Varun Beverages, an Indian drinks maker, posted a 53.1% gross margin for July-September, down 334 basis points year over year as packaging costs and India’s sales mix pressured profitability.
The company attributed about 300 basis points of the decline to higher costs for preforms, shrink film, closures and cans, which it linked to geopolitical disruptions. Sales of non-beverage products such as preforms and caps in India rose 104%; the company said their higher cost of goods sold reduced the country’s gross margin by about 100 basis points.
Sugar prices increased about 16%, but low- and no-sugar drinks accounted for 88% of India’s sales mix, compared with 44% a year earlier. Varun Beverages said the shift largely offset the higher sugar costs.
NDTV Profit reported that President Raj Gandhi gave an affirmative assessment when an analyst asked whether gross margins had bottomed out. The outlet said he based that view on current price trends.
Net revenue from operations, excluding excise duty and goods and services tax, rose 33.2% to Rs. 66.0756 billion. Consolidated volumes increased 28.7% to 354.4 million cases, while EBITDA grew 25.1% to Rs. 14.2671 billion. Its margin narrowed 140 basis points to 21.6%. Executive Vice Chairman Varun Jaipuria said in the company’s release that strong volume growth, operating leverage and improved realizations partly cushioned packaging pressure. EconoTimes previously covered the Q3 EBITDA margin decline.
NDTV Profit reported that Varun Beverages considered packaging cost increases fully reflected in its September-quarter results across India and international markets. The outlet said further margin improvement would hinge on input prices and the time needed to adjust products and packs.
If costs stayed high, Jaipuria described possible industry responses including price increases, smaller packs and lower trade margins, NDTV Profit reported. The outlet also reported that the Sting bottle size had changed from 300 milliliters to 250 milliliters.
