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  • 04 Feb 2022
  • ICICIdirect Research

VARUN POSTS FIRST TIME PROFITS IN LEAN WINTER QUARTER

VBL - 645 Change: 0.60 (0.09 %)

News: Revenue witnessed a growth of 30.3% to Rs.1734.3 crore led by volume growth of 28.5% & realisation growth of 2.2%. The company clocked volumes of 112 million cases, which includes 70.3% volume from Carbonated drink (CSD), 6.4% from Juices & 23.3% from Water business. On an organic basis, volumes increased by 4.7% in CY21 over CY19. Gross margins contracted by 476 bps mainly due to sharp increase in PET chip prices (crude derivative). PET prices witnessed 18% increase in CY21. The company was able to save costs through employee spends (243 bps lower as % to sales) & overhead spend (136 bps saving as % to sales). Operating profit witnessed robust growth of 21% to Rs.207.6 crore. Operating margins contracted by 97 bps to 12% mainly on account of dip in gross margins. Net profit stood at Rs.32.6 crore as against 7.2 crore loss in the corresponding quarter. It is important to note that the company posted a profit in Q4 for the first time mainly due to consolidated of acquired south & west territories.

Views: Varun Beverages witnessed strong volume recovery in CY21 despite second wave of Covid-19. Moreover, it has been able to generate optimum revenues from acquired territories of South & West. From the commodity inflation perspective, the company is adversely impacted by crude derivatives require to manufacture PET bottles. However, it has been able to partially mitigate inflation woes through price hikes in international territories & product mix enhancement. We also believe the company would be able to see strong summer season after two consecutive years of Sub-par growth in peak months (adversely impacted by Covid waves). Also, strong generation of cash flows is likely to result in debt reduction & in turn significant interest cost savings going forward. We remain positive on growth prospects of CY22.

Impact: Positive.