025?

The strategy behind launching Sting Gold is to offer consumers more variety in the energy segment. We believe that energy drink is a huge category, and it will expand the overall industry. If you look at the surrounding countries or developing countries, energy drink category is 15% to 20% of the market, whereas in India, it is still 5% to 6% of the market. So we see a lot of potential in this category, and we have to keep innovating to enhance this category with more value offerings.

Thank you, Mr. Chairman. And now the next question is, what key lessons have we learned from the South African market over the past 1 year? Do you expect South Africa to grow as rapidly as Zimbabwe had grown for us in the past?

We are progressing well in South Africa as we grew the sales volume by 12.5% in the very first year of operations. There are several low-hanging fruits, which are -- which we are focusing upon. We are consciously reducing our reliance on modern trade channel and enhancing our distribution network to improve our go-to-market in general trade. As an enabler, we have placed more visi-coolers in the South SA market in a single year than that was cumulatively placed till date by the previous operators. We are working on plans for setting up a state-of-the-art greenfield facility along with backward integration in the territory. Given the South African market potential, we see no reason why it cannot evolve into a market as promising as our other international territories as with a huge per cap well comparable with developed markets.

And the next question is, how is the progress on snack food distribution in Morocco? Also, has the distribution for Simba Munchies started in Zimbabwe and Zambia. Any update you may like to give in this regard?

In Morocco, we started distribution of PepsiCo snacks portfolio in January 2023 and achieved a revenue of USD 20 million in CY 2024. However, it is not right to assess the progress until our manufacturing plant gets commissioned, most likely by June 2025. Until then, we are relying on imports for sales. In Zimbabwe and Zambia, we have just started distribution in February 2025 by importing the finished goods from South Africa with the plant at Zimbabwe expected to be operational in the fourth quarter of this year. The growth is expected to enhance at that point.

Thank you very much, Mr. Chairman, for taking up all these questions and answering so elaborately. Most of the questions which are combined for the clarity of which in the interest of time has been answered. Now I request our Chairman to please convey vote of thanks.

I request all the members who have not cast their vote through remote e-voting or e-voting during the proceedings of AGM to kindly vote on the proposed resolutions through e-voting for next 30 minutes. I hereby authorize Mr. Ravi Batra to sign and file the voting results with the stock exchanges. I declare the meeting as officially concluded and would like to extend our special thanks to the Board members, management and the members present for attending this AGM. Stay safe, stay healthy. Thank you.