Varun Beverages Q3 Results: Profit Jumps 18.5% as International Markets Drive Growth

Varun Beverages Limited (VBL), the key bottling partner for PepsiCo, has announced its financial results for the third quarter and nine months ended September 30, 2025. Despite a challenging domestic environment marked by an extended monsoon season, the company delivered a resilient performance. The growth was primarily anchored by robust traction in international territories and strategic cost management initiatives.

Financial Performance Overview for Q3 CY2025

For the quarter ended September 2025, Varun Beverages reported a consolidated revenue from operations of Rs 4,896.65 crore, representing a growth of 1.9% compared to Rs 4,804.68 crore in the corresponding quarter of the previous year. The profit after tax (PAT) saw a significant surge of 18.5%, reaching Rs 745.19 crore, up from Rs 628.83 crore in Q3 CY2024. This bottom-line growth was largely supported by lower finance costs following debt repayment through QIP proceeds and higher other income, which included interest on deposits and favorable currency movements.

Earnings before interest, tax, depreciation, and amortization (EBITDA) remained relatively stable at Rs 1,147.38 crore. However, EBITDA margins experienced a slight contraction, moving to 23.4% from 24% in the previous year. This was attributed to an accounting shift where certain expenses in international markets moved from raw material purchases to employee costs and power and fuel due to increased in-house backward integration.

Volume Trends and Domestic Headwinds

Consolidated sales volumes for the quarter grew by 2.4% to 27.38 crore cases. The performance across geographies was a tale of two markets. In India, sales volumes remained nearly flat due to prolonged and heavy rainfall throughout the quarter, which impacted the consumption of cold beverages. Conversely, international volumes grew by a healthy 9%, with South Africa emerging as a standout performer.

Net realization per case stood at Rs 178.8 in Q3 CY2025, compared to Rs 179.6 in the previous year. This marginal decline was primarily due to a higher mix of packaged drinking water in international markets, which typically carries a different pricing structure compared to carbonated soft drinks.

Strategic Expansion into Alcoholic Beverages

In a major strategic shift, Varun Beverages announced its entry into the alcoholic beverage market. The company has entered into an exclusive distribution agreement with Carlsberg Breweries A/S. Under this partnership, select African subsidiaries of VBL will test market Carlsberg branded beer in their respective territories. This move signals VBL's intent to diversify its portfolio beyond non-alcoholic beverages and leverage its extensive distribution network in the African continent.

African Market Footprint and Kenya Subsidiary

Africa continues to be a focal point for VBL’s long-term growth strategy. The company is incorporating a wholly-owned subsidiary in Kenya, named Varun Food and Beverages (Kenya) Limited, to handle local manufacturing and distribution. Furthermore, the acquisition of Twizza Proprietary Limited for approximately Rs 1,119 crore is expected to strengthen VBL's market position in South Africa. The company also noted that its snacks facility in Morocco has reached full-scale operations, and a new plant in Zimbabwe is nearing commissioning.

Financial Summary Table

Nine-Month Performance (9M CY2025)

The performance for the first nine months of the calendar year 2025 reflects sustained momentum. Net revenue grew by 7.1% to Rs 17,480.96 crore. EBITDA for the period increased by 6.8% to Rs 4,410.11 crore, while PAT rose by 14.9% to Rs 2,802.04 crore. During this period, low-sugar and no-added-sugar products accounted for approximately 56% of consolidated sales volumes, highlighting the company's alignment with evolving consumer preferences.

Market Impact and Analyst Sentiment

Following the earnings announcement, shares of Varun Beverages witnessed strong buying interest, surging nearly 10% in intraday trade to reach highs of Rs 501 on the NSE. Global brokerages have maintained a positive outlook on the stock. Citi has issued a 'Buy' rating with a significant upside target, while Morgan Stanley added the stock to its focus list, citing its growth potential in the consumer and industrial sectors.

Operational Highlights and Efficiency

Gross margins improved by 119 basis points to 56.7% during the quarter. This improvement was driven by a higher share of packaged water sales in international markets and the benefits of backward integration. The company has also formed a joint venture, White Peak Refrigeration Private Limited, to manufacture visi-coolers and refrigeration equipment in India, which is expected to enhance operational resilience and reduce long-term costs.

Conclusion

Varun Beverages has demonstrated its ability to navigate domestic weather-related challenges by leveraging its growing international presence. The entry into the alcoholic beverage segment through the Carlsberg tie-up and the continued expansion in Africa via the Twizza acquisition and Kenya subsidiary mark a new phase of diversification. While domestic volumes were temporarily subdued, the management remains confident in the long-term potential of the Indian market, supported by rising per capita consumption and expanding rural reach.