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Varun Beverages Ltd
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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 Q3 and 9M CY 2022 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 reflect Mr. Ravi Jaipuria to make is opening.
Good afternoon, everyone, and thank you for joining us on our earnings conference call. I hope all of you had the opportunity to go through our results presentation that provides details of our operational and financial performance for the third quarter and 9 months ended 30th September, 2022. We are pleased to report yet another strong quarter, delivering a net revenue growth of 32% and a PAT growth of 53%. Our India business has delivered a solid organic volume growth of 22%, led by a favorable demand environment and strong performance of our energy drink. Sting in addition, healthy double-digit sales volume growth of 31% in our key international markets further assisted performance during the quarter. Post COVID-related setbacks over the last 2 years, we are now increasingly improving our presence by expanding our distribution reach across markets. This will help us gain a larger share in the growing market.
On the product portfolio front, we are pleased to share that Sting continues to perform exceedingly well across geographies. Similarly, our launches in the value-added dairy segment are seeing healthy consumer response, and we remain confident of improving contributions from these new launches going ahead. Overall, the demand environment for the beverage industry has been robust, and we are witnessing a healthy offtake in India as well as in our international markets. The festive season, quarter 4, is expected to further add consumption trends in this calendar year. We are confident that we can sustainably deliver healthy volume growth across all product categories going forward, and further strengthening our market position in the beverage industry.
I would now invite Mr. Gandhi to provide the highlights of the operational and fiscal performance. Thank you very much.
Thank you, Mr. Chairman. Good afternoon, and a warm welcome to everyone for joining us today on our earnings conference call. Let me provide an overview of the financial performance for the third quarter and the 9 months ended 30 September 2022.
Revenue from operations adjusted for excise GST grew by 32.5% year-on-year in Q3 2022. That's the level of INR 31,766 million. Sales volume in India grew by 22.1% in Q3 2022 to the level of 148 million cases, and in international markets grew by 31.3% to the level of 42 million cases. Consolidated sales volume registered a solid growth of 24% to the level of 190 million cases in Q3 of calendar year 2022 as compared to 153 million cases in Q3 of calendar year 2021. Realization per case, as informed by Chairman, improved by 6.8% to the level of INR 167 per case in Q3 2022, primarily driven by a higher mix of smaller SKUs, which is 250 ml, especially blockbuster energy drink String, which has a higher net realization, and its mix is increasing in the sales volumes.
Carbonated soft drink contributed 70%, juices 5% and packaged drinking water 25% of total sales volume in Q3 2022. On the profitability front, despite the inflationary raw material environment, gross margins for Q3 2022 increased by 90 basis points to the level of 53.7% from 52.8% in Q3 of 2021. The increase in input costs was more than offset by operating leverage and higher sales volume, leading to an improvement in EBITDA margin to 22% during Q3 2022. This has gone up from previous year of corresponding period, 20.6%. EBITDA increased by 41.3% to the level of INR 6,989.9 million in Q3 2022 from the level of INR 4,946.6 million in Q3 of 2021.
PAT increased by 53.3% to INR 3,954.8 million in Q3 2022 from the level of INR 4,946.6 million in Q3 of 2021. This is driven by high growth in revenue from operations, improvement in margins, transition to lower tax rate in India at PAT level on income tax, basically. Overall, the company's financial position continues to be solid, and we look forward to delivering healthy results in years to come. 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.
Congrats on very good set of numbers. My first question is on the Morocco announcement. So wanted to understand how big could be the investment and size of the opportunity? And is there a possibility that Lays, Doritos and Cheetos distribution and selling this can go beyond Morocco also? Is there any thought process from Pepsi on that?
Well, I think, first of all, it's existing business there, which is about INR 150 crores, which we will take it forward from there starting from January 1. And hopefully, in the coming time, we will start manufacturing also in Morocco, and this involves all the brands, Cheetos, Doritos and Frito-Lay. And your question of will it take us further to other countries, we can only hope so, but it would depend on PepsiCo's choice, and it's a first, which is a big starting base. I mean this is not -- normally Pepsi doesn't give distribution rights of snacks. They have given it. Now we have to prove ourselves, and hopefully we will get other countries.
Right. My second question is on the impact of Sting, so last quarter it was around 7.2% of the sales. So has that moved meaningfully? And in terms of the realization growth and gross margin expansion which was a positive surprise, how much would have been the impact of Sting in the overall scheme of things? It is around, say, 7%, 8%. Does it really move the middle too much these…
The cost difference in Sting, yes, it moves the difference and the 9 months average 8.5% mix. And for the quarter was more than 12%. And it's moved about, I think, the mix changed about INR 8 and INR 167. So it's substantial for us, actually, yes.
Sure. Just a question, more of bookkeeping, so current outlet reach in India and if you could give some details on Sting and Tropicana also in terms of the outlet reach. And in terms of CapEx guidance, overall, CY '22 and '23, how do we see that?
Well, I think the Sting reach is reaching pretty well close to our highest penetration of any of our products. So Sting is reaching practically everywhere, which is more than 2 million outlets we are going to already. So Sting is pretty well everywhere. The exact count, we will have at the end of the year. But when we see the growth, I mean, it is clearly looking that it's reaching everywhere.
Right. And similarly for Tropicana and CapEx.
Tropicana is also doing extremely well. And the only constraint was we had 1 large facility which we had opened in Pathankot, so because of that, and our distribution has gone to about 15% of the outlet. So it's still not gone to all the outlets because of a constraint of production. And hopefully, this will get better next year.
The next question is from the line of Gaurav Jogani from Axis Capital.
Congrats on a great set of numbers. Sir, my first question is, again, with regards to the Sting. So if you can help us out, what would be the realization difference between Sting per se and for the other company products together? The reason I'm asking is we were seeing a sharp 20%-odd jump in the realization in the domestic business. So any color on this would be helpful.
There's a large difference. I would say it's more than 25% to 30% difference. Okay. Our realization is actually more than -- more by 65%, actually, sorry, in Sting.
Okay. Okay. And sir, you mentioned that the contribution for this particular quarter was around 11%, 12% for Sting in the overall product mix in India?
That's what it has been in the last quarter.
Okay. Between 11% to 12%, right?
That's right.
And for the 9 months, it was 8.5%?
8.5% is for the cumulative 9 months.
9 months, sure, sure. That is helpful, sir. Sir, my other question is -- also is with regards to because the realization is so high in String does it also translate to the gross margin and the EBITDA margin level as well? Or the cost there is a bit higher, leading to same realization -- sorry, the same EBITDA per case?
So, it definitely adds to the margin, and that's why you're seeing margins which are better than the volume growth. So if you even after higher resin and sugar prices, we've been able to do -- our EBITDA margins have been better than year-ago or before. So even much better than our guidance, which we have given. So Sting has definitely helped in the process.
Okay. Got it. Yes. As an other, actually the related question with this was actually because if this was the realization per case on a company level basis has increased to around INR 167 per case, so given the strong contribution from Sting and the numbers going up of Sting. So would it be right to assume that the realization per case could sustain around the current levels of around INR 169 odd levels?
Well, we hope so, but everything is seasonal-based. So it's partly seasonal based. The Sting is definitely contributing to the higher realization. And Sting base should be somewhere close to what it is today. So we should be able to maintain it, but give or take 1 or 2 points up or now.
Okay, okay. And sir, just one last question from my end. In the international business, while we have seen the overall volumes have grown by 30% plus. However, the revenue growth has actually declined by 1%. I mean we just did a consol minus stand-alone, so that, sir, actually declined by 1-odd-percent. And while margins, EBITDA margins also have seen sharp expansion of 29% -- to 29% actually. So how should we read this particular thing?
Well, basically, our growth have come -- major growths have come from Morocco, where our growths are not that much in CSD, but in water, where the realization is lower. But overall, the margins are good. And we are growing much faster in water there. That's why you see lesser realization.
Okay. Okay. And sir, this is expected to continue ahead? I mean this is sustainable, what we are seeing in terms of the growth?
Well, growth are sustainable. So we are growing in CFD as well as water, but we did not have enough capacity of water before. So as we added capacity, our water growth has been faster.
The next question is from the line of Yash Dantewadia from Dante Equity.
Congratulations on a great set of numbers. I just wanted to know what is the capacity utilization numbers, if you have it.
Well, I mean, we were reasonably fully utilized this year. And so we are adding new capacity, and we should have good capacities for next year.
Also is this the seasonally weakest quarter? Or is it the next quarter?
The next quarter is the weakest quarter, October to December in the weakest quarter.
And could you please talk and elaborate more on your CapEx plans? I'm a fairly new investor, so I'd really like to know.
Well, we are looking at about INR 1,200 crores to INR 1,300 crores for this year.
Greenfield and brownfield could you give me the?
Yes, both, inclusive.
Yes. So how much is greenfield and how much is brownfield?
I would say about half and half.
Half and half. And by when will we see this CapEx coming or getting commissioned?
We are hoping that this happens before the season, which is before February.
Also, could you give me the energy drink market share of Sting, percentage, if you have it?
At the moment, I think we are the only one practically. So our competition has just launched their energy drink. So very difficult to -- I mean we were practically the only energy drink players except Red Bull and all which was very small.
So do you have the market share numbers by any chance?
I don't have the exact numbers because Coke has just launched their energy drink. So it's too new.
Okay. Also, would you be able to give a margin guidance going forward? I think this quarter your OPMs are somewhere around 22.
We've always given a guidance that if we can reach around 21, we are very happy. And we still want to give the same guidance. I mean, we've had a good year. And even though we've been able to absorb all the higher costs and -- but I think the guidance, that's what we look at, about 21.
Are you seeing raw material prices coming down? Commodities have cooled off, right?
Partly. Sugar has not cooled down, but resin prices have started cooling down.
Okay. Also, what is the debt on your books, net debt?
Around INR 2,300 crore.
The next question is from the line of Devanshu Bansal from Emkay Global.
Congrats on great set of number. I wanted to check, by when do you expect the CapEx in Rajasthan and Madhya Pradesh to get commissioned? Do we expect it to get commissioned before start of next season?
That's what we are trying. I hope we are able to do it.
Okay. And secondly, sir, I wanted to check on initial traction in Democratic Republic of Congo, where we, I guess, have started distribution. So how is the traction in that continent -- in that country, sorry?
Still bit early. I think it will take little bit more time. So I think we will start seeing some traction in 2023.
Okay. And any sense that you can provide on the opportunity that Africa continent sort of offers to -- because my analysis is that PepsiCo's penetration relative to the Coca-Cola company is much, much lower. So does that sort of present a good long-term growth opportunity for business in that continent?
Absolutely, it does. And that's why we are going one-by-one country. And once we stabilize in one country, then we look at the second country. There are lot of countries where Pepsi still not exist. So there is huge opportunities available.
Sir, my question was to get a sense as in which part of the continent would we be targeting? Because I guess there are other 2, 3 bottlers that PepsiCo is engaged with in Africa.
So they are engaged, but they are not expanding, the other big bottlers, whoever is there, rather in the process of selling, not adding new territories. So it depends how fast we can grow and what we can do.
The next question is from the line of Jaykumar Doshi from Kotak.
Congratulations on a very good quarter. My question is for the past couple of quarters, your growth on 3 years CAGR basis is much stronger than what we have seen in other staple semi-discretionary categories. Even if I leave aside the upside from Sting where [indiscernible], even for the rest of the portfolio, double-digit 3-year volume CAGR looks very impressive versus what we've seen elsewhere. So can you give us some color on what is the industry volume growth? And what is your outperformance versus industry? And second is, are you surprised by the traction or demand that you've seen during the course of the year? Or is this something that you were anyway sort of expecting or in line with your expectations?
So I think if you've been on the call, in the earlier calls, we took over the territory rest of the country in 2019. And as soon as we took over the rest of the country, the next year, where we wanted to expand the distribution, COVID came in for 2 years, so we could not -- all the import all the expansion of the go-to-market we had done, we could not get any results. This is the first year we have really got results out of whatever expansion and go-to-market we had done. And that is what is giving us the fruits. And going forward also, as it looks, as long as we keep on growing the market and keep on adding our go-to market, there is enough room for us to grow the market. And PepsiCo had a much smaller share in most of the markets which we have taken. So the room is enough there.
So is it reasonable to expect that this year, even if we leave aside Sting, in rest of the portfolio also you have gained market share versus previous quarters?
Well, I don't want to say we have gained market share, but we have grown substantially, and we have done quite well.
And my second question is maybe 1 year ago, 2 years back when we asked this question on the potential for Sting, your response was there is some of the market [indiscernible] it tends to be in 12% to 15% range. Having seen the success you have seen so far, where do you think Sting can be in terms of its overall salience next year?
Well, I can't answer you exactly. But what we have seen, the sky seems to be the limit. It's just a question of how much we can distribute and produce. And if we get the same liking of the people which we have got, it should be a good mix for us going forward.
Understood. And elsewhere in the world, has Coca-Cola -- does Coca-Cola have a offering that competes with Sting? In India they have [ launched ads in the ] Thums Up. So just wondering if they are in other markets?
So they have -- both the companies have energy drinks all over the world, mostly different, different energy drinks with different pricing, different model. I mean Sting has done extremely well in this part of the world. It's doing extremely well in Pakistan, in Thailand, in Vietnam. So Sting has done very well in this part of the world.
The next question is from the line of [ Sandesh Agarwal ] from [ Sahara Capital ].
My question is what is the market size of Lays, Doritos and Cheetos in Morocco?
Well, I just said that they have an existing business of about INR 150 crores, and we have to take it forward from that.
Okay. Okay. And see, we are only distributing and selling this product, right?
For the time being, that's what we are doing.
Okay. Okay. And sir, what is the margin for this distribution and selling?
No, that we can't disclose it. That is not…
The next question is from the line of Sumant Kumar from Motilal Oswal.
Sir, can you talk about the 22% growth in India, which geography has a higher growth contribution in the current quarter?
A lot of -- it's very difficult to say. It's wherever we were very weak, which are the new territories, which we have taken from PepsiCo and some of the bottlers, there Pepsi was very, very weak. That's where we've had higher growth. And because our share was so low in the market. So that's where we've enhanced our go-to-market and that has started giving us results. And that is what has added to our growth.
So as per my understanding, North is driving growth, say for Bihar and Eastern UP and the central UP also. So can you talk about the kind of growth we are seeing in these 2 areas? South is also doing a similar kind of growth? Organic growth I'm talking about.
Well, I don't know if I want to give the exact number, but Bihar and MP has been seeing growth of over 50%, so.
Okay. So these 2 geographies are outpacing other markets?
Well, a lot of markets are actually outpacing. You asked for these 2 markets and I've given you the answer.
The next question is from the line of Sanjaya Satapathy from Ampersand.
So my question is that in Sting you are starting to see competition. How do you really plan to take account of this?
Well, they are countering us right now. So I think energy drink is a large market, and there's enough for both of us to play, and we will always have a first-mover advantage, which we are seeing. And our product is very good, and it has been liked by the market. So we just have to keep on expanding our distribution, and I'm sure we'll get growth, and I'm sure competition will do well also.
Understood. And sir, so can you just tell us how much is the overall beverage industry growth during this quarter on a year-on-year basis? I mean, the same question I can ask in another way that while in South and many other places where you are growing much faster, in your established market is your growth far lower than this 20%, 22% that you have reported?
Well, there's definitely some territories which are growing slower than 22% because if we are growing 50% in some of the territories. But overall, it's been a healthy growth all across. Some territories, obviously, it's -- this quarter was a rainy quarter also. So wherever it has rained a little bit more, it has -- the growth has been a little less. So overall, we've grown at close to 48% in the first 9 months. So it's been a more than healthy growth. Actually all territories have grown.
And see, earlier you used to give a guidance that your sustainable volume growth was some 13%, 14%. Considering the success that you are seeing in new territory as well as in the success of Sting and your dairy product where you are fairly optimistic about, will you look forward to a much higher growth rate to sustain going forward?
Well, we don't like to commit, but we are definitely trying and we've had good success this year. So we hope we can do well next year also. The only thing we can say, we are expanding our distribution, and that is what helps, and we are adding more chilling equipment which are -- which is what is adding. And hopefully we should have a good year next year.
If I can just ask a last question that can you just give us the details about your expansion plan both in Tropicana and in the dairy product?
The Tropicana and dairy are both done from the same plant. So we are expanding our -- we are adding one more plant next year. So that will double our capacity in dairy as well as Tropicana.
By when, sir?
I think by June or July it should be ready.
Okay. And whereas the other soft drink factories will be ready by…
We're trying to get it ready before the season.
The next question is from the line of Jenish Karia from Antique Stock Broking.
So first question is with regards to dairy product. So how has been the distribution and performance of the dairy product segment during the quarter? And how do you see it for the next half, the next first half of CY '24 considering the new capacity will come in the second half? So first question is with regards to that.
So, fundamentally, in the season we could not supply because we ran out of capacity. And hopefully, as I said, even next year we are going to be constrained because our capacities are only coming after the season. But we've had a good quarter, and the growth has been quite healthy. And going forward, there will be healthy growth. But in the peak season, we won't have the capacity.
Okay. So it's majorly restricted towards the North region, if my understanding is correct, currently.
That's right. That's right.
Okay. And sir, second question is with regards to the joint venture investment that we have done. We have increased our stake in the joint venture with IDVB to 50%. So any color on what future investments we'll be doing with regards to CapEx because setting up a recycling plant and the JV system will require some CapEx in the next 2 to 3 years. So any color on that front?
See, we have really not invested anything as of yet. It's in the process. We are waiting for the government policies. So we have agreed on an understanding between IDVB that we will have a 50-50 joint venture when the recycling plant will come. But we are still waiting for all the approvals and some policy changes in the government.
Can we see materializing in…
INR 50,000 more, to be honest. So there's no meaning.
Okay. But in CY '24, no CapEx yet committed on that front, right?
We can't, because we're waiting for certain government policies. So I can't decide when the government will…
Okay, got it, sir. No problem. Sir, just one last bookkeeping question. So we have shifted to the new tax regime from the second quarter of this year. So what would be the average tax rate that we can assume for the CY '23 and going forward? So what would be the tax rate? If you can help with that.
This is going to be 25% for India blended with international something 22.5% or 23%. In a nutshell, it will bring an advantage of 3% in the overall tax rate for the company going forward.
The next question is from the line of [ Pratik Rathi ] from [ Salt Caps ].
Congratulations on a great set of results. And a big thank you to the management for consistently delivering that from past 6, 8 months. And I've been now shareholder of the company from past 6, 8 month. And the management has consistently delivered. So I just have a few questions. One is, I mean, assuming that CapEx comes off before the peak period next year, what kind of revenue guidance we have for the next calendar year?
Well, we first want to make sure because of the equipment supply, there's a huge challenge getting the supplies in time. So we are trying and hoping -- and once we get a complete assurance that the we will be -- that we are expecting a reasonably good growth because even this year we ran short of product in the peak season. So hopefully we can make up for that and get a reasonable growth. But it's still a touch-and-go, and we are not 100% sure, we'll have to be able to get all our lines operating before season.
Okay. Okay. Okay. And I just wanted to understand, like we got the rights of the popcorn business in Feb or March this year. So what kind of revenue have you seen in this quarter from that business? And how do you see this going ahead?
This is still very small. It's something we wanted to learn and understand. So it's a small investment from our side, and it will not be large revenues, so. But it will give us the proper learning, and we'll understand what is going on. And hopefully, once we are -- we understand this like in Morocco we have got the distribution also. And then going forward, we want to take it in a much bigger space.
So this paves the way of, say, future snacking businesses…
We need to understand, any new business you need to understand. For us, this was more for a learning curve analysis.
Okay. Okay. And one more question is, recently Reliance acquired this Campa Cola business and bestowed their interest in starting into beverage industry. So any comments or any competition threat you see from Reliance Industries?
I think Reliance knows better what they are doing and they are a large company, and they understand and I see…
So from a competition perspective, do you feel that it would be a threat?
There's enough room for everybody to complete. The business is just growing. And I'm sure they'll do a good job.
Okay. And just one last question, if you allow me. So I just wondered, I just saw that one of the Whole-Time Director has resigned with immediate effect. So is there any reason for, specific reason for this.
He was the CEO and he has retired from us. So after retiring he was a board member because being the CEO. Now as his age has passed and he is retired on normal course.
The next question is from the line of Aarushi Lunia from Hem Securities.
Congratulations on a good set of numbers. I just wanted to get an idea on the Zimbabwe plant that you recently set up, and you have mentioned in the latest con call that the peak season in Zimbabwe is August. So has it reaped some benefit for the peak season?
No. Zimbabwe is doing extremely well for us. And I mean, their peak season is actually October to December. The peak season is going to come now. Starting August, the sales increased, but peak season is October to December. This quarter is the peak season.
The next question is from the line of Faisal Hawa from H.G. Hawa & Company.
So sir, a lot of distribution has been now disrupted by Reliance and B2B models like Udaan so -- or even [ ED Markso ]. Are we in touch with any of these for even doing some kind of third-party contracting or some private labels for them? And do you see even this as a very big revenue stream going forward? That's one. And secondly, sir, is there any way that we could expand our distribution model to more FMCG brands also for more African countries or for Indian foods or even frozen foods, et cetera? Because then you will be just leveraging the same platform or the same setup for more products to be distributed?
That is true. But as it is, we are expanding so many new products every day, like we added the value-added dairy, we added Tropicana, we added energy drinks. So there is enough in our palette. And then we are now looking at somehow to start snacks with Pepsi, which they have given us the first opportunity in Morocco. So there is enough for us to expand and there is enough room for us to expand in the categories which we have. And I think that itself is going to take us a long time before we can saturate the market. And the Indian market is growing at such a huge pace, the number of outlets which are being added, if we can meet that also itself we'll see double-digit growth.
And sir, if you could have some comments on the private labels contracting opportunities.
So we don't do private label. I mean we only do our own brands. So we don't do any private label. We sell through Udaan and Reliance, but we don't do any private label for anybody.
But you are not open to do that kind of business also going forward?
We are not looking for private label.
Okay. And sir, any improvements in manufacturing or processes that we could really get into and which could improve our margins going forward ever?
I think we have one of the highest margins in the world. I don't know what else I can do. I'm trying our best to get whatever best we can do.
But shop floor improvement and cost efficiency from shop floor is always an infinite task.
We are doing whatever -- so if you look at it, our margin has been the highest. And the only reason they have been highest is we have been doing some of the right things, some right decisions and some of the best practices which are possible. I wouldn't say we are the best, but we are trying to do whatever best is possible.
So basically we always trying to better our margin each year as it goes by.
So we are trying. I mean, it's not easy when you are at 20%, 21%, 22%. i mean, there is a limit to how far you can go. If we can maintain this, we'll be very happy, actually.
The next question is from the line of Sudarshan Mall from Dhunseri Investments.
Congratulations on a great set of numbers. Sir, my question is the plant capacity which we have, which is -- which we are trying to get before season, if that rectifies, by what percentage you will have existing capacity grow?
See, I can't answer you exactly because I'm not sure if we'll be able to get everything going before the season. But we are adding reasonable quantity that we can grow more than double digits.
The next question is from the line of Smitesh Sheth from Raedan Securities.
Sir, congratulations for one of the finest performance. And just to -- can you quantify some data points with regard to whatever we expect to grow in terms of number of the data points or in terms of the distributor reach or chilling machines what we intend to install. Just some data points as for the next year CY '23, sir?
Yes. As you know, chilling equipment, we are adding 40,000 to 50,000 every year, which we will be doing. And you also know 2 years back we had it reach to about 2 million dealers, which has gone to 3 million and which every year is going up by 5% to 10% as far as the dealer's reach is concerned. And the carrying size also with these people is going up another 5%, 7%. So that's some statistics on distribution side.
So what can be the -- I mean, what's the total India dealer reach what we can have. Like, what is the maximum saturation point or a near logical distribution outlets what we can cater to over next 2, 3 years, sir?
Well, as per our information, there's 11 million outlets in India. Now question is, I think we are reaching close to 3 million now. And to add more -- we are looking to add between 10% to 12% every year. And that is what we'll be able to practically reach. I mean you might be able to someway reach little bit more, that's the maximum you can actually target.
The next question is from the line of Yash Dantewadia from Dante Equity.
Sir, have we taken any price hikes? And do we plan to take any price hikes in the coming quarters? Could you talk about that?
Well, we have taken some price increases during this year. We have not decided on any price increase at the moment, and we hope we don't have to take any price increase.
Also sir, one more question back to the CapEx. We are planning an approximate CapEx of INR 1,000 crore to 1,200 crores to INR 1,300 crores, out of which 50% is brownfield and 50% greenfield. Could you please tell me what percentage of capacity does this give us to our existing capacity?
So I have said that we are not sure how much of it will realistically come before the season, so.
No, I'm not asking regarding the time, sir. I'm asking by how much is our capacity going up? By what percentage point is our capacity going up?
It's very difficult to say because our overall capacity is based on PET cans and glass. And now the capacity mostly which we are adding is all PET. So on what context do I add the capacity, that makes it very difficult. So…
So on the total existing capacity, sir.
Pardon me.
On the total existing capacity, so combined of everything, PET and cans.
Maybe about 20%.
And we are going -- so basically our capacity is going to go up by 20% in the next 1 year, right?
That's what we are trying to do it before the season.
And in this, could you give me a breakdown of what is coming in Sting, what is coming in milk-based products and what is coming in the other products?
As I said, our dairy line will not be ready before season, so it will be coming only after season. The rest all the lines are interchangeable to Sting or to any other products.
Are you seeing any change in demand trends after COVID?
In what way?
I mean, this is the first year that everything is functioning normally after COVID. So pre-COVID to post COVID, have you seen any demand trends change in…
Well, the biggest change has been the go-to market has opened up. So single-serve started selling, which was not selling because it was mostly home consumption. And of course, you have seen the big jump in the energy drink, which was not there. So these are the 2 major changes which have happened.
The next question is from the line of Arpit Shah from Stallion Asset.
Yes, just wanted to understand, we have acquired a lot of territories from Pepsi and other bottlers in the last couple of years. So what kind of distribution you would say you need to -- that you need to build or there have been lot of gaps which have been there in the market. And what kind of scope that you can build in the next couple of years which would add to your growth? Because right now your growth is largely led by volumes. And at some point in time that volumes would actually saturate. So what kind of headroom you have to grow in terms of distribution in some of the states that you've acquired?
Yes. As we had been saying in the past calls, first is the distributor network we had to strengthen and enroll more distributors, make the reach, go-to-market strengthened. And it starts with the distribution network, then adding more dealers in those territories, then ensuring the product availability at the point of sales on regular basis, no stock-out situations. And adding retailers by adding more chilling equipment and adding more vehicles in the market so that the product reaches the market. And matching this in the season month, 24/7, like the phrase is 12/7, but in our trade it gets modified, 24/90, 3 months is 24-hour basis like. And all these things if we follow definitely helps us in improving the distribution network market share and the sales growth. I think we are trying to fire all these engines from all sides continuously.
Got it. So what would be that number? Let's say you started at X number when you acquired a territory from Pepsi or some other bottler. So what would that number be today, X going to 1.3x, 1.4x in the last couple of years?
ell, this is a journey. Actually it's not something based for number or one day it is done. And this is what Chairman said that during COVID years, 2 years, although the results immediately were not coming, but we never stopped putting various…
Yes, we have to keep on expanding our distribution. This distribution was very weak there. It's a long process. It's not an overnight process, as Mr. Gandhi is saying. So we will keep doing it. It will take us a few years before we can reach the distribution to the level we would like.
Got it. And the dairy products which we have launched, those are products not by PepsiCo, right?
That's right.
Those are Varun Beverages products, right?
That's right.
Okay. And what is the share of those products in the revenue right now? Or that will be very small?
It will be very small because there's only 1 plant which can produce it. So we are adding -- doubling our capacity for next year. So once we have that, then it will be because we are only practically distributing in the North only.
So are we looking to add more products in the Varun Beverages portfolio where it's a non-PespsiCo product?
So right now we are not even able to supply what we -- what products we have. So once we are -- we have additional capacity of production and once we -- then we will add more flavors, but right now, not at the moment.
No other category of product. Right now you started dairy, you wanted to start with like some other kind of product.
We've already -- the dairy already, we do Tropicana in that. So that will automatically get added. The same line does dairy as well as the juices. And we've added -- we've started energy drink in a big way. So -- and then -- so that itself is taking enough room right now. And once we can get these established properly, then we look at some of the products which if need be.
Got it. And given the current territory that we have and the current headroom that we have, you believe that 15% to 17% volume growth is sufficient for us in the next, let's say, 3, 4 or 5 years?
Well, I don't want to give exact numbers, but we definitely believe double-digit growths are possible.
The next question is from the line of Dhruv Bhimrajka from Monarch.
I wanted to know the debt reduction that you have there in these 9 months, sir.
Yes. As we mentioned, we are at INR 2,300 crores and we were INR 3,000 crore-plus last year on 31st…
Okay. So basically in the 9 months, we have reduced the debt by INR 700 crores?
That's right.
Okay. And sir, what was our CapEx in this quarter for the third quarter?
Third quarter CapEx is very less, but very little capital work in progress or some plots for future which we might have purchased and paid for, some installments for those. And CapEx normally happens in the H1 of the year, a major portion happens in H1.
Right, right. Yes, because as Ravi mentioned, that INR 1,200 crores to INR 1,300 crores CapEx you have planned from Jan 2022 up to 2023. So wanted to know that in the 9 months -- so in this 9 months, how much CapEx we have done, sir?
In these 9 months, about 9,381, this is million.
About INR 950 million. INR 950 crores.
Yes, this is cumulative in current financial year, which that's…
So it was, used to be about INR 300 crore, INR 400 crore every quarter. That's what is happening. So it's cumulative.
Yes, INR 300 crores to INR 400 crores CapEx.
So that was sometimes a little more, sometimes little less.
Right, I completely understand.
The next question is from the line of Jaykumar Doshi from Kotak.
My question is, sir, you talked about shortage or delays in equipment supplies. And I believe you have placed orders well in advance. Could you expect some kind of competitive advantage versus rest of the industry going into next year, the kind of advantage you had this year because of procurement of [ PT ] inventories well in advance…
Well, I don't know if we had advantage. I mean, I'm sure going forward also I think our competition is also less shorter. So it all depends who is their supplier and who is our supplier. So whoever is able to get the equipments in time will have edge.
Beyond this, I think it will only be speculation. Let's try what we can.
We are trying our best to be in time. Let's see what happens. It's still not 100% clear, but we will have enough lines operated.
The next question is from the line of Gaurav Jogani from Axis Capital.
Sir, just one last question on the terms of margins. Sir that we are trying for meeting the EBITDA margin around 21% odd and even that we are steadily increasing the mix of Sting in the overall mix, which is margin-accretive. So are we really being conservative here in terms of the margin guidance around 21%-odd?
Well, as I said before, I think the margins are more than healthy. If we can sustain this, we'll be very happy. And we've seen a slight growth in our margins this year because of the mix of Sting. I mean, I think we -- our guideline has always been 20%, 21%. And that is a very healthy margin, actually the highest in the world. So I don't think we should guide or suggest anything beyond that.
The next question is from the line of Mitul Shah from Reliance Securities.
Sir, I have a question on your recycling of investment. Can you give more details that how it's going to shape up going forward? And the granules after recycling, are we using it directly or what is the process there? And secondly, a follow-up on that is that it will be only for the VBL rates or we are going to expand it for non-captive also?
No, we are looking for our own sales, but I think it's still very early. We haven't even started the project. It's still waiting for government clearances and understanding what it will be used for because until it is approved for food grade, we are not going to be getting into it.
By when do you expect it to be operational?
I wish I could answer you. I think you have to ask your boss, maybe he knows better.
The next question is from the line of Devanshu Bansal from Emkay Global.
Sir, you touched upon the realization part, but I still want to understand it better. So realizations for India has improved from about INR 145-odd to about INR 165-odd so far in this calendar year. You indicated that INR 8 to INR 9 benefit has come from Sting. So wanted to check what is the -- what is contributing to the rest 5%, 6% improvement that we have seen in the realizations?
Well, I think it's the mix and the water mix has come down slightly, which has helped. And overall mix, as I said, single-serve is selling more, which is -- which gives us better value. So minor changes that is what. Our dairy sales have improved, our juice sales have improved, which has a little slightly higher value.
And general price increase is, what…
And some price increases which we have taken.
Okay. And the small SKU mix, is this a trend that you expect to continue or that can sort of see some reversal towards larger packs as well?
Well, I think both the markets will grow. So it's very difficult to say, but I think the smaller single-serves will continue to grow faster than the multi-serve, the way it looks right now.
Got it. Sir, lastly, for international also, we were sort of closer to INR 190 to INR 200. But now we are in the range of INR 170. You indicated it is because of higher water sort of share in Morocco. Wanted to check, is Sri Lanka depreciation also impacting the realizations? And once that economy sort of recovers, we can see an improvement there?
Absolutely. Absolutely.
Can you sort of quantify as in what sort of an impact, positive impact it can have?
No, Sri Lanka is not a large business for us, but the main difference in the realization is because of water. The mix of water has gone up in Morocco to a large extent. And Morocco is a large territory for us.
Okay. Is it a quarterly thing or for annual base is also that…
Annually, water is selling throughout the year. So water because we didn't have capacity last year, so that's why you are seeing the big change. Now we have the capacity, so we are seeing growth at a much higher pace.
Okay. So this INR 170-odd is sort of sustainable, you are saying?
Yes. That's right.
The next question is from the line of Arpit Shah from Stallion Asset.
Just wanted to understand, this year we will be probably generating, let's say, cash flows of more than INR 2,000 crore, INR 2,200 crores in December 2022. So what kind of reinvestments are we looking at other than the CapEx? Because our CapEx would be around INR 1,200 crores, INR 1,300 crores. And we still have another INR 600 crores, INR 700 crores to be reinvested somewhere. So what kind of reinvestment we are looking at? Are we looking at some higher dividend payout? Or are we looking at some other kind of inorganic investments or where you can acquire more global territories from PepsiCo. What kind of reinvestments we're looking at?
We are looking at, always looking at new territories like DRC is going to be one of them, which we have already said. So we will be putting up a plant there next year. So there will be CapEx is going. And as the growths are happening at a higher pace here, the CapEx will increase slightly here also.
So that would happen in the continent of Africa largely?
Not Africa alone. DRC would be the investment in Africa, whereas in India if the growths are higher than planned, then so our capacities will have to increase here. So there will be more CapEx here going forward next year.
Do you see increased dividend payouts?
We have not decided yet, so I don't want to say anything.
As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Thank you very much. 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 in food and for taking the time to join us on this call. Look forward to interacting with you soon. Thank you very much once again.
On behalf of Varun Beverages Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.