ICICI Direct: Varun Beverages’ Volume To Completely Normalise Only In 2021

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ICICI Direct Report

Varun Beverages Ltd.’s Q2 CY20 results were on expected lines with 41.6% sales fall and 46.4% volume de-growth. Realisation improved 8.9% with cut down in promotions and product mix change (decline in water business was even more severe).

The results were impacted by lockdown with manufacturing, supply chain operations staying disrupted in April. Though the company started production quite early in April, demand conditions were slack with significant fall in ‘on the go’ consumption.

Moreover, shutting down of restaurants, cafes, multiplex (comprising approximately 10% of sales) also negatively impacted volumes. Volumes were down 75% in April. They slowly improved in June with 25% decline with the start of unlocking phase.

Operating margins were down 500 basis points to 23% with employee spends and overhead spends up (percentage of sales) by 506 basis points and 207 basis points, respectively, largely due to negative operating leverage.

However, some of this was mitigated by 212 basis points gross margin expansion. The gross margin expansion was largely due to 12.5% decline in polyethylene terephthalate (PET) chip prices and 6% decline in sugar prices (in April, May).

Net profit was down 64.7% to Rs 143 crore impacted by lower operating profit. Interest cost was down from Rs 84.4 crore to Rs 74.2 crore mainly due to reduction in debt from Rs 3246 crore to Rs 2932 crore.

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ICICI Direct VarunBeverages Q2CY20 Result Update.pdf

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