Varun Beverages Limited: Navigating Rains with International Sparkle in Q3 CY2025

Varun Beverages Limited (VBL), a prominent player in the global beverage industry and a key PepsiCo franchisee, has reported a steady performance for the third quarter and nine months ended September 30, 2025. Despite facing challenges from prolonged rainfall in India, the company demonstrated resilience, particularly driven by robust international operations. The consolidated net revenues from operations for Q3 CY2025 stood at ₹4,896.65 crore, marking a 1.9% year-on-year increase from ₹4,804.68 crore in Q3 CY2024. Profit After Tax (PAT) saw a significant jump of 18.5% to ₹745.19 crore, up from ₹628.83 crore in the prior year period, while EBITDA remained largely flat at ₹1,147.38 crore.

The quarter's performance was characterized by a consolidated sales volume growth of 2.4%, reaching 273.8 million cases. This growth was predominantly fueled by healthy traction in international markets, which expanded by an impressive 9%. In contrast, domestic volumes remained subdued due to the extended monsoon season across India. Net realization per case slightly decreased to ₹178.8 in Q3 CY2025 from ₹179.6 in Q3 CY2024, attributed to a higher mix of packaged drinking water in international markets. The product mix for Q3 CY2025 saw Carbonated Soft Drinks (CSD) at 74%, Non-Carbonated Beverages (NCB) at 4%, and Packaged Drinking Water at 22% of total sales volumes.

Strategic Expansion and Diversification

VBL's strategic initiatives underscore its commitment to broadening its product base and strengthening its presence across key growth markets. The company is incorporating a wholly-owned subsidiary in Kenya to manage manufacturing, distribution, and sales of beverages. Furthermore, certain African subsidiaries have entered into an exclusive distribution agreement with Carlsberg Breweries A/S to test market beer in their territories, signaling a strategic foray into the alcoholic beverage segment. This move leverages VBL's existing robust distribution network in Africa, where the go-to-market strategy for beer aligns well with their current operations.

On the snacks front, the facility in Morocco has ramped up to full-scale operations, and the Zimbabwe plant is progressing towards commissioning, marking continued progress in diversifying the portfolio beyond beverages. The company also announced the incorporation of a joint venture, White Peak Refrigeration Private Limited, with Everest International Holdings Limited, to manufacture visi-coolers and other refrigeration equipment in India. This initiative aims to bolster VBL's cold-chain infrastructure, which is crucial for beverage distribution.

Financial Prudence and Operational Efficiency

Despite the flat EBITDA, gross margins improved by 119 basis points to 56.7% in Q3 CY2025, driven by an increased mix of water in international markets and benefits from ongoing backward integration initiatives. The PAT growth was significantly aided by lower finance costs, as VBL has become debt-free at the consolidated level following the repayment of debt from QIP proceeds. This financial discipline provides substantial flexibility for future growth and investments. The company also successfully transitioned to the GST 2.0 framework without any significant adverse impact, with reduced GST rates across key categories expected to structurally benefit nearly a quarter of its India portfolio.

Management emphasized that ongoing investments in capacity expansion, distribution reach, and cold-chain infrastructure are strengthening on-ground execution, preparing the company to capture demand recovery in the upcoming season. They remain confident in the immense long-term potential of the domestic beverage industry, citing low per capita consumption and rising penetration in semi-urban and rural markets as key growth drivers.

Outlook and Future Focus

Varun Beverages Limited is poised for continued growth, particularly in its international markets. Management expects early teens revenue growth in its international business from the next quarter, with Africa projected to grow in double digits next year. The company plans to continue launching new products, with a focus on consolidating its hydration portfolio, such as Nimbooz, and introducing one or two new products next year. The strategic moves into new geographies and product categories, coupled with disciplined financial management and operational efficiencies, position VBL for sustained long-term value creation for its stakeholders.