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Varun Beverages Ltd
Earnings Call Analysis
Q1-2024 Analysis
Varun Beverages Ltd
In the first quarter of 2024, the company's financial performance was robust. Despite facing a delayed seasonality cycle due to the Holi festival, Varun Beverages reported a consolidated sales revenue growth of 10.9%, bolstered by a 7.2% increase in volume and a 3.5% rise in net realization per case. This performance was supported by improved product mix within India and greater contributions from international markets. The firm's EBITDA saw a significant boost of 23.9% year-on-year, while PAT increased by 24.9%.
Varun Beverages' focus on sustainability has started yielding improved results in terms of gross margins. The company has centered efforts on reducing sugar content, eliminating corrugated pads in packaging, and using lighter packaging materials. These steps, along with benefits from reduced PET prices, have increased gross margins to 56.3% from the previous 52.4%. Notably, approximately 46% of the company's consolidated sales volumes are now from low or no sugar products, reflecting its commitment to evolving consumer preferences and optimizing cost structures.
To keep up with the rising demand for beverages, Varun Beverages has commenced three new greenfield facilities in India. These plants, located in Supa (Maharashtra), Gorakhpur (Uttar Pradesh), and Khordha (Odisha), are expected to significantly enhance production capacities. The acquisition of BevCo in South Africa has also been a highlight, expanding Varun Beverages' footprint and strengthening its presence in dynamic African markets. Future growth plans include entering into the snack food production segment in Morocco by 2025.
For the quarter, the company reported operational revenue of INR 43,173 million, with consolidated sales volume reaching 240.2 million cases. The product mix showed 71% CSD, 7% juice, and 22% packaged drinking water. Gross margins increased markedly, attributed to sugar reduction and lighter packaging, among other strategies. The company's EBITDA jumped by 23.9%, reaching INR 9,887.6 million, while PAT rose to INR 5,479.8 million. Increased fixed costs were also reported due to new acquisitions and the commission of new plants.
Varun Beverages has seen its finance costs rise by 49.7% owing to higher debt levels for acquisitions and capital expenditures. Despite this, the company’s debt-to-EBITDA and debt-to-equity ratios remain within acceptable ranges. The company aims to amortize a significant portion of incremental debt taken for recent expansions within the next few months. CapEx for the new facilities has mostly been completed, with only minimal spending remaining, primarily for the DRC plant.
As Varun Beverages moves into its peak season, the outlook remains positive, driven by favorable weather conditions and enhanced production capacity. The company's strategic investments and acquisitions have set a strong platform for sustained growth. The upcoming quarters are expected to see these new capacities fully utilized, contributing positively to the financial metrics. Though challenges such as weather conditions and competitive scenarios remain, the firm maintains a stable margin guidance based on historical performance.
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Ladies and gentlemen, good day, and welcome to Varun Beverages Limited's Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on Varun Beverages Q1 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 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 hope all of you had the opportunity to go through our results presentation, that provides details of our operation and financial performance for the first quarter ended 31st March 2024.
In spite of the delay in Holi festival by 17 days resulted in delayed seasonality cycle, we are pleased to report a reasonably strong overall operation and financial performance in the first quarter of the year. We achieved a consolidated sales revenue growth of 10.9% with the breakup of volume growth of 7.2% and net realization per case growth of 3.5% in quarter 1, reflecting an improved product mix in India and higher contribution from international markets overall. EBITDA increased by 23.9% year-on-year and PAT increased by 24.9%.
Further, our sustainability efforts, including the focus on reducing sugar content, removal of corrugated pads in packeting and lightweighting of packaging materials have started showing results in increase in gross margins. During last quarter, we also established our sustainability report in accordance with the GRI reporting standards. We are committed to transparency and accountability in our sustainability reporting practices. And we believe that using the GRI standards allows us to provide comprehensive and comparative information to our stakeholders.
To fulfill our growth commitment in our core market in India, we commenced 3 greenfield facilities located in Supa, Maharashtra; Gorakhpur, Uttar Pradesh; and Khordha, Odisha. This expansion is designed to meet the rising demand for beverages in India and support our long-term growth trajectory. Our greenfield plant in DRC is expected to start by the next quarter. A significant highlight of the quarter was successful competition of -- completion of strategic acquisition of the Beverage Company, BevCo, in South Africa. This move has notably expanded our footprint and fortified our presence across several dynamic markets in the African region.
Furthermore, Varun Beverages Morocco, our wholly-owned subsidiary, has entered in an Exclusive Snacks Appointment Agreement to manufacture and market and packet Cheetos into Morocco by May 2025. This agreement complements our existing distribution of PepsiCo's snack portfolio, making another step forward in our strong symbolic partnership.
In nutshell, we have initially fueled 3 growth engines, which will gradually and consistently contribute to revenue and profitability growth in the company. First growth engine is South Africa's combined territory with Lesotho, Eswatini, Namibia, Botswana, Mozambique and Madagascar. Second growth engine is entry into new territory of DRC, where PepsiCo is not present at all as of now. The commercial production here from our new state-of-the-art green plant is expected to start from the next quarter. The third growth engine is entry into snack food production by March -- May 2025 in Morocco.
I would now like -- now invite Mr. Gandhi to provide the highlights of the operational and financial performance. Thank you.
Thank you, Mr. Chairman. Good afternoon, and a warm welcome to everyone joining us today. Let me provide an overview of the financial performance for the quarter ended 31st March 2024. Revenue from operations adjusted for excise GST saw a healthy 10.9% year-on-year increase to the level of INR 43,173 million in Q1 of calendar year 2024. Consolidated sales revenue reported a growth of 7.2%, reaching 240.2 million cases in Q1 of 2024. This increases with increases of 4.4% and to 21.9% in India and international markets, respectively. During Q1 of the calendar year 2024, the consolidated net realization per case rose by 3.5% to the level of INR 179.7, supported by an improved product mix in India and a higher contribution from international markets, which command higher realization per case. CSD constituted 71%; juice, 7%; and packaged drinking water, 22% of the total sales volume in the quarter 1 of CY 2024.
Our gross margins improved significantly, rising by 385 basis points to the level of 56.3% from the earlier level of 52.4%. This increase was largely driven by our focus on reducing sugar content and the lightweighting packaging material, incidentally also meeting our sustainability initiatives, along with the benefits from reduced PET prices, which contributed to this improvement. Approximately 46% of our consolidated sales volumes come from low sugar or no sugar products, reflecting our commitment to meeting the evolving preferences of all consumers. This strategic focus now only aligns with the consumer trends, but also optimizes our cost structure by reducing sugar costs and enhancing overall efficiency.
These efforts have had a tangible impact on our financial performance with EBITDA increasing by 23.9% to the level of INR 9,887.6 million year-on-year and the EBITDA margin improving by 240 basis points to the level of 22.9% in quarter 1 of 2024. The above improvement of 240 basis points is in spite of rise in fixed costs associated with the acquisition of the new territories and commissioning of new greenfield plants for the season. As these new capacities begin to contribute to our performance, we expect these costs to be better absorbed enhancing our financial efficiency moving forward.
Depreciation increased by 8.9% in Q1 of calendar year 2024 on account of capitalization of assets and the establishment of new production facilities. That is for reference purposes, Kota and Jabalpur, which were capitalized during the last year, and Supa, which is capitalized during this quarter. Finance costs increased by 49.7%, primarily due to higher debt for acquisitions and CapEx as well as increased borrowing costs. The CapEx for these 3 plants is already done, barring a bit for DRC spending. And on the other side, the cost has gone up. Last year same quarter, the average cost of borrowing was 7.7%, which this year is 8%.
On the debt front, we expect to optimize majority of the incremental amortized -- majority of the incremental debt taken during the year for BevCo acquisition as well as for CapEx in the next couple of months. PAT grew by 24.9% to the level of INR 5,479.8 million in Q1 of calendar year 2024 from the level of INR 4,385 million to Q1 of -- in Q1 of 2023, driven by volume growth and enhanced profit margins.
Coming to an update on our growth initiatives. We have successfully commissioned 3 new greenfield production facilities in India, significantly enhancing our production capacities, in Supa, Maharashtra on 25th January 2024 with an investment of INR 10,000 million; in Gorakhpur, UP on 13th April 2024 with an investment of INR 11,000 million; and in Khordha, Odisha on 30th April 2024 with an outlay of INR 7,000 million. We also have set up backward integration facilities at all the 3 above-mentioned greenfield plants, taking the total number of integrated plants to 13, that is the plants with the backward integration facilities.
These investments are poised to support our long-term growth objectives as well as profitability. Additionally, the forthcoming CapEx of INR 4,000 million for our DRC unit will enhance our capacity expansion strategy in a frequent reason. Furthermore, we finalized the strategic acquisition of BevCo, expanding our footprint into new and dynamic markets. We also secured an agreement to produce and package Cheetos in Morocco.
As we move into peak season, the growth outlook stays no way different from the past few years and the performance, given the strong heatwaves prevailing across India during the summer quarters, where we are. A strategic investment in enhancing production capabilities and making new acquisitions have significantly strengthened our global presence. These initiatives have established a solid platform for sustained growth in the foreseeable future.
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 Abneesh Roy from Nuvama Institutional Equities.
Congrats on strong margins. My first question is on the outlook. So June quarter, clearly, your base is quite favorable, it was soft. Plus, we also have the heat wave. And is there any benefit also from the election-related rallies, et cetera? I wanted to get a sense on how you see June quarter. I understand the guidance will be difficult. But do you think that much stronger double-digit growth should come back in the Indian business, volume growth?
Well, we can't tell you exactly what growth will come back because half the quarter is already over. So as you see, the heats are strong and soft drink sells when it's stronger heat, and we have the advantage this quarter of Ramzan been moving towards March, which hurt us a little bit in the March quarter last year. So it looks very positive, and I think we should have a good quarter.
And one related question was on the overall market also. So Campa Cola in FY '24 has done around INR 400 crores sales. If you could tell us any market, any kind of impact or its mostly the market has expanded? And second, to your own business, if you could tell us quick commerce, e-commerce and modern trade, in March quarter, how was it this year versus the same quarter last year?
Yes. See, the business in our category is very small. So we, to that extent, do not track. But yes, the growth is there, and I read your report on Reliance also, they have done a good work. But what we are saying about our numbers, which definitely are looking very healthy, and the reasons you explained heat wave, elections and low base of the last year and also the capacity, which we have, already increased by adding these 3 plants and to make use of this. And we are amidst actually making all the time arrangements how to meet the requirement, and we don't go out of stock actually.
The next question is from the line of Percy Panthaki from IIFL Securities.
I was just looking at your subsidiary sales, that is the consol minus the stand-alone, that has grown for this quarter roughly by about 30% Y-o-Y. So what is leading the growth in the international? And secondly, in the international on an overall basis, what is the volume growth?
Volume growth internationally, as stated earlier, is 21%. And the -- in fact, India is actually -- would not have any way different. And why it is lower is because Holi started late. The calendar actually doesn't coincide the festival of the summer calendar...
Ramzan was earlier.
And the Ramadan. These do not coincide with the calendar or the quarter, which we follow, for our reporting purposes. But everything is intact.
And this 21% growth, any flavor on which geographies are higher than the average, lower than the average?
Well, Morocco always leads, Zimbabwe leads, and they have already become too large and good percentage increase in the larger territories makes the impact.
Understood. Understood, sir. Also, could you give us an idea what is the CapEx on a cash flow basis that you are estimating for calendar '24?
See, as INR 3,600 crores CapEx, which was already -- we had informed everyone. INR 2,400 crores out of which was already done in the last financial year itself out of INR 1,200 crores, broadly, it's done. Only a small portion, maybe INR 200 crore in DRC's left and maybe a small amount in India. Most of it is already done.
Okay. So for this calendar around [ INR 600 ] crores?
Now -- our effort is to amortize the money which we have borrowed to CapEx is done. Now we are going to the next phase.
Right, right. Understood. So most of your CapEx is done? And would I be right in assuming that, let's say, next calendar that is calendar '25 also, our CapEx would not be more than like INR 1,000 crores to INR 1,500 crores, would that be a reasonable assumption?
Let's wait until June because the kind of growth we expect, if we get it, it has to be more.
Okay. Okay. Understood, sir. All the best.
[Operator Instructions] The next question is from the line of Jay Doshi from Kotak.
If I were to look at other than June quarter last year, for the remaining 3 quarters, you -- the volume growth in India business of about 20%, whereas last year, June quarter, it was badly about 2%. So when we look at this June, should we think about a 17%, 18% volume -- potential volume growth that you lost last June and about [ 10% ] over and above that. So is the demand environment conducive? And is your supply side, capacity expansion, was it commissioned on time for you to be able to capture what the math indicates, which is like close to 30% volume growth in June quarter?
Jay, I appreciate the parameters, which you have defined. I know we differ from you, but let's keep the fingers crossed. It's ongoing quarter. And...
But our capacity is enhanced, the plants were in time, so we are okay capacity-wise.
That's very helpful. Second is now that you've made some progress on the foods business. Would it be possible to give us some color in terms of at the right scale, what would be the profitability and return ratios? How would it compare versus the beverages business on the food side?
I think it's a bit too early. We are only going to start the first plant next year. But food business is as good or better than the beverage business.
I'm assuming this is return on capital, right, given that CapEx would be much lower than capital?
Yes, yes.
The next question is from the line of Anand Shah from Axis Capital.
Just a couple of questions maybe from me. The first one on -- I mean, you've done great work on the gross margin expansion through multiple [indiscernible]. So I just wanted to understand the sustainability of this and would you at all to sort of revise your margin guidance?
The guidance stays the same, Anand, as we have given earlier. We have specified the reasons. One of, we keep on getting deals and which always help us. But in the long run the margin guidance, we should take as the same because we do not know the weather conditions. We do not know sometimes the competitive scenario, et cetera. So I think the margin guidance, which we have given in the past, for the long run, we should stay with that only.
Okay. Okay. And just one last one. On the balance sheet side, I mean, can you share the debt numbers there for the current quarter given that you expanded on the BevCo payment and all, so that we know as to what is the repayment and how it go down?
We have made a payment of INR 1,260 crores for BevCo and out of INR 1,200 crores CapEx, which was to be done in this quarter out of that, about INR 1,000 crores or INR 950 crores is already done, minus the profit of last quarter and 45 days. Exact numbers for the quarter, we will not be able to give. So I mean we will be reaching. And we also have given a guidance that in a couple of months, these 2 additional debts will be amortized, and we will be doing all the endeavor to reach at the 31st December debt position.
Got it. Got it. And I mean, you had indicated during the acquisition, you may explore some structure sort of to work out in South Africa in terms of the payment and all. Is that something which is ongoing?
See, structure was that on the CapEx, which we have gone solo, which we have already announced, 100% equity is with us, minus [ ESOPS ], which to the staff we had to give, we have announced, 100% is with the company only. So that first structure is very clear already announced. However, we made some state borrowing -- remitting money from here versus borrowing something as locally because the cost difference between India and borrowing in local currency in South Africa was not much, 150 basis point difference only, which gives us a big insurance on the exchange fluctuation in managing our balance sheet. So some money was borrowed there. We have done only debt equity or structure or the location only to this exchange.
Got it. And one last one, if I may. I mean, we're starting to see -- sorry, are we starting to see Rockstar in your presentation [indiscernible]. So should we expect the launch this year?
See, Anand, this is what we got in South Africa because they were doing a small portion of Rockstar there. So it was good when we are making a consolidated brand presentation to include that. So India, we will have to wait for some time.
The next question is from the line of Devanshu Bansal from Emkay Global.
Congratulations on good margin execution in the past quarter. Sir, you indicated that summer season has started off well. I wanted to check if you can call out the utilization levels of your plants for the month of April as in how are we trending on that front?
You want the one word, about 100%.
Okay. Okay. That's really encouraging to hear, sir. From a depreciation perspective, Mr. Gandhi, as some of the plants were commissioned during the quarter, what is the expected run rate for depreciation going into the coming quarters, if you can help us?
Basically, how we measure it as a percentage of revenue, if you see the percentage year after year, full utilization basis is coming down, and we feel to maintain the same trend, and the depreciation as a part of revenue, I don't think will change this year also.
Got it, sir. And lastly, from my end, what is the expected contribution from South African market in terms of revenue, EBITDA for this year? Is it like broadly similar to the metrics shared during acquisition? Or we are seeing some improvement there?
It's too early for improvement. I think we've just taken over, and it's off season now in South Africa already started. So I think give us a couple of quarters before we start really giving you numbers for South Africa, but it's a great acquisition. I think we'll do well and just give us a little bit of time.
The next question is from the line of Aditya Soman from CLSA.
Two questions. Firstly, can you tell us a little bit more about the increased capacity and your plans for Gatorade and Cream Bell? And secondly, again, in terms of South Africa, any sort of color in terms of the numbers for the next year will be super useful.
Okay. So 3 questions. One is on Gatorade, second is on Cream Bell and third is on BevCo. So yes, Gatorade, the focus from PepsiCo has come by the price correction, the pack size correction and allowing us to produce for more than one plant. So the efforts are on, but we're still at a very niche stage. And at this moment, a small change will not make a difference, but it is product, which is a little futuristic.
And also one more thing. They have also launched with a formulation with the zero cal Gatorade. So it's a very promising product, but we'll have to wait for this. Same is true for Cream Bell. Cream Bell, actually, the capacity announcement, which was delayed and it did not happen on the very first day, like other lines at these plants. So there, of course, is, again, promising this thing and...
But it's doing well, and we are seeing huge growth and whatever capacity we are able to produce, we are able to sell even with the enhanced capacity.
And Aditya coming back on BevCo thing, BevCo, there are 5 plants, which are already operational, working, and by September-October when the season starts, we have to make certain improvements to enhance the capacity one side. And in the meantime, the share of PepsiCo, which is a better contributor of top line and bottom line to interchange the share from own brands to the Pepsi announce the profitability. And then once we are ready, since we are increasing capacity by lines or by adding plant and take action those things and go ahead on that.
The next question is from the line of Onkar Ghugardare from Shree Investments.
Yes. Am I audible, sir?
Yes, sir.
My question was regarding -- I know it's been only few months you have taken out of [indiscernible]. But could you share some vision on that where you want to take it? What kind of size it can become in terms of overall portfolio for Varun Beverages? And what changes do you want to...
Yes, sure. See, in the -- Okay. South Africa is a huge market, per cap is one of the highest, anything between 170, 180 or 200 and mature...
250 plus.
I'm corrected here, 250-plus per cap consumption in that country. And the PepsiCo is very, very meager. If we see in the industry, the share of Pepsi is as low as 1.8% if we -- even if we see it between Pepsi and Coke, that's the global brand, the share is 2.7% only. So huge upside. And we have in the past, our track has been good. Zimbabwe, we are -- PepsiCo's share 0 last year, as we have mentioned in past call, achieved 71% [indiscernible]. Morocco, we have repeated this performance. And hopefully, we will be doing it. You have to give us some time to correct our act and put the act in order. And definitely make it few folds, at least.
Okay. So like volume-wise, it is lesser than India, but the realization will be much higher, right?
Perfect is much higher, yes.
No, I think, we are still too early for South Africa answers. I think, give us a little bit of time to understand the full market, give us a quarter or 2 quarter. Let's then give you the right -- but it's a huge market with a huge scope, and we are working on it.
Okay. In terms of the Indian growth this season, you said that Holi festival was delayed by 17 days, resulting in...
You're not audible clearly, please.
Sir, may I request you to kindly use your handset please?
Yes, I am using handset. Is it audible now?
Yes, sir.
It's better, yes.
You were saying that it was delayed -- Holi festival was delayed by 17 days. That's why there was some loss or delay to more like...
17 days delay was for India Holi. See, what...
That was for the first quarter because Holi was late this year, and Ramadan was earlier, so affected the season partly, so that benefit we will get in this quarter.
So there will be a on and off sales, right? Because of -- in the current quarter?
Yes. Basically, when we are saying the model stays the same. And the calendar doesn't coincide, summer calendar versus the reporting quarter. So yes, there will be some shifting overlapping from last quarter to this quarter because summer is shifted towards April.
Okay. Just one -- wanted one clarification that all the 3 plants, which you just told, all of them were working, operating in the current -- last quarter?
They are all operative in April -- from April onwards.
Okay. And what was the utilization in the last quarter, Jan to March, for all 3 of those?
Two of them have started operating only in April.
Yes. Okay. And the one remaining, which [indiscernible].
The one which started last quarter, January, February, not a season month, those are part of the offseason. But as we are heading towards the season, every plant is being utilized more or less around 100%.
The next question is from the line of Sumant Kumar from Motilal Oswal.
So in this quarter, the gross margin expansion, the 2 factors you were talking about lightweight packaging. So can you talk about how much specifics of total sales volume we have on lightweight per packaging and there is further room of growth? And also talking about reducing sugar content and you talked about 46% of our consolidated sales fees...
Sumant, can you speak a little slowly and just repeat. I couldn't hear you properly. There's something not very clear on the line.
Mr. Kumar, I would request you to use your handset, sir. Your voice is muffled.
Yes. So the first question is when you talk about the low or lightweight packaging. So can you talk about how much percentage of total portfolio is lightweight packaging currently? And how much it is going to increase from current level? And the second question is for the low sugar content, we are talking about 46% of the total consolidated sales volume is from low sugar content. So can you talk about from here, can you increase this percentage?
Well, it's difficult to give the number for futuristic. But for the past, if you are interested, we have worked in detailed and compared it from 2010 to 2023 in Page #15 of our quarterly result presentation put on website, and we have also given this for various preforms for 600 ml, 750 ml, 1 liter, 1.25 liter and 2.25 liter as well as reduction in the [indiscernible] for the closures. So these 2 things are already provided in much detail in Page #15. And the scope for future basically will depend upon the technology changes, et cetera, which will support the rate reduction. So as of now, the position is even.
Okay. And what about the sugar content, 46% portfolio?
As I had in my opening remarks stated as of now, 46% of our total portfolio is either 0 sugar or low sugar. And actually, South Africa has helped us a lot because they are -- in that country, we have already reached about 90% of the portfolio, 89% precisely, which is less sugar or low sugar. And this another country, which is following the same is Morocco. And in India also, we are doing a lot of efforts. And we have now in our launches, Mirinda, 7UP, other than PepsiCo, PepsiCo's Pepsi MAX and low sugar -- Sting. So we are developing more and more. Gatorade we mentioned new launch, which PepsiCo has given us formulation with 0 sugar. So effort is there and constant effort is there to reduce the sugar content.
And this will help our gross margin going ahead?
The -- any profit [indiscernible] sharing between Pepsi and us. And yes, to some extent, it is helping us also in the gross margin.
[Operator Instructions] The next question is from the line of Karan Gupta from Varanium Capital.
Yes. So my question is regarding the capital structure, how we are looking forward for the next 3, 4 years, how much debt we are including and how much equity you are putting up. So over the years, our debt is increasing. If you just see the last 2 to 3 years, debt is increasing significantly. And I understand this thing that we are entering into the market, where the opportunity is very huge. So the expansion part is must. But over the next 2 to 3 years, how we are looking forward to raise the debt as we are also putting up expanding our capacity. So how much the cash flow we are generating? Just the estimation that we will not add much debt in our capital structure. So is there any benchmark, any structure you have prepared for the next 2 to 3 years that, let's say, 30%, 40% will include from our internal accruals, and then the rest will be from debt? So that's something kind of question I had.
Sure. See, in the past year, we had enough debate on this. And any time for the last 2, 3 years, you must have noticed or 4 years that our debt-to-EBITDA is around 1, 1.25 and debt-equity 0.5, 0.6, 0.7. And after 1 or 2 months, once the season is over because this ratio will be at the same level. When I made this statement in a couple of months, we'll be amortizing debt, which we have taken for these 3 plants in the current year of INR 1,200 crores plus we have taken for South Africa will be at the same level of December. So ratio automatically takes care.
How in return we get is perpetual EBITDA increase with the company and the increase in the equity portion, retained earnings. However, through this debt in the interim, yes, we had to take. And that always has helped us in announcing the return for our stakeholders with a very healthy ROI. And we are conscious of the fact that it should not go beyond acceptable levels. And thanks for your suggestion, and we are within that.
Okay. Okay. And with this 3 greenfield expansion, what's the estimation of your cash flow submission from this, how we are looking forward around INR 5,000 crores of cash flow in terms of cash flow from operations? We are currently hardly INR 1,500 crores. So that the cost reduction will be there.
Well, it's a little difficult to calculate that way. Some are -- these are integrated plants with the backward integration, some on the profitability side and certain maybe with the -- 2 out of these are with the aseptic packaging line, which are typical producing Tropicana as well as Cream Bell, where in one, there is no royalty payment. So all these are slightly difficult, but that gradual level on the phone, it becomes difficult, but however, I can only say that debt levels are well within the norms and much better position than our stated position on our website.
Okay. Okay. So further for expansion, as you said, for a calendar year FY -- sorry calendar year '25, you said June will be the time you will announce some CapEx for the CY '25. So what's the plan for again, same question, for the better structure? If you're raising anything or there will be internal accrual?
Well, all these debt amortization or all expansion in the -- from '19 to '24 in last 5 years had been only from internal accruals and all ratios of debt equity and debt EBITDA remained more or less at the same level or sometimes they have shown improvement only. So it will be from internal accruals only. But however, sometimes in the short run, there may be borrowing, this maybe supported through the borrowing because you have to incur the CapEx first and then from the very first year itself from April, May, June, you start realizing and brings us to a comfortable level. So we study our balance sheet in 2 parts, actually. One, is when we incur the CapEx, the asset are put to use that's a December and June is when we are actually put to use and amortize part of debt, therefore, was the comment that, let's say it in June.
The next question is from the line of Sanjaya Satapathy from Ampersand Capital.
So my question is that in the Cream Bell, you were kind of giving some color that there was some delay in starting the factory. Can we just complete that part?
No, the delay was because of the Red Sea and all that. Instead of starting in January, it started in March. So -- but this is before the season, and it's running very well, and we are practically doubling our capacity.
Understood. And sir, the South Africa plant, which will be completely merged and the full impact of it will come from the June quarter. Have you kind of given any idea about how much your depreciation, amortization costs and other costs will go up by?
South Africa, basically, is the -- the franchise rights acquisition cost balance the assets value is not that large. So depreciation, they will not go up. But depreciation actually ideally has to be seen on the consol level, where in the last 5 years, balance sheet, if you'll see, as a percentage to revenue, the percentage is coming down, last year -- it has come as low as 4.2% of our -- as a percentage to our top line, which earlier years, it used to be 7%, 8% or 9%. So this improvement is very healthy, and it's good percentage. I mean we have on this parameter really delivered in the past.
Understood. So sir, will the amortization go up a lot? Or I mean I just wanted to understand the impact -- cost impact of South Africa, if at all it is there.
No, it will not have because it will contribute maybe anything with INR 1,600 crores, INR 1,800 crores or INR 2,000 crores top line. So I mean, it will have its own EBITDA. It's a positive profit-making operation with a huge top line. So it will not increase as a percentage.
And last thing, if I can ask that you mentioned that you have no plan to immediately use brands like Rockstar that is there in South Africa in India. Just trying to understand what all synergy benefit that you can -- you're really looking at? I believe that you are saying that it will give us 2 quarters, but just understanding the thought process.
The Rockstar brand belongs to PepsiCo, so we had to align with them to get their strategy to launch the same in India. Basically, this is a brand energy drink category to address the premium category, which is very niche and they had to be -- that means that, that much market exists in India.
The next question is from the line of Bharat Shah from ASK Investment Managers.
Just wanted to ask one question. 2025, barring the calendar year of '25, barring any acquisition really speaking, that you should mark the beginning of a very favorable operating and financial leverage for us. Is that right?
You were saying the acquisition for the next year, '25, you're saying?
No, no. I'm saying assuming no significant acquisition occurs in 2025. And we will be digesting the current acquisition of BevCo that we made, assuming no further acquisition in 2025, then 2025 onward should offer a period of, once again, very favorable operating and financial leverage to us is where acquisitions will get digested and we'll scale them.
Very rightly put it up for by you. In fact, very true. And this resonates with my earlier answer that in a couple of months, the CapEx made by the company in this calendar year plus BevCo, this thing will be amortized already. And after that, any addition in the debt is going to be for the CapEx of '25 only, very correct, or maybe after a couple of months, a residual year, maybe 4, 5 months it will be left of the current year. Part of that will be net out of the cash retention from those 4, 5 months operations. And if the CapEx, we advance, then maybe slightly it goes up. Otherwise, without any new M&A for '25, the debt should not substantially change from '23 and by the '24 end. However, my EBITDA coming from these 3 plants and coming from 5 plants of South Africa should start contributing a lot and DRC should start contributing a lot, yes.
So in a way, kind of flow-through model, very favorable virtuous cycle that we witnessed earlier, with top line to operating profit to the -- after the financial leverage into the cash profit due to depreciation, kind of a favorable virtuous cycle, what we witnessed for preceding period of 2, 3 years, something like that, hopefully should begin in next year onwards.
In fact, this is what we are demonstrating for the last several years. And this is what we always plan. But in the short run, a little bit here and there is always possible. See what happens is the -- if there is a demand growth in the market, so we must prepare and make every endeavor that we don't lose our share by advancing the CapEx. At the same day, if internationally some opportunity comes up, we should not delay the M&A and temperately export for the cash flow through the borrowing. But of course, we have to be very cognizant of the fact, one, that we do not spoil our restricted ratios. Secondly, we are confident in a period of 12 to 18 months, we are going to come back to the original levels.
Without doubt. I think what has been achieved so far has been really commendable on each acquisition in each move, but always the heart is greedy [Foreign Language]. So it only from that point of view. And...
Mr. Jaipuria is smiling. He is amused from the statement and adopting our face line. Thank you very much.
Jaipuria ji, [Foreign Language]. Hope you are fine.
[Foreign Language]. Thank you so much.
The next question is from the line of Ruchita Ghadge from I-Wealth.
My question was mainly on the line of DRC. So just wanted to understand, what kind of volumes can we potentially do in that region? And how big is that market?
That market is quite large. But unfortunately, it's not a very -- the numbers are not very clear in that market, but it's -- more than 100 million population and warm climate. We have put 2 large lines and our capacity is about 35 million to 40 million cases is what we can produce. So we hope to do well and as soon as our plant starts by the end of this quarter, we will really see how well we do and how fast we can grow that market.
Okay, sure. And sir, similarly, the South Africa, I -- sorry if I missed it, but how big is that market? And how much volume can we do there potentially?
South Africa is close to 1 billion case market. It's a huge market, and our Pepsi share is only 2% practically. So there is huge room there, although we have our own brands where we are doing well and another 12% market share is that. But as a market, it's a very big market, and we have huge scope to grow, and we have 5 plants.
Okay. And sir, can you give me the capacity of these plants all together?
Well, there is enough capacity, but they were not maintained very well. So we are correcting them. And by September before the season starts, we will have enough capacity to grow the market. And whatever corrections are needed, we will grow it -- do it before the season starts.
Ladies and gentlemen, we will take this as the last question for today, which is from the line of Saket Mehrotra from Tusk Investments.
Sir, could you give us any sense on how much contribution in our sales is right now coming from quick commerce, if you could just like give us some understanding about how that channel is evolving?
In fact, the quick commerce or e-commerce is still is not very prominent in our segment. It's very little, and we have not tracked here that minutely because it's not that important, but as and when some more data on this is available, we'll share, e-commerce.
Okay. And any sense in terms of growth, while I understand maybe the contribution right now is insignificant, but if you can give us a sense on what kind of growth is coming from this channel?
Yes. Once we get the more data at that level, we will definitely be sharing.
As that was the last question, I would now hand the conference over to the management for closing comments. Over to you, sir.
Thank you. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarifications or would you 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.
Thank you, members of the management. Ladies and gentlemen, on behalf of Varun Beverages Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.