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Varun Beverages Ltd
Earnings Call Analysis
Q2-2024 Analysis
Varun Beverages Ltd
Varun Beverages Limited reported a robust performance for the second quarter of 2024, showcasing significant growth in both revenue and volume. The company, which primarily deals with PepsiCo products, saw its consolidated sales volume grow by 28.1% and revenue grow by 28.3% year-on-year. This growth was primarily driven by the Indian market, which grew by 22.9%, while international markets remained stable.
In Q2 2024, the company's revenue from operations reached INR 71,968 million. The consolidated sales volume hit 401.6 million cases, with approximately 28 million cases from its recent acquisition of BevCo. The product mix saw carbonated soft drinks (CSD) constituting 76% of total sales volume, packaged drinking water 16%, and juice 8%.
The gross margins improved by 222 basis points to 54.7%, up from 52.5% in the same period last year, largely due to the timely procurement and storage of PET chips. EBITDA showed significant growth, increasing by 31.8% to INR 19,912 million, reflecting an EBITDA margin of 27.7%, up by 74 basis points.
Varun Beverages highlighted its focus on operational efficiency with the enhanced capacity of preform manufacturing being shifted in-house. This shift involved writing off obsolete equipment from acquired plants and integrating renewable energy sources, which contributed to reduced fixed costs. The ongoing efforts to reduce sugar content and lightweight packaging are also expected to drive sustainable margin growth.
The acquisition of BevCo and the establishment of new production facilities led to a 41% increase in depreciation and an 86.2% rise in finance costs. Moreover, these investments raised the company's net debt to INR 58,808 million by June 2024, up from INR 47,345 million in December 2023. Despite these costs, the company's PAT (Profit After Tax) grew by 25.5%, reaching INR 2,618 million.
Significant future growth is anticipated through further expansion in the African markets, with exclusive agreements to manufacture and distribute PepsiCo's snack brands like Simba Munchiez in Zimbabwe and Zambia by 2025-2026. Additionally, new production facilities in India and international markets will continue to contribute to growth. The company has provided guidance for double-digit growth in the coming quarters, emphasizing their strong market position in India and potential growth in Africa.
During the first half of 2024, the company invested approximately INR 10,000 million for CapEx, indicative of its commitment to expansion. Despite the considerable investments, Varun Beverages maintains a strong financial stability with debt equity and debt-to-EBITDA ratios of 0.67 and 1.37x, respectively. The capital expenditure planned for 2024 is expected to be around INR 36,000 million, with a significant portion already spent on greenfield and brownfield projects.
The company remains committed to sustaining long-term growth through strategic initiatives such as expanding capacities, enhancing its distribution network, and diversifying its product portfolio. This approach aims to leverage the opportunities in high-growth regions, especially in the Indian subcontinent and Africa.
Varun Beverages is on a sustained growth trajectory driven by robust operational performance, strategic acquisitions, and a diversified product mix. With strong financial health and strategic plans in place, the company anticipates continued growth and value creation for its shareholders in the coming years.
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Ladies and gentlemen, good day, and welcome to Varun Beverages Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on Varun Beverages Q2 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'll initiate the call with opening remarks from the management, following which we'll have the forum open for a question-and-answer session.
Before we begin, I would like to 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 detail of our operational and financial performance for the second quarter and half year ended June 30, 2024.
We are pleased to report robust performance for the second quarter of CY 2024, achieving a consolidated sales volume growth of 28.1%, which includes volumes from BevCo, the impressive volume growth of 22.9% in India primarily contributed to this outstanding performance, supported by our expanded capacities, enhanced distribution network and a strong summer season.
Meanwhile, our international markets remain relatively flat. Moreover, it was a seasonally weak quarter for African markets. We are excited to announce further expansion in our partnership with PepsiCo having entered into an exclusive snack franchising appointment to manufacture, distribute and sell Simba Munchiez in Zimbabwe by October 2025 and in Zambia by April 2026.
This follows our recent announcement to manufacture and package Cheetos in Morocco by May 2025. These agreements complement our existing distribution of PepsiCo portfolio, marking another significant step forward in our strong symbiotic partnership. Additionally, we are pleased to share that we have commercial -- commenced commercial production of carbonated soft drinks and packaged drinking water at our greenfield facility in DRC with the region representing an untapped market for PepsiCo.
This expansion offers a huge growth opportunity for us. In line with our dividend policy, the Board of Directors has approved an interim dividend of 25% of the face value of INR 5 per share. Additionally, the Board has considered and recommended the subdivision split of existing equity shares of the company from one equity share with a face value of INR 5 each fully paid up into such number of equity shares having face value of INR 2 each fully paid up. This is subject to the approval of our equity shareholders of the company. This is intended for wider retail participation.
With strong performance in a key quarter, we are on track to deliver healthy double-digit growth in the calendar year. India remains a high-demand market with massive growth potential driven by a growing consuming class and the young population. To capitalize on this demand, we are focused on further strengthening our infrastructure, distribution network and product portfolio with the focus of strategic growth and leveraging new opportunities in both India and international markets.
We are confident in our ability to deliver sustainable value to all shareholders. I would 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 you provide an overview of the financial performance for the second quarter and half year ended 30 June 2024. Revenue from operations for excise GST grew by 28.3% year-on-year in Q2 of 2024 to the level of INR 71,968 million. Consolidated sales volume reported a growth of 28.1%, reaching 401.6 million cases in Q2 of 2024, which includes about 28 million cases from BevCo.
Indian market grew by 22.9%, while the international markets were almost flat primarily on account of volumes in Zimbabwe getting affected due to portfolio of transitioning to zero sugar without affecting profits.
CSD constituted 76%, juice 8% and Packaged Drinking Water 16% of the total sales volume in Q2 '24. In the second quarter of '24, net realization per case was steady due to the consolidation of BevCo where realization purchase for own brands is much lower than the company's average.
Our gross margins improved by 222 basis points to 54.7% from 52.5%. This improvement was due to timely procurement of storage and storage of PET chips to avail pricing benefits. This partial tradeoff between savings and the cost of goods sold and partial offset of enhanced interest cost due to higher inventory carrying costs.
Further, our ongoing focus on reducing sugar content and lightweighting packaging is also contributing to sustainable growth in gross margins, notably about 46% of our consolidated sales volume now comes from the low sugar or no sugar products.
As a result of higher gross margins, EBITDA increased by 31.8% to the level of INR 19,912 million. This EBITDA margin is improving by 74 basis points to the level of 27.7% in Q2 of calendar year '24, with enhanced capacity of preform manufacturing majority of preform requirement is now being manufactured in-house, leading to shifting of conversion costs from cost and other expenses.
Moreover, to get better operational efficiency and low production overheads, we have written off small residual values of TPEs of certain lines from the acquired suboptimal-sized old plants. All the new production categories are fully integrated and backward integrated on the -- and the renewable solar energy generation facilities, which will further help in reducing fixed costs.
Depreciation increased by 41% in Q2 of 2024 on account of the acquisition of BevCo and the establishment of new production facilities. Finance costs increased by 86.2% primarily due to new production facilities. The acquisition of BevCo had higher borrowing costs. PAT grew by 25.5% to the level of INR 2,618 million in Q2 of calendar year '24 from the level of INR 10,054 million in Q2 of 2023.
This is driven by volume growth and improved margins, partially offset by higher depreciation and finance costs and the smaller TPE values to the extent of INR 70 crores, which the company has written off. As of 30th June 2024, our net debt stood at the level of INR 58,808 million, up from INR 47,345 million as on December 31, 2023.
During H1 of '24, we spent approximately INR 10,000 million on the CapEx of '24 and around INR 6,000 million for the CapEx of '25. Additionally, we acquired BevCo for INR 11,629 million.
Consequently, net debt increased by about INR 11,500 million with the remaining amount funded through internal accruals. These strategic investments have expanded our footprint and strengthened our presence across several dynamic markets, both in India and the African business. Despite these growth-led investments, our financial stability remains strong with debt equity and debt-to-EBITDA ratios standing at 0.67 and 1.37x, respectively, as of 30 June 2024.
In H1 of 2024, the net CapEx capitalized amounted to approximately INR 30,000 million, excluding BevCo facility. This expenditure was primarily for setting up new greenfield facilities -- production facilities in Supa, Maharashtra, Gorakhpur, Uttar Pradesh, Khordha, Odisha as well as for brownfield expansion in Morocco.
As of June 30, 2024, the capital work in progress and capital advances totaled around INR 12,000 million mainly for the DRC plant and Phase 2 of the Gorakhpur plant, which focuses on Juice and value-added dairy plants. The net capitalization, CapEx for 2024 is expected to remain at the earlier disclosed level of INR 36,000 million only. Considering the continued robust demand for our products as well as diversification into our newer product categories, we shall be doing a capitalization of around to INR 25,000 million, INR 26,000 million for the season of '25 primarily towards the greenfield production facilities in India and the pre-snack foods manufacturing facilities in the African markets.
Out of the planned CapEx, about INR 3,000 million has already been spent till June '24, and we expect to spend about INR 10,000 million more in the second half of '24. So basically more than 50% of the next year CapEx by December will be incurred as it is and some part in 30 June, balance sheet has already shown that.
Our working capital days increased to approximately 33 days as of 30th June '24 from around 21 days of 30th June '23. This increase is attributed to the strategic purchasing of PET chips in India and the inorganic expansion into new markets into the BevCo and the DRC plant and DRC plant, as indicated earlier, already has started commercial production on 22nd July '24, and we have a lot of good hopes out of it.
To conclude, we remain committed to maintaining a strong financial position by focusing on the execution of multiple strategic initiatives that we believe will sustain our long-term growth trajectory, our ongoing investments in expanding capacities, enhancing our network and on ground infrastructure and diversifying our product portfolio are expected to drive sustainable and continuous growth in the coming years.
On that note, I come to an end of the opening remarks and would like to now ask the moderator to open the forum for any questions or suggestions that you may have. Thank you.
[Operator Instructions] The first question is from the line of Aditya Soman from CLSA India.
Sir, two questions from my end. Firstly, on India growth, can you give us a sense of how growth has panned out in 2Q, especially since we had a very strong -- I'm sorry, in 3Q in the first month of 3Q, especially since we had a very strong calendar 3Q. And a major question to that, can you give us a sense of how -- in this 23% volume growth that we saw in 2Q, how the various months have done, particularly energy drinks and on CSD with regards from that.
So our Q3 is also growing at -- in double digits, and we are quite happy with our growth. Q2 growth was close to 23% in India, which is a very healthy and a very nice growth. And in the breakup, I'll just give you the numbers for the growth.
Aditya, basically as far as drink is concerned as already intimated in the first H1, it's 15-point-some-odd number and rather than second quarter, specifically if you're interested is around 18%. So steel has been stabilized, and we are very happy to say that we are holding up on to that in a competitive scenario and still expanding further. And as far as the risk mix is concerned, we have increased the growth in now juice. We have increased in CSD, but we have deliberately kept the sale of water quite low in this quarter because that -- contribution from that, as indicated earlier, has been -- the margin is lower in case of Water. Water we increase only in Morocco, where realization is much higher as comparison to India. And as Chairman said, the outlook stays healthy going forward also.
I understand, very clear. And then just maybe a second question on the new snacking opportunity. Would at sort of margin level, they just be similar to what you've seen for beverages or any sort of sense on how the margins for the taxes in both Morocco and then Zimbabwe and Zambia.
No, each country, the margins are different, but overall, we are running at a very healthy margin of 27%, 28% of EBITDA, which is very healthy.
This is for the season. And Aditya, your question is about the net foods or on the beverage for those trajectories?
On snack foods. So beverages, obviously we get the overall average, right? So on snack foods, would it be very different from the beverages average or broadly in the same beltline?
It would be actually better than the beverages. So snack food is quite healthy margins and it's a good business. That's why if you look at it, mostly, it's kept by Pepsi themselves.
They have not -- I mean...
I don't give it for franchising mostly.
Understand. Very clear. And then would you look at this as like a stepping stone to hopefully getting more of these in other geographies?
We are hoping. We are open to taking as many countries they are willing to give us, but it would be in the African region only. It won't be -- they are not interested in giving it to us in India. So -- but each country is a large market as the 3 countries we have taken alone are $800 million worth of market for snacks.
And Aditya, if you remember a few quarters before when we said it, the step in the door when we had started the first co-packaging from our Kosi plant. And after that, I think we are regularly coming out with updates. So in a short time, I think that progress if we feel by any standard is a good progress.
Next question is from the line of Gautam Trivedi from Nepien Capital.
First of all, congratulations on yet another bumper quarter. So be happy shareholders. With respect to the fact that you are now at 4 million outlets and the fact that, as you just mentioned. So my question was related to expanding the snack portfolio outside of Kurkure specifically for India. But it looks like you're saying that PepsiCo per se is not necessarily expanding that portfolio with us. Is there a chance that the way we have launched CreamBell, can we launch [indiscernible].
Gautam, Sorry to interrupt you. Sorry, your line is not clear.
I hope this is better. Is this better?
Yes, sir, thank you.
Okay. So I guess my question is that, as you just mentioned, Mr. Jaipuria, that the PepsiCo is not expanding the portfolio for snacks outside of Kurkure for India as of today, if I understood that right. Would that be correct?
Well, they are keeping the complete snack portfolio for themselves in India. We are only co-packing for them in India and also Cheetos brand.
Got it. So I guess my question is that the way we -- since we already have an outreach to 4 million outlets, the way we've launched CreamBell milk products, should we -- or is there a merit in getting into the snack food business ourselves with our own brands?
So there is -- well, that would be -- we would not like to do that and that would not make our parent company happy. So I don't think we would be doing that. We are getting full support and we are -- and especially in the African country, they are quite happy to give it to us. So I think there's enough room for us to grow, why go into competition with them.
Which is fair, which is fair. No, that's it from my side. And all the best, we're happy shareholders and well done.
Thank you very much, Gautam.
[Operator Instructions] Next question is from the line of Abneesh Roy from Nuvama.
My first question is on the water business. So what you are seeing in this quarter, so June quarter, the market leader in Juice business base of an impact because of out-of-home travel being less. So they were expecting and maybe Street were also expecting good double digit, but it can be lower than that. Similarly, another listed player, which is in Water business, we were also expecting a very strong double digit, but it will be lower than that. So wanted to understand in your business also when I see this quarter versus last year same quarter, around 100 bps lower water contribution is there. So you have also seen some impact of less out of on travel?
Well, there is because it's 45, 48 degrees, there is less traffic in the market, which you also saw. So there is a definite effect and we are also not going out of our way to push Water everywhere.
And one follow-up question on the coming quarters. I see your base in India is now 15% and 18%. And this quarter, the high range, of course, is not conducive because the temperature will be lower. In December quarter, the lamina impact generally, the winter is harsher. So would you be still confident that for the entire second half, you will be confident of double digit. These are only days, I understand. But given the base and given the seasonality, would you still expect double-digit growth in India?
Consolidated, we see no reason why we should not be doing double digits.
Not India.
India also, India also. We have no reason why we would not.
We had double digits. The factors on the extent of what we are saying is, one, with the best in South coming in where seasonality is more or less flat, so those will continue to contribute, one. Secondly, the Africa for which second quarter of the year is a low season quarter. So now with BevCo coming in and the peak month for them is the fourth quarter and the same thing will be for Zimbabwe and...
And DRC.
And DRC. DRC has just started. What we are seeing in my 30th June results is all the cost setting up of these, we should be mindful in Africa, we have in this calendar year, doubled our capacity. And the result of that has not come only the cost we are seeing. We're seeing the depreciation. We are seeing the interest for that, which we have participated and some bit of structuring wherein we have taken advantage in COGS of the PET cost by stocking and the interest cost of which is getting reflected in the interest cost, cost of interest was the highest at its peak. And in the next few months, when the cost will be coming down, the model states -- all the same time saying model and the double-digit, as chairman explained with these 2 territories, which for whom the season is going to be the fourth quarter and with South and West, which are flat seasonality, there's no doubt why it should not be double-digit.
Sir, last question, so on -- back on Africa. So on Africa, if I see, another HPC company has sold some parts of Africa because of, maybe the potential not being to the desired expectation. And if I see per capita income of Africa also last [indiscernible], it is very below initial expectation. So my second question here is if Pepsi is happening in some geographies in Africa to give you, what are the pros and cons and how would you also meet because currency fluctuation issues, lack of democracy or per capita income not at all meeting the expectation, what is initial expectation. What are your practice steps to overcome to you?
See, if you look at it, the per capita consumption in Africa is 5 to 6x of that of India. So the consumption is very high. Secondly, the population growth in Africa is close to 3%. So every year, there is 3% -- close to 3% people being added. So there is a huge potential and also Pepsi is very underpenetrated in Africa. Like DRC, it was a white patch. In South Africa, we are 2% or 2.5% market share. So there's nothing to go down. There's only upside everywhere, which we have shown in the markets, we have seen -- every year, we have gained share or increased our margins and gone -- done better. So we don't see any reason in Africa where we would be struggling or, I mean, it might take a little longer sometimes because each country is a different animal. But we have been very successful and I don't see any reason why it should be -- not be the same going forward.
And you asked question one is the per cap income is low, but as Chairman explained, it has cap consumption is higher, which compensates much.
Soft drink is food in Africa, which is very -- it's not a luxury. It's a food. Every individual has soft drinks in the afternoon.
And on the currency, I think the currency, the worst part is in Zimbabwe and it's before you how well we have managed in the last few years, it's a debt-free company, and really growing. The sugar tax, which came a couple of quarters before, even the volume for -- in the interim in the transition came down, but the margins were not affected. And now volumes also have started coming up. So everything is -- the way -- of course, we have learnt it in Africa. So to manage those. So I mean...
Africa -- but if you can manage it, Africa is a great business and going forward, it's looking very positive for us.
Sir, I understood on the positive. Just one question on your comment on why Pepsi is willing to give some part of Africa, but not willing to give India. That will be essentially, I think, so many countries...
Yes, we have already given. What are you talking about? Snacks? Or what are you talking about?
Snacks.
Snacks, they don't give snacks anywhere in the world. This is the first time they have started giving snacks. So they will give it in the smaller territories. Snacks worldwide, they don't give franchise. We are one of the lucky ones who have got it initially.
Next question is from the line of Percy from IIFL.
Congrats on a good set of numbers. My question is also on the Foods business. So while there is some idea on what is happening there in terms of the company willing to give you a franchisee, et cetera. As investors, if you can give some better guidance on how to estimate what kind of sales this business could generate in the next couple of years so that we can accordingly model it.
Well, I think the 3 countries we are looking at right now in the next couple of years, we can definitely look at close to $100 million volume. And depending on which other countries we expand and what happens. But it's a growing market and it's a very lucrative and a positive market in snacks because the CapEx are much lower and the turnovers are much higher.
Percy, just see the data points, which we have already shared. One is the CapEx. Second is the date but from when the plants will be installed. Third is the market size. As of now, only these things should be sufficient because we have only these data points. So once this starts and the size of the market and the Pepsi is present wherever they are there, rest of the things are to be projected, but from the date by when the plants will be ready because now as the new guidelines, we have to any new plant diversification we have to inform. So we have informed. So we are -- now eBay start working on those things. Except Morocco, where we had the selling and distribution agreement and sales started ahead of time.
Understood. Understood, sir. Second question is on the CapEx. If I look at your cash flow statement, in addition to the acquisition, there is a INR 2,000 crore of CapEx as per the cash flow. And if I look at the balance sheet, there is about a INR 3,000 crore of capitalization. So if you can just help me for the remaining half of the year, how much we should see CapEx in the cash flow and how much more in terms of capitalization?
Percy, you remember on the 31st December, we had said out of this year's INR 2,400 crores approximately, we had amounts sitting in CWIP. And we capitalize the year when we put to use. So we linked it up capitalization to the season for which is May and putting in CWIP as and when the cash flow happens. So out of those INR 3,000 crores -- sorry, INR 2,400 crore plus INR 1,200 crore, INR 3,000 crore is capitalized, INR 600 crore, roughly is under -- that will be capitalized later. And the major part of that was DRC, which got capitalized on 22nd of July, INR 400-plus crore and INR 200 crore roughly is in Gorakhpur, which is in still work-in-progress.
So coming back to 3,600 as indicated in December, will be the capitalization in this year as of now. And for the next year, about 2,100 or 2,200, and other new plants coming up in the areas, which is for freight and near the market and to take the competition more effectively. So out of that, we may be entering about INR 1,000 crore -- INR 200 crore out of -- and additionally, about INR 200 crore, we have already incurred. It is sitting out of our cash flow for the season of 2025. So approximately INR 1,200 crore to INR 1,300 crore for season '25 will be incurred cash flow-wise, not capitalized. And capitalization next year, as of now, if you ask me, maybe about INR 2,500 crore, INR 2,600 crore, which would be INR 1,000 crore, INR 1,100 crores lower than the capitalization of its current year.
Understood. So basically, next 6 months, the cash outflow you are saying will be about INR 1,200 crores for next 6 months?
INR 8,000 crores, roughly.
INR 200 crore is already incurred.
Next question is from the line of Devanshu Bansal from Emkay Global.
Sir, congratulations on a very good performance, and thanks for the opportunity. Sir, this 23% growth when we compare it to about 40%, 45% expansion in our capacity. I guess some of it is due to delay in opening of some of the plants, which happened during the quarter. The question is to check is in even for a short period of time, did we touch the peak capacity in the June quarter?
Well, very short period before the -- some of our new plants started because some of the plants got delayed slightly because of the freight issues because of this or between -- and the containers got delayed.
Moreover, 45% was for CSD for India. So I think if we do the math right, we are very well near to that.
Got it, sir. Got it. Second question is on margin time. Our stand-alone EBITDA margin improved largely in line with the gross margin improvement that we have seen. However, in the consol level, there is some mismatch between gross margin gains and EBITDA margin gains. What is the reason for that, sir?
So South Africa, once again is gross margin. Yes, this is South Africa, basically, which has come up with its own brands and their these increased ratios are different, which have slightly -- we will become tuned to this because this was the first quarter, South Africa ratios are slightly different.
One, it was the first quarter. Second, it was the winter quarter, which is the worst quarter for South Africa -- for the African region and especially South Africa. So I think given another will be pretty used to South African systems and market and we are just correcting all the weaknesses of the older bottler so -- to be prepared for the next season, which is coming up in the fourth quarter of the year. So you will see major changes coming in South Africa.
And these 2 quarters, basically, one, we were setting right in South Africa. And secondly, we were installing the DRC, which is now operational and start contributing from this quarter. It's expensive and it has a lot of things had started coming in much before.
A couple of bookkeeping questions. The working capital days have inched up to 31. Can we expect normalization back to 20-odd days at CY '24 end?
In fact, in a couple of weeks, you'll see the difference. As already explained, about INR 250 crores money excess PET chips were purchased to take advantage of the pricing, which has helped us in a substantial increase in the gross margin, but partially offset very clearly, we have come out is by way of increase in inventory and increase in the interest cost, recurring cost. But ultimately, it was making sense. It was bringing savings. So we decided -- so that will be -- in the normal course, if we stop purchases, it will be liquidated in next couple of weeks itself.
A couple of months.
Couple of months.
Got it. And sir, you mentioned about margins in the snacking business better, being better than the overall beverages business. Can you throw some light on asset turns for this business? Are these also better versus the beverage business?
What is it?
Effect. It should be equal to this -- the only advantage is that we don't have to run that business 3 ships, and that's not that complicated. Because here in this business, we have to do adjustments in the off-season, reduce the staff and still the share.
The seasonality curve is much better in snacks. It's reasonably flat. I mean not 100% flat, but it's reasonably flat. So you get a much better return on your capital.
Next question is from the line of Nitesh Dutt from Burman Capital Management.
My question is regarding the usage of recycled back chips. So if my interpretation is correct, you will have to use 30% recycled content, I think, from first of April 2025. So given, I believe there are capacity constraints in the market and Indorama joint venture potentially is not active yet. So how are you planning to comply with the regulations from per capita as well?
So our plant will be operational next year. The joint venture will be operational next year and which will be sufficient to give us close to 30% of our requirement between what we are buying and what the plant will be able to produce. So we don't see any challenge.
And as trial, Pepsi Black already, we have started with the recycled project last quarter, the recycle plastic from outside.
Got it. And sir, what will be the impact of this on your cost of PET ships? Would it be gross margin dilutive? Also, do you expect any kind of relaxations in this from the government or regulators?
I don't know if the relaxation part, but it's not very negative. It's very close to the PET chips, original PET chips. So I don't think it's much of a margin issue.
Next question is from the line of Sheela Rathi from Morgan Stanley.
My first question was, sir, if you could give some flavor on the market share which we have in Africa for the Beverages business, we understand South Africa, it's low single digit, but if you could remind us what is our market share across the markets we are present here?
Well, each country has a different market share. So it's -- it will become very complicated to start.
Sheela, as Deepak has already informed you that we have different share in different markets, South Africa with these tickets. And in Zimbabwe last year, we produced 71% on a full year basis. And we finished about 35% in India. And including Water, we did 30% in Morocco.
Okay. Just a follow-up on the question asked earlier on working capital days. So you mentioned that this will be resolved in the next couple of months. Does that also mean for the consolidated changes also, which we are seeing because of BevCo? Because you know inventory days are higher, debtor days are higher as well as the receivable days are higher. So I just want to understand whether all this will improve in the coming months.
Well, as far as the effect of BevCo is concerned, it will take time. It will start showing from next quarter, but it will take a lot of time because there are a lot of fundamental things are to be corrected. There -- go to the market has to be deepened where we can dictate the terms. Presently, most of their volume sales are to the large -- those trading house modern trade sectors, where it's very difficult to dictate any terms and rather they dictate the terms for the number of days. So that in the near future will not happen in a couple of days, but couple of months. It will impact in a couple of month years, it will definitely be taken care only to that effect.
As far as India is concerned, it's well in shape, because India, let's for now for this, we are into this business for 50 years. And there, it's just 4 months since we have gone there. And we, at least firstly, are making assessment what are the things to be done. Second, on the margin front, the realization is much lower, about 30% lower than the normal Pepsi in that country itself. The mix, which used to be 15% has already gone to 18.5%. And gradually, it -- Pepsi sale mix will start going up, that is going to help.
Then we have to create our own larger facilities with the economies of scale like in India, integrated, as we mentioned, all of our 3 plants started in this year are with the solar electricity. I mean we have to pay the 10%, 20% of the power bills, that was to the solar cells. We generate our own power. We do 100% backward integration in-house. In last year, we were still a small portion of the -- while we had purchased directly from PepsiCo. We were getting co-packaged some of the PET from outside where 30% of the PET price was going as conversion charges.
So this time on everything is produced -- converted into the preforms in-house. So that new plants are to be integrated, zero freight, zero credit cost, zero packaging cost. Preforms are manufactured there simultaneously within few days gets consumed also in the production. So all changes in India, we are aware and the same are to be replicated, if it takes time. But on the other side, we should not project. I mean, at so cheap, such a country with 5 working plants getting it for INR 1,200 crores, it was still, so we had to now encash on that. We have taken a leap step, but as its results started coming in, no, this will take time.
Next question is from the line of Sanjaya from Ampersand.
Congratulations once again for delivering superb numbers. Sir, you have already explained, but still made a bit of clarification that your staff cost and other expenses, as on the Sam's question, expanded both for the stand-alone as well as consolidated entity. So if you can just explain like why such a big jump in staff cost, particularly.
Here, 9 plants are added in this quarter over the last year. So 5 in South Africa and 3 in India and 1 DRC. So you have to -- and the result of that is yet to come in. So this is what I was saying that it will take some time that we will stabilize. Expense side is already common. The revenue will start building up. And South Africa, we are giving examples, but South Africa, it was the peakest season, something like if you calculate the interest cost and depreciation in India, for November, December, January, it was -- those three months, winter months in South Africa and it will see the season two quarters as it is. If you improve and secondly, the steps, which you are taking, they will also bring in the advantage and the third economy of scale, backward integration.
Today, they have to buy everything from outside, not like India. We manufacture everything in house, except concentrate sugar, we do everything in now. They do considerate themselves, 81.5% is their own brand sales, but they don't have the ability to upcharge in the market. They are treated as deep range where realization purchase is 30% lower than if we manufacture on the same equipment to the same sugar, Pepsi brand, which is a much premium, well-accepted, recognized brand is there. And on the availability side, as I mentioned, we had to do a lot. Presently, they are dependent too much on the modern trade. Yes.
Understood. And lastly, I just wanted to check that you will continue to be on an investment phase for quite some time to come, which is, in a way, a good thing because you have that kind of a growth opportunity for you -- ahead of you. And is there any way to accurate that -- what kind of minimum return on capital employed or any other risk parameter like net debt to equity or something which you are closely monitoring while you're driving your growth trajectory?
Yes. I take -- thank you, Sanjaya. You have answered all my questions. Firstly, the debt equity, debt EBITDA. We are very cognizant of that, and we are monitoring and based upon the same, we pick up any capital expenditure. And that was only one occasion in 2019 when we felt we are acquiring South and West and we really came out with equity, but presently, all these ratios are well under control and in a very happy situation. So the -- I mean -- so there is nothing to worry how these things have taken care.
Next question is from the line of Amit Purohit from Elara Capital.
Sir, congratulations. Sir, just on the comment that you made on international volumes, which are flat ex of BevCo and that you ascribe it to shift towards zero or low sugar. So one, while you indicated 46% of the volumes is low sugar, much of -- I mean, majority of that would be in the international market, right? Just one clarification.
That's right. Yes.
Yes. And this shift has been happening for quite some time, right? Why has the impact been seen probably in this quarter? And how long -- how do we think about it going forward in this transition, how long...
That was temporary, which was mainly in Zimbabwe, which was the main large international market for us, before South Africa and DRC starts. So there, there was a special tax on sugar. So there was a complete change in the portfolio. And that's why this quarter and the prices had to go up. So that's why there was an effect for this quarter, which has already changed and the market is growing back into normal, and we are growing in that territory again. So this quarter, you will see all -- will not see any flat or -- no growth in international markets. Rather, you'll see healthy growth in the market.
Next question is from the line of Kaustubh Pawaskar from Sharekha by BNP Paribas.
Sir, my question is on the realization front. So in this quarter, our realization stood flat and we have stated that because of the consolidation of the AlcoBev business, where the margins are quite lower, the realization stood flat. So considering the fact that in the second half of the year, when season for Africa business is quite good, should we expect realization to be lower in the second half of the year on a year-on-year basis?
Kaustubh, there are 2 things to be -- 2 engines, one is South Africa yes, it will bring it down. And the other is DRC, maybe that takes it up. Let's wait till then. And we are just analyzing this our sales actually and maybe both compensate and still, we may be, back to the same month -- revenue growth also per case sales growth also. And moreover, in South Africa, by then, the mix will also be changing. Like from '15 disclosed earlier, 18.5% especially in South America, without adding even a single bottle capacity without doing backward integration, if we could increase that. So already -- and the top line also has already grown from the level where it was. And hopefully, we will be happy if we are keeping -- able to keep the trend in the same data where it is coming.
Right. Right. So second, maybe quarter 3, quarter 4 might give us a better understanding how the realization would pan out.
That's right.
Yes. And just from the understanding point of view, we are seeing the contribution of no sugar or low sugar products going up, are margins in this -- sorry, are realization and margins in this product much better than your -- the conventional Pepsi products?
That's right. Our margins are better with low sugar and no sugar.
So once the contribution pick up, I think that should also add to your profitability going ahead.
Yes. It depends which country where, but it will definitely help.
Next question is from the line of Omkar from Shree Investments.
Yes. Is it possible to give the volume growth -- volume growth or how much -- how many million cases you sold -- I mean, not you, BevCo in the last season, which is the fourth quarter?
Quarter-wise, I don't remember. I think in the year, they perhaps sold 112 million last year.
The entire financial year, you are saying?
That's right. Last calendar year.
Okay, last calendar year. And this quarter, it was 28 million cases, right?
Yes.
Only for the current quarter, you are saying?
Yes. And if you -- you're looking to do some math, so 1/4 of 112 is 28, and this is the weakest quarter.
Okay. So this is the weakest quarter and the -- yes, please go ahead.
Yes. No, no. I mean this tells the total story.
Correct. Yes. So what you are saying is earlier, you mentioned that you will be seeing quite a lot of changes in BevCo in the upcoming season. So I mean -- yes. So I mean, can you just share some light on what kind of changes we are expecting there?
No, no. changes means our go-to-market backward integration. I mean, it will take time, but we are going to correct and that's why we have taken the market with such a low share. It will take x amount of time, but if you look at it, what the total year volume was, we are achieving that practically in the lowest quarter, which is the poorest quarter of that year.
Okay. Now that you have understood the market a little bit better when you acquired the company, can you throw a little bit more light on what kind of effort?
It's a new country, it's only 2, 3 months we have taken. I've given you enough that the worst winter, we are doing the same number what we should do -- now you have to -- I can't give you the complete exact detail. So I wish you give me a couple of quarters to really understand the country.
Okay. One more thing is that you had mentioned that DRC will be a big opportunity. Can you just throw more light on that?
The opportunity because there's more than 100 million population. And it's practically on the equator. So it's somewhere all the time. The seasonality is very low there. I mean there's no change in seasonality throughout the year. So it's a good market and it will be a constant throughout the year market.
And right now, how much -- like what's the presence of firm leverages over there or through PepsiCo?
Eight days.
Okay. So -- okay. So can you say that, I mean, apart from India and South Africa, this can be our biggest market for you?
No, I won't say it's the biggest market, but it will be a decent market for us. Growth is much bigger, and it will always be the biggest market.
And what about the consumption wise, per capita consumption there?
Yes, Africa per capita consumptions are all high everywhere, South Africa being the highest. I don't have the exact number, but it would be at least 3 to 4x of India.
Next question is from the line of [Shravan Rajpurohit] from Assignment.
Congratulations for good sets of numbers.
Thank you.
Sir, my question is, what is your guidance for next year? How much percent we can grow next year?
We can't give you exact item. We have said double digit looks feasible, and that's what we can tell you.
Okay. Sir, one more question. What kind of growth we can expect in the next 2 quarters?
In the next 2 quarters. Well, again, the same thing we are saying we should grow double digits. That's the guidance we are giving and that's what it was feasible.
Ladies and gentlemen, we'll take that as the last question. I'll now hand the conference over to the management for closing comments.
Yes. Thank you. 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 all soon. Thank you very much.
Thank you very much. On behalf of Varun Beverages Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.