Varun Beverages misses June quarter estimates, says Campa isn't hurting growth

Varun Beverages Ltd sought to reassure investors on Tuesday that its India business continues to grow at more than 20% despite intensifying competition from Reliance Consumer Products Ltd's Campa Cola, after a weaker-than-expected June quarter and margin pressure rattled investor sentiment.

The PepsiCo Inc. bottler reported consolidated revenue from operations of ₹8,650.6 crore for the April-June quarter, up 20.8% from a year earlier but below the Bloomberg consensus estimate of ₹8,675.9 crore, based on 15 analyst estimates. Consolidated net profit rose 15.1% to ₹1,525.4 crore, also missing the Bloomberg consensus estimate of ₹1,533.6 crore from 14 analysts.

The earnings miss, together with margin pressure from the integration of South African beverage maker Twizza and higher input costs, pushed the stock down 7.53% to close at ₹429.50 on the National Stock Exchange on Tuesday.

"We are growing at a healthy 20% plus rate. Even post-June, we are looking at a 20% plus growth, at least minimum," Ravi Jaipuria, chairman, said during the company's post-earnings conference call.

Jaipuria said July had maintained that pace after unseasonal rains weighed on beverage consumption in April.

Holding the line

The comments come as India's carbonated soft drinks market enters its fiercest competitive battle in years.

Reliance Consumer has rapidly expanded Campa Cola by reviving the ₹10 price point, a segment historically dominated by regional beverage makers, and offering larger pack sizes at the same price, prompting incumbents to respond with higher grammage and promotional offers. The aggressive pricing strategy has fuelled concerns that established players may eventually have to sacrifice margins to defend market share.

Varun said it has no intention of chasing that segment.

“The 10 rupee is a non-profitable category for us,” Jaipuria said. "As long as we are delivering 20% plus growth in most of our markets, we are pretty happy with that growth."

Asked about Campa's growth, Jaipuria said the rival's expansion appeared to be driven by geographic expansion, first-time consumers entering the carbonated beverages category and market share gains from regional brands, rather than at the expense of Varun Beverages' business.

“In our markets, at least we have seen that we are growing at the same time as well with our price points,” he said, adding that the company was instead relying on larger pack sizes to drive profitable growth. The recently introduced 400 ml bottle priced at ₹20 has helped attract new consumers while preserving profitability, management said.

Management also pointed to faster growth in newer beverage categories as a driver of future expansion beyond carbonated soft drinks. Hydration drinks, juices and value-added dairy products are growing three to four times faster than the company's overall business, management said. Value-added dairy has expanded by more than 40%, while hydration brand Nimbos has grown over 30%.

Beyond soft drinks

The remarks also come as Varun Beverages broadens its portfolio beyond its traditional PepsiCo business.

Earlier this year, the company partnered Japan's Asahi Group to manufacture and distribute CALPIS, marking the Japanese beverage maker's entry into India's non-alcoholic ready-to-drink beverage market. The company also signed an agreement with Carlsberg last year to exclusively distribute the brewer's beer portfolio across parts of Africa, expanding its presence beyond soft drinks in international markets.

Management also dismissed recent market speculation that it was evaluating an acquisition of beer maker Bira. “We are not looking at Bira,” Jaipuria said, responding to questions on media reports.

The clarification follows reports that RJ Group had hired senior industry executives to evaluate opportunities in alcoholic beverages after PepsiCo expanded Varun Beverages' manufacturing and distribution agreement beyond carbonated soft drinks to include a wider range of beverage categories.

The company confirmed it had hired executives to evaluate new ventures but stressed that discussions remained at an early stage.

“At the moment, we are still looking at what are the categories we would expand. We are hiring some people to look at new ventures, new possibilities. But it's too early,” Jaipuria said, adding that the newly hired executives would work across the broader group and not solely on alcoholic beverages.

Varun Beverages is PepsiCo's second-largest franchise bottler globally outside the US and operates across more than 30 countries spanning Asia and Africa. The company manufactures and distributes brands including Pepsi, Mountain Dew, Sting, Mirinda, 7UP, Slice, Tropicana, Gatorade, Aquafina and newer products such as Nimbos, while expanding into adjacent beverage categories through partnerships and acquisitions.