The first question is from the line of Abneesh Roy from Nuvama Institutional Equities.

Congrats on strong margins. My first question is on the outlook. June quarter, clearly, your base is quite favorable, it was soft. Plus, we also have the heat wave. And is there any benefit also from the election -related rallies? I wanted to get a sense on how you see June quarter. I understand the guidance will be difficult. But do you think that much stronger double -digit growth should come back in the Indian business, volume growth?

Well, we can't tell you exactly what growth will come back because half the quarter is already over. As you see, the heats are strong and soft drink sells when it's stronger heat, and we have the advantage this quarter of Ramzan been moving towards March, which hurt us a little bit in the March quarter this year. It looks very positive, and we think we should have a good quarter.

And one related question was on the overall market also. Campa Cola in FY24 has done around Rs. 400 crore sales. If you could tell us any market, any kind of impact or its mostly the market has expanded? And second, to your own business, if you could tell us quick commerce, e-commerce and modern trade, in March quarter, how was it this year v/s the same quarter last year?

See, the e-commerce contribution in our category is very small. Consequently, we do not track it extensively, but yes, the growth is there . Regarding Campa Cola, we can talk about our numbers, which are looking very healthy . The reason for this is, heat wave, elections, low base from the last year, and our capacity, which we have already increased by adding 3 new plants. We are amidst actually making all the time arrangements to meet the requirements and ensure we don't go out of stock.

The next question is from the line of Percy Panthaki from IIFL Securities.

I was just looking at your subsidiary sales, that is the consol minus the standalone, that has grown for this quarter roughly by about 30% Y -o-Y. So, what is leading the growth in the international? And secondly, in the international on an overall basis, what is the volume growth?

Volume growth internationally, as stated earlier, is 21 .9%. In fact, India would not have been any different. The reason for lower growth in India is because Holi was late and Ramzan was earlier.. The reporting calendar actually does not coincide with the festival calendar.

And this 21.9% growth, any flavor on which geographies are higher than the average, lower than the average?

Well, Morocco and Zimbabwe have led, they have already become large and good percentage increase in the larger territories makes the impact.

Understood, sir. Also, could you give us an idea what is the CAPEX on a cash flow basis that you are estimating for CY24?

Out of ~Rs. 3,600 crore CAPEX, which was already informed, ~Rs. 2,400 crore was already done in the last financial year. Majority of the remaining ~Rs. 1,200 crore is already done this year. Only a small portion, ~ Rs. 200 crore is left in DRC and maybe a small amount in India. Most of it is already done. Percy, now our effort is to repay the money which we have borrowed for CAPEX.

Right, understood. So , most of your CAPEX is done? And would I be right in assuming that, let's say, next calendar that is CY25 also, our CAPEX would not be more than like Rs. 1,000 – Rs. 1,500 crore, would that be a reasonable assumption?

Let's wait until June because the kind of growth we expect, if we get it, it has to be more.

The next question is from the line of Jaykumar Doshi from Kotak.

If I were to look at other than June quarter last year, for the remaining 3 quarters, the volume growth in India business of about 20%, whereas last year, June quarter, it was badly about 2%. So, when we look at this June, should we think about a 17% - 18% potential volume growth that you lost last June and about 10 % - 20% over and above that. Is the demand environment conducive? And is your supply side, capacity expansion, was it commissioned on time for you to be able to capture what the math indicates, which is like close to 30% volume growth in June quarter?

Jay, we appreciate the parameters, which you have defined. We no way differ from you, but let's keep our fingers crossed. It's an ongoing quarter.

But our capacity is enhanced, the plants were in time, so we are okay capacity-wise.

That's very helpful. Second is now that you've made some progress on the foods business. Would it be possible to give us some color in terms of at the right scale, what would be the profitability and return ratios? How would it compare v/s the beverages business on the food side?

We think it's a bit too early. We are only going to start the first plant next year. But food business is as good or better than the beverage business.

I'm assuming this is return on capital, right, given that CAPEX would be much lower than capital?

Yes.

The next question is from the line of Anand Shah from Axis Capital.

The first one, you've done great work on the gross margin expansion through multiple initiatives. I just wanted to understand the sustainability of this and would you at all to sort of revise your margin guidance?

The guidance stays the same, Anand, as we have given earlier. We have specified the reasons for one off benefits in the short run which we keep on gettingbut in the long run the margin guidance, we should take as the same because we do not know the weather conditions, the competitive scenario, etc. We think the margin guidance, which we have given in the past, for the long run, we should stay with that only.

On the balance sheet side, I mean, can you share the debt numbers there for the current quarter given that you expanded on the BevCo payment and all, so that we know as to what is the repayment and how it go down?

We have made a payment of ~Rs. 1,260 crore for BevCo and out of ~Rs. 1,200 crore CAPEX, which was to be done in this quarter, about Rs. 1,000 crore is already done, minus the profit of last quarter and 45 days in the current quarter. Exact numbers for the quarter, we will not be able to give. We also have given a guidance that in a couple of months, the additional debt taken during the year will be repaid, and it will be our endeavour to reach at the 31st December debt position.

You had indicated during the acquisition, you may explore some structure sort of to work out in South Africa in terms of the payment and all. Is that something which is ongoing?

The structure is such that 100% equity is with us, minus the ESOPs, which we had to allocate to the eligible staff. To partly fund the acquisition, we have taken some borrowing at the local subsidiary level as the cost difference between India and borrowing in the local currency in South Africa was not much, only a 150 basis point difference, which in turn gives us a big insurance on exchange rate fluctuations and in managing our balance sheet.

Anand, this is what we got in South Africa because they were doing a small portion of Rockstar there. It was good when we are making a consolidated brand presentation to include that. For India, we will have to wait for some time.

The next question is from the line of Devanshu Bansal from Emkay Global.

Congratulations on good margin execution in the past quarter. Sir, you indicated that summer season has started off well. I wanted to check if you can call out the utilization levels of your plants for the month of April as in how are we trending on that front?

We were running at close to 100% in April. However, please note that the two out of the three new plants have come into operations only towards the later half of April month.

Okay. That's really encouraging to hear, sir. From a depreciation perspective, Mr. Gandhi, as some of the plants were commissioned during the quarter, what is the expected run rate for depreciation going into the coming quarters, if you can help us?

Basically, how we measure it is as a percentage of revenue, if you see the percentage year after year, full utilization basis is coming down. We expect the same trend to maintain , and the depreciation as a part of revenue, we don't think will change much this year also.

Got it, sir. And lastly, from my end, what is the expected contribution from South African market in terms of Revenue, EBITDA for this year? Is it like broadly similar to the metrics shared during acquisition? Or we are seeing some improvement there?

It's too early for improvement. We think we've just taken over, and off season in South Africa has already started. Give us a couple of quarters before we can start giving you numbers for South Africa, but it's a great acquisition. We think we'll do well, just give us a little bit of time.

The next question is from the line of Aditya Soman from CLSA.

Two questions. Firstly, can you tell us a little bit more about the increased capacity and your plans for Gatorade and Cream Bell? And secondly, again, in terms of South Africa, any sort of color in terms of the numbers for the next year will be super useful.

In Gatorade, the focus has come after the price and pack size correction and also we got the approval from PepsiCo to produce from more than one plant. The efforts are on, but we're still at a very niche stage. And at this moment, a small change will not make a difference. Also Gatorade is in zero cal in the new packs . It's a very promising product, but we'll have to wait for this. Same is true for Cream Bell as well.

But it's doing well, and we are seeing good growth and whatever capacity we are able to produce, we are able to sell even with the enhanced capacity.

Aditya coming back on BevCo, there are 5 plants, which are already operational and working, by September -October when the season starts, we have to make certain improvements to enhance the capacity. In the meantime, the focus is also on increasing the share of PepsiCo brands, which is a better contributor to top line and bottom line. So interchanging the share from our own brands to PepsiCo will enhance profitability. And then, once we are ready, we will increase capacity by adding new lines or plant and act accordingly.

The next question is from the line of Onkar Ghugardare from Shree Investments.

My question was regarding, I know it's been only few months you have taken out on BevCo. But could you share some vision on that where you want to take it? What kind of size it can become in terms of overall portfolio for Varun Beverages?

South Africa is a huge market, with one of the highest per capita consumption rates of about 250 servings per person. However, PepsiCo's market share is very meagre at 1.8%, and even when comparing Pepsi Co and Coke, the global brands, the relative share is only 2.7%. This presents us with a huge upside for growth. In the past, our track record has been good with Zimbabwe, Zambia & Morocco. PepsiCo had no share in the past in Zimbabwe , but as we've mentioned in past calls, we achieved 71% market share. Similarly, we've made strides in Zambia, and in Morocco, we've repeated this performance. You have to give us some time to get our act in order. And make it grow few folds, at least.

Okay. So, like volume-wise, it is lesser than India, but the realization will be much higher, right?

Realisation per case in India is much higher.

We think, it is still too early for South Africa answers. Give us a little bit of time to understand the full market, a quarter or 2, let's then give you the right answer but it's a huge market with a huge scope, and we are working on it.

In terms of the Indian growth this season, you said that Holi festival was delayed by 17 days, that's why there was some loss or delay.

17 days delay was for India for Holi.

That was for the first quarter because Holi was late this year, and Ram zan was earlier, so it affected the season partly, that benefit we will get in the next quarter.

So there was delay of sales, in the current quarter

Yes. Basically, the calendar doesn't coincide, summer calendar v/s the reporting quarter. Yes, there will be some shifting from last quarter to this quarter because summer is shifted towards April.

Okay. Just wanted one clarification that all the 3 plants, which you just told, all of them were working, operating in the last quarter?

They are all operative from April onwards.

And what was the utilization in the last quarter, Jan to March, for all 3 of those?

Two of them have started operating only in April.

And the one remaining, which started in January, I think?

The one which started last quarter, January, February are not season months, those are part of the off-season. But as we are heading towards the season, every plant is being utilized more or less around 100%.

The first question is when you talk about the low or lightweight packaging. Can you talk about how much percentage of total portfolio is lightweight packaging currently? And how much it is going to increase from current level? And the second question is for the low sugar content, we are talking about 46% of the total consolidated s ales volume is from low sugar content. Can you talk about from here, can you increase this percentage?

Well, it's difficult to give a futuristic number. But for the past, if you are interested, we have worked in detail and compared it from 2010 to 2023 in Page number 15 of our quarterly result presentation put on website, and we have also given this for various SKUs 600 ml, 750 ml, 1 litr e, 1.25 litr e and 2.25 litr e as well as reduction in the grammage for the closures. So these two things are already provided in much detail in Page number 15. And the scope for future basically will depend upon the technology changes, etc., which will support the rate reduction.

And what about the sugar content, 46% portfolio?

As we stated in the opening remarks, currently ~46% of our total portfolio consists of either zero sugar or low sugar products. South Africa will significantly add up to this achievement, with approximately 90% of our portfolio being comprised of low or no sugar products in that country. Another country following suit is Morocco. In India, we are also making considerable efforts. Our recent launches include Mirinda, 7UP, and other products by PepsiCo, such as Pepsi zero sugar and low sugar Sting. We are continuously developin g more options. For instance, Gatorade, which PepsiCo has provided us with a formulation containing zero sugar, is a recent launch. Our efforts to reduce sugar content remain constant.

And this will help our gross margin going ahead?

Yes, to some extent, it is helping us also in the gross margin.

The next question is from the line of Karan Gupta from Varanium Capital.

My question is regarding the capital structure, how we are looking forward for the next 3-4 years, how much debt we are including and how much equity you are putting up. Over the years, our debt is increasing. If you just see the last 2 to 3 years, debt is increasing significantly. And I understand this thing that we are entering into the market, where the opportunity is very huge. So, the expansion part is must. But over the next 2 to 3 years, how we are looking forward to raise the debt as we are also putting up expanding our capacity. How much the cash flow we are generating? Just the estimation that we will not add much debt in our capital structure. Is there any benchmark, any structure you have prepared for the next 2 to 3 years that, let's say, 30%-40% will include from our internal accruals, and then the rest will be from debt? So, that's something kind of question I had.

In the past, any time for the last 3-4 years, you must have noticed that our Debt-to- EBITDA is around 1 - 1.25 and Debt to Equity is 0.5 - 0.7. After the season ends in 1 or 2 months, these ratios will be at the same level. When we made this statement, in a couple of months, we'll be amortizing debt, which we have taken in the current year, for setting up 3 new plants and for acquisition of BevCo. By the year end we shall be at the same level as of December 2023. In return, what we get is perpetual increase in EBITDA and equity, including retained earnings. Yes, we had to take on this debt in the interim, but it has helped us in enhancing the return for our stakeholders with a very healthy ROI. And we are conscious of the fact that it should not go beyond comfortable levels.

And with these 3 greenfield expansions , what's the estimation of your cash flow submission from this, how we are looking forward around Rs. 5,000 crore of cash flow in terms of cash flow from operations? We are currently hardly Rs. 1,500 crore. So, that the cost reduction will be there.

Well, it's a little difficult to calculate that way. These are integrated plants with backward integration, and 2 out of these are with the aseptic packaging line, which are capable of producing Tropicana as well as Cream Bell VAD. So all these are slightly difficult to explain at a granular level on the phone. However, we can only say that debt levels are well within the norms.

Further for expansion, as you said, for a CY25, you said June will be the time you will announce some CAPEX for the CY25. What's the plan for again, same question, for the better structure? If you're raising anything or there will be internal accrual?

Well, all the all expansion from 2019 to 2024 in last 5 years had been only from internal accruals and the ratios of debt equity and debt EBITDA remained more or less at the same level and have shown improvement only. But however, sometimes in the short run, this maybe supported through the borrowing because you have to incur the CAPEX first and then from the very first year itself from April, May, June, you start realizing and brings us to a comfortable level. We study our balance sheet in 2 parts, actually. One, is when we incur the CAPEX, the asset are put to use that's around December and June is when it is actually put to use and we amortize part of debt.

The next question is from the line of Sanjaya Satapathy from Ampersand Capital.

So my question is that in the Cream Bell, you were kind of giving some color that there was some delay in starting the factory. Can we just complete that part?

No, the delay was because of the global supply chain issues . Instead of starting in January, it started in April. But this is still before the season, and it's running very well, and we are practically doubling our capacity.

Sir, the South Africa plant, which will be completely merged and the full impact of it will come from the June quarter. Have you kind of given any idea about how much your depreciation, amortization costs and other costs will go up by?

In South Africa, the acquisition cost for franchise rights essentially balances the asset value, so depreciation costs will not increase significantly. Depreciation ideally has to be seen on the consol level, where in the last 5 years, balance sheet, if you'll see, as a percentage to revenue, the percentage is coming down . Last year it has come as low as 4.2% as a percentage of our top line, which in earlier years used to be 7% - 9%. So this improvement is very healthy, and it's a good percentage. We have consistently delivered on this parameter in the past.

Sir, will the amortization go up a lot? Or I mean I just wanted to understand the cost impact of South Africa, if at all it is there.

No, it will not have a significant impact because it will contribute maybe anything with Rs.1,800 - 2,000 crore top line. It will have its own EBITDA. It's a positive profit - making operation with a huge top line. So, it will not increase as a percentage.

And last thing, if I can ask that you mentioned that you have no plan to immediately use brands like Rockstar that is there in South Africa in India. Just trying to understand what all synergy benefit that you're really looking at? I believe that you are saying that it will give us 2 quarters, but just understanding the thought process.

The Rockstar brand belongs to PepsiCo, we have to align with them to get their strategy to launch it in India. Basically, this is a n energy drink category to address the premium category, which is very niche.

The next question is from the line of Bharat Shah from ASK Investment Managers.

CY25, barring any acquisition really speaking, that you should mark the beginning of a very favourable operating and financial leverage for us. Is that right? Assuming no significant acquisition occurs in 2025 and we will be digesting the current acquisition of BevCo that we made, assuming no further acquisition in 2025, then 2025 onward should offer a period of, once again, very favo urable operating and financial leverage to us is where acquisitions will get digested and we'll scale them.

Very rightly put up by you. In fact, very true. And this resonates with our earlier answer that in a couple of months, the CAPEX made by the company in this current year plus debt for BevCo acquisition will already be amortized. After that, any addition in the debt is going to be for the CAPEX of CY25 only. Without any new M&A for CY25, the debt should not substantially change from CY2023 end to CY2024 end. Also, EBITDA coming from these 3 plants and coming from 5 plants of South Africa should start contributing and DRC should also start contributing.

In a way, kind of flow -through model, very favo urable virtuous cycle that we witnessed earlier, with top line to operating profit to after the financial leverage into the cash profit due to depreciation, kind of a favo urable virtuous cycle, what we witnessed for preceding period of 2 -3 years, something like that, hopefully should begin in next year onwards.

In fact, this is what we are demonstrating for the last several years. And this is what we always plan. But in the short run, a little variation is always possible. See what happens if there is a demand growth in the market, we must prepare and make every endeavour that we don't lose our share by advancing the CAPEX. At the same time, if internationally some opportunity comes up, we should not delay the M&A and temperately support the cash flow through the borrowing. But of course, we have to be very cognizant of the fact, one, that we do not spoil our leverage ratios. Secondly, we are confident in a period of 12 to 18 months, we are going to come back to the original strict levels.

Without doubt. I think what has been achieved so far has been really commendable on each acquisition in each move, but always the heart is greedy , Yeh Dil Mange More. So it only from that point of view.

Mr. Jaipuria is smiling. He is amused from the statement and adopting our tag line. Thank you very much.

The next question is from the line of Ruchita Ghadge from I -Wealth Management LLP.

My question was mainly on the line of DRC. Just wanted to understand, what kind of volumes can we potentially do in that region? And how big is that market?

That market is quite large. But unfortunately, the numbers are not very clear in that market, it's more than 100 million population and warm climate. We have put 2 large lines and our capacity is about 35 million cases. We hope to do well and as soon as our plant starts by the end of this quarter, we will really see how well we do and how fast we can grow that market.

And sir, similarly, the South Africa, sorry if I missed it, but how big is that market? And how much volume can we do there potentially?

South Africa is close to 1 billion case market. It's a huge market, and our Pepsi Co share is only ~2% practically, there is huge room there, although we have our own brands where we are doing well and another ~10% market share is that. But as a market, it's a very big market, and we have huge scope to grow, and we have 5 plants.

And sir, can you give me the capacity of these plants all together?

Well, there is enough capacity, but they were not maintained very well. So we are correcting them. And by September before the season starts, we will have enough capacity to grow the market. And whatever corrections are needed, we will do it before the season starts.

Ladies and gentlemen, we will take this as the last question for today, which is from the line of Saket Mehrotra from Tusk Investments.

Sir, could you give us any sense on how much contribution in our sales is right now coming from quick commerce, if you could just like give us some understanding about how that channel is evolving?

In fact, the quick commerce or e-commerce is still not very prominent in our segment. It's very little, and we have not tracked it that minutely, but as and when some more data on this is available, we'll share.

And any sense in terms of growth, while I understand maybe the contribution right now is insignificant, but if you can give us a sense on what kind of growth is coming from this channel?

Yes. Once we get the more data at that level, we will definitely be sharing.

As that was the last question, I would now hand the conference over to the management for closing comments. Over to you, sir.

Thank you. We 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 and support and for taking the time out to join us on this call. Look forward to interacting with you soon. Thank you very much.

This is a transcription and may contain transcription errors. The transcript has been edited for clarity. The Company takes no responsibility of such errors, although an effort has been made to ensure high level of accuracy.