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Varun Beverages’ EBITDA increases 5% Y-o-Y to Rs 8,358 million in Q4 ’17
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Monday, 19 February, 2018, 08 : 00 AM [IST]
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Our Bureau, New Delhi
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The earnings before interest, tax, depreciation and amortisation (EBITDA) of Varun Beverages Limited (VBL), a key player in the beverage industry, for the fourth quarter and year ended December 31, 2017 increased by five per cent year-on-year (Y-o-Y) to Rs 8,358 million. They were Rs 7,960 million in the corresponding period of 2016. EBITDA margins have improved 30 basis points (bps) Y-o-Y to 20.9 per cent.
Revenue from operations [net of excise/Goods and Services Tax (GST) grew 3.7 per cent Y-o-Y in 2017 to Rs 40,034 million, vis-a-vis Rs 38,612 million in 2016. Total sales volume were up 1.1 per cent Y-o-Y at 278.8 million unit cases in 2017 vis-a-vis 275.8 million unit cases the previous year. Profit after tax (PAT) expanded 345.6 per cent to Rs 2,141 million in 2017 from Rs 480 million in 2016.
Performance review for Q4 of 2017 versus Q4 of 2016
Revenue from operations (net of excise or GST) grew 21.4 per cent Y-o-Y to Rs 5,274 million vis-a-vis Rs 4,342 million. EBITDA stood at Rs 225 million in Q4 of 2017 vis-a-vis Rs 363 million in Q4 of 2016. The loss during Q4 of 2017 was reduced to Rs 721 million from a loss of Rs 1,117 million in Q4 of 2016.
Commenting on the performance for Q4 and 2017, Ravi Jaipuria, chairman, Varun Beverages Limited, said, “We have completed our first year post-listing, delivering a robust performance with net profit growing 346 per cent to Rs 214 crore. This is despite a challenging year with the residual impact of demonetisation and destocking by trade ahead of GST implementation which impacted volumes.”
“We have focused on initiatives where we can drive the outcome and improve operating parameters to create a more efficient and sustainable business and can now take advantage of the improving external conditions to accelerate growth,” he added.
“We have concluded the acquisition of PepsiCo India’s previously-franchised territories of the state of Odisha and parts of Madhya Pradesh, Chhattisgarh, Bihar and are undergoing due-diligence in Jharkhand,” Jaipuria said.
“These are highly under-penetrated regions and provide huge opportunity for increasing volumes and gaining market share, and in line with the company’s strategy to expand into contiguous territories to garner better operating leverage and asset utilisation through economies of scale,” he added.
“VBL is now a franchisee for PepsiCo products across 21 states and two Union Territories (UTs) and accounts for about 51 per cent of PepsiCo’s beverage sales volumes in India from about 45 per cent a year ago,” Jaipuria informed.
“We have also undertaken a greenfield expansion in Zimbabwe, and commercial production is expected to commence shortly. This is an untapped market with huge potential, and as the sole franchisee of PepsiCo, we are confident of replicating the success that we have had in Zambia, in Zimbabwe as well,” he added.
“We remain agile by keeping on top of new trends and changes in consumer preferences, working closely with PepsiCo India to adjust our product portfolio and processes accordingly,” said Jaipuria.
“After the launch of zero-calorie Pepsi Black and the energy drink Sting earlier in the year, during the quarter, we entered into a strategic partnership for selling and distribution of the larger Tropicana portfolio that includes Tropicana Juices (100 per cent, Delight and Essentials), Gatorade in the sports drink category and Quaker Value-Added Dairy in territories across north and east India,” he added.
“VBL has proved its resilience against challenges with its successful performance in 2017. We are present in geographies that offer great long-term, sustainable growth opportunities,” said Jaipuria.
“The average per capita consumption rates are significantly lower than global averages, in contrast to the stronger gross domestic product (GDP) growth, increasing disposable incomes and young demographics,” he added.
“So, in a normalised year, we are confident of delivering strong growth on the back of our solid business model and expanded product portfolio,” Jaipuria said.
Key developments – 2017
Acquisition of new territories
• Concluded the acquisition of PepsiCo India’s previously franchised territories of the state of Odisha and parts of Madhya Pradesh, along with two manufacturing units at Bargarh (Odisha) and Bhopal (Mandideep, Madhya Pradesh) with effect from September 27, 2017
• Concluded the acquisition of PepsiCo India’s previously franchised territory of the state of Chhattisgarh with effect from January 11, 2018
• Acquired franchisee rights of PepsiCo India’s previously franchised territory of the state of Bihar with effect from January 17, 2018
• Acquired a manufacturing unit at Cuttack (Odisha) with effect from January 19, 2018
• Signed BTA for the acquisition of PepsiCo India’s previously franchised territories of the state of Jharkhand along with a manufacturing unit at Jamshedpur on December 20, 2017 (due-diligence process ongoing)
• Total consideration for above acquisitions is about Rs 2,550 million and further, the company expects to spend about Rs 350 million in upgrading the plant and machinery and marketing assets in these territories
• Above acquisitions will help in garnering incremental PepsiCo India’s volumes of six per cent and further providing access to an additional consumer base of approximately 21 per cent of India’s population
• VBL is now a franchisee for PepsiCo products across 21 states and two Union Territories in India and accounts for about 51 per cent of PepsiCo’s beverage sales volumes in India
New product launches
• Launched Pepsi Black, a zero-calorie cola flavour CSD product currently available in 250ml cans and 250ml non-returnable glass bottles
? The launch is part of PepsiCo’s plan to intensify focus on health and nutrition and reduce sugar content in beverages
• Launched Sting for the next season, a carbonated energy drink available in 250ml cans and 250ml PET bottles with a highly competitive price point as compared to other brands in the segment
? The energy drinks contains approximately 50 per cent less sugar than the regular CSD products and 70 calories per 250ml serving
• Entered into a strategic partnership for selling and distribution of the larger Tropicana portfolio that includes Tropicana Juices (100 per cent, Delight and Essentials) in territories across north and east India
• Entered into a strategic partnership for selling and distribution of Gatorade and Quaker Value-Added Dairy in territories across north and east India
Ratings upgrade
• Company’s credit rating for long-term debt of VBL got upgraded by one notch and short-term debt rating continued to remain at top notch
? Long-term debt: CRISIL A+/positive to CRISIL AA-/stable
? Short-term debt/Commercial Paper: CRISIL A1+
Capacity expansion/rationalisation
• Set up a new unit for manufacturing of Pepsi range of products at District Hardoi, Uttar Pradesh; commercial production/operation started with effect from May 3, 2017
• Goa operations got consolidated into a single larger facility to bring in operational efficiencies
• One CSD glass line each from Sathariya-1 and Bazpur plant shifted to Nepal and Zimbabwe, respectively
• Shut down four depots in India as a part of rationalisation exercise post-GST implementation
• Capex for 2017 is in line with depreciation and to substantially reduce going forward
Expanded presence in Africa
• Increased stake in Zambia subsidiary, Varun Beverages (Zambia) Limited, to 90 per cent from 60 per cent at reasonable valuations with an attractive payback given the growth prospects and promising earning potential
? Enables VBL to consolidate a higher share of profits from the subsidiary going forward (2017 sales volumes of about 10 million cases; 2017 EBITDA of Rs 275 million and 2017 PAT of Rs 178 million)
• Established a greenfield production facility in Zimbabwe, an untapped market with huge potential, and as PepsiCo’s sole franchisee, will sell and distribute PepsiCo’s products
Divestment
• Divested 41 per cent stake in its Mozambique subsidiary, Varun Beverages Mozambique Limitada in view of the limited opportunity to scale up operations to turnaround the loss making subsidiary
• Subsidiary contributed only 0.6 per cent to the net revenues from operations in 2016 and recorded a loss of Rs 135 million in 2016
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