Varun Beverages Surges Ahead: Q4 Profit Growth Fuels Expansion Ambitions

Varun Beverages Limited (NSE: VBL) has delivered a stellar performance in its fourth quarter of fiscal year 2024, reporting a 40.3% year-on-year jump in net profit to ₹185.15 crore, while revenue soared 38.28% to ₹3,688.79 crore. This robust growth, fueled by strategic expansions, product innovation, and operational efficiency, positions the beverage giant as a key player in both domestic and international markets.

A Quarter of Unwavering Momentum

The company’s consolidated net profit for the full fiscal year 2024 rose 26.2% to ₹2,594.63 crore, with total revenue hitting ₹20,007.65 crore—a 24.72% increase from the previous year. These results reflect strong execution across multiple fronts, including geographic expansion, product portfolio optimization, and disciplined cost management.

Key Drivers of Growth

1. Geographic Expansion and Acquisitions

Varun Beverages’ international push has been a game-changer. Its entry into South Africa in 2024, through the acquisition of The Beverage Company (BevCo), contributed significantly to Q4 results. South African sales volume jumped 12.5% in its first year of operations, driven by expanded distribution networks and the deployment of visi-coolers—portable refrigeration units that boost last-mile reach. The company also secured a foothold in the Democratic Republic of Congo (DRC) and inked agreements to acquire PepsiCo’s businesses in Tanzania and Ghana, pending regulatory approvals. These moves are expected to further amplify international revenue streams in coming quarters.

2. Product Mix Innovation

The shift toward low-sugar and no-sugar beverages has been pivotal. Such products now account for 53% of consolidated sales volume, up from 42% in 2023, aligning with global health trends and regulatory shifts like Zimbabwe’s sugar tax. This strategic pivot not only boosted revenue per case but also improved margins. Gross margins expanded by 165 basis points to 55.5% for FY2024, while EBITDA margins rose 105 basis points to 23.5%.

3. Operational Efficiency and Debt Reduction

The company achieved a net debt-free status by repaying loans using proceeds from a ₹7,500 crore qualified institutional placement (QIP). This financial flexibility enabled aggressive reinvestment in capacity expansion, with ₹45,000 crore allocated to greenfield and brownfield projects. Three new plants in Maharashtra, Uttar Pradesh, and Odisha—set to boost capacity by 25% by 2025—highlight the company’s confidence in sustaining growth.

Challenges and Strategic Adjustments

Despite the strong results, Varun Beverages faces hurdles. In South Africa, margins remain lower than in India due to fixed costs from new investments and reliance on modern trade channels, which dilute profitability. To address this, the company is pivoting to general trade distribution, a move expected to improve margins. Additionally, the sugar tax in Zimbabwe forced a costly transition to zero-sugar products, though this aligns with long-term health trends.

Management Outlook and Investor Confidence

Ravi Jaipuria, Non-Executive Chairman, emphasized that India’s single-digit volume growth in H2 FY2024 was seasonal and reaffirmed the company’s double-digit annual growth trajectory. With a final dividend of ₹0.50 per share recommended, investors are rewarded for their patience.

Conclusion: A Beverage Giant with Global Ambitions

Varun Beverages’ Q4 results underscore its ability to capitalize on both organic and inorganic growth opportunities. With a 23.2% rise in consolidated sales volume to 1,124 million cases, a 53% share of low-sugar products, and strategic expansions into high-growth African markets, the company is well-positioned to sustain momentum.

The 25% capacity expansion by 2025 and net debt-free balance sheet further bolster its resilience. While challenges like margin pressures in South Africa and competition from low-priced brands persist, management’s focus on distribution optimization and premium product innovation provides a clear path to profitability.

For investors, the stock’s dip of ~22% from its 52-week high of ₹682.84 (as of July 2024) presents an entry point. With FY2025 projections including a 31% YoY revenue rise in Q1 and EBITDA margin expansion of 684 basis points, Varun Beverages appears primed to deliver returns. Its dual focus on health-conscious products and geographic diversification makes it a compelling play in the global beverage sector.

In summary, Varun Beverages is not just a survivor in a competitive market—it’s a strategic leader leveraging innovation and scale to fuel its ascent.