Varun Beverages extends fall, slips 7% on weak volume growth in March qtr

Shares of Varun Beverages slipped 7 per cent to Rs 573 on the BSE on Thursday, thus falling 15 per cent in four days after the company reported a weak volume growth in January-March quarter (Q1CY20), due to the outbreak of coronavirus (Covid-19).

The company’s quarterly sales volumes in Q1 was up 26.2 per cent - 114 million unit cases against 90 million unit cases in the same quarter last year. In Q4CY19, it had reported 80.7 per cent year-on-year (YoY) growth in sales volumes and 60.5 per cent YoY in Q3CY19.

Organic volumes for the company got severely impacted in the last 10 days of March due to the spread of Covid-19 and the subsequent lockdown restrictions, the company said.

The company’s revenue from operations grew 23.3 per cent YoY to Rs 1,676 crore as against Rs 1,359 crore. Earnings before interest, taxes, depreciation, and amortisation (ebitda) during the quarter under review increased 24.2 per cent to Rs 271 crore from Rs 218 crore in the previous year quarter. Ebitda margin was almost flat at 16.2 per cent against 16.1 per cent in the year- ago quarter.

Varun Beverages witnessed stronger organic growth in the business before it was hit by lockdown across its operating countries due to Covid-19 pandemic.

The Company said it has been able to sell its complete inventory of finished goods that was built up in March in anticipation of the upcoming season. Moreover, the company has also operated few of its production facilities in April as the demand scenario is improving with the relaxation in the lockdown, it added.

Analysts at ICICI Securities believe unlike other fast moving consumer goods (FMCG) companies, the company would be severely impacted by the lockdowns given manufacturing and supply chain has been completely derailed.

Moreover, it also does not have A&P (advertising and promotional) lever to reduce the cost at the time of crisis to protect margins. Though the management is confident of maintaining operating margins, we believe the recovery would be painful and prolonged. Moreover, the higher interest cost is also likely to impact earnings in CY20E, the brokerage firm said in a result update.

Varun Beverages is a key player in the beverage industry and one of the largest franchisee of PepsiCo in the world (outside USA). The Company produces and distributes a wide range of carbonated soft drinks (CSDs), as well as a large selection of non-carbonated beverages (NCBs), including packaged drinking water sold under trademarks owned by PepsiCo.