Varun Beverages Q2 CY2026: Growth stays strong as international scale rises

Varun Beverages Limited reported a strong Q2 CY2026, with consolidated scale-up continuing across India and international markets. Net revenue from operations rose 20.4 percent year on year to INR 8,451.2 crore, supported by a 19.8 percent increase in sales volumes to 466.7 million unit cases. EBITDA grew 17.2 percent to INR 2,343.0 crore, while profit after tax increased 15.1 percent to INR 1,525.4 crore.

The quarter also carried two clear subplots. First, the company’s international business gained weight in the mix, helped by the consolidation of Twizza in South Africa. Second, competitive noise in the INR 10 price point and regulatory discussion around energy drink labeling featured prominently in the concall, but management maintained that profitability and execution discipline remain the priority.

Volumes and revenue: India steady, international faster

Operationally, consolidated volume growth of 19.8 percent was driven by 14.4 percent growth in India and 38.4 percent growth in international territories. The company also disclosed that international volumes included 11.8 million cases during the quarter from the acquisition of Twizza in South Africa.

Net realization per case for beverages improved 1.2 percent at the consolidated level, supported by better realizations in international markets. In India, the standalone realization per case for beverages declined marginally by 0.6 percent, but the overall growth remained healthy.

Management commentary linked India’s intra-quarter volatility to weather. The company said volume growth was in the twenties from March onwards, except April which was flat. It also highlighted that seasonality is shifting due to weather patterns, with certain months contributing differently compared with earlier years.

Margins: gross margin up, EBITDA margin down due to mix

Gross margins improved 44 basis points to 55.0 percent in Q2 CY2026. The company attributed this to a higher mix of international business. In India, it cited early stocking of key raw materials and savings in sugar consumption driven by a higher mix of low sugar and no sugar products.

For H1 CY2026, management stated that low sugar and no sugar products contributed approximately 73 percent of consolidated sales volumes. This is a meaningful disclosure because it suggests the company is actively managing sugar exposure through portfolio mix, even while it remains exposed to broader raw material inflation.

EBITDA margin declined 76 basis points to 27.7 percent in Q2 CY2026. The company explicitly attributed this decline to consolidation of Twizza, which currently operates at lower margins. India EBITDA margin improved by 38 basis points, supported by operating leverage from volume growth, partially offset by higher other expenses, primarily transportation and distribution costs.

Below EBITDA, depreciation rose 33.6 percent year on year, linked to new plants commissioned in India last year and the Twizza acquisition. Finance costs rose 55.8 percent, which management again attributed to the Twizza acquisition.

Strategy updates: longer PepsiCo runway, CALPIS entry, and Kenya platform

The most important strategic update in the investor presentation was the revised exclusive bottling appointment and trademark license agreement with PepsiCo for India. The company said it entered into the revised agreement on May 21, 2026. The term has been extended to April 30, 2049 from April 30, 2039, and an earlier restriction requiring the company to operate solely as an SPV for PepsiCo’s business was removed. Management framed this as strengthening the long-term partnership and enabling operational flexibility to pursue scale and synergy opportunities.

The company also disclosed a franchise arrangement with Asahi Group Holdings to introduce and commercialize the CALPIS brand in India. The alliance was signed on June 18, 2026, and the company plans to launch CALPIS with Original and Mango variants. In the concall, management emphasized it is focusing on CALPIS first, with the intent to stabilize the brand and structure it right in the market before considering anything beyond that.

On international expansion, the company announced that on July 6, 2026, VBL Industries (Kenya) Limited, its wholly-owned subsidiary, entered into a business transfer agreement to acquire the business of Devyani Food Industries (Kenya) Limited for USD 32 million, which the company translated to approximately INR 305.0 crore at USD 1 equal to INR 95.30. The target business reportedly had net revenue of over INR 300.0 crore for the financial year ended March 2026 and has an existing go-to-market infrastructure, which management indicated could support expansion into carbonated soft drinks and energy drinks.

Capital allocation, leverage, and near-term operating themes

The company declared an interim dividend of 25 percent of face value, amounting to INR 0.50 per share, with a total cash outflow of approximately INR 169.1 crore.

On leverage, management stated that VBL India remains net debt-free with surplus cash of around INR 1,494.1 crore, while consolidated net debt stood at around INR 373.0 crore as of June 30, 2026, primarily due to the Twizza acquisition. CRISIL reaffirmed the company’s long-term rating for bank loan facilities at AAA stable.

Capex disclosures were detailed. For H1 CY2026, net capitalized capex was around INR 950.0 crore, including approximately INR 200.0 crore for brownfield expansions in India including a value-added dairy beverage line at Supa, around INR 100.0 crore for a snacks manufacturing plant in Zimbabwe, and around INR 400.0 crore for market infrastructure such as visi-coolers, glass bottles, pallets and vehicles. CWIP of around INR 490.0 crore as of June 30, 2026 was primarily toward expansion in South Africa and a CSD line in Kenya. The company also disclosed inorganic capex of INR 1,131.4 crore for Twizza.

In the concall, management also addressed two operating issues that investors were watching closely. First, the INR 10 price point. Management said it has not scaled the INR 10 category significantly because it is not profitable, and it is comfortable focusing on growth without leaning on that segment. Second, energy drinks labeling. Management said there was temporary confusion and a short-term dip, but guidance is now clear that the word energy needs to be removed within 90 days, and it expects no lasting demand impact.

Takeaways

Varun Beverages delivered a strong Q2 CY2026 on core operating metrics, with consolidated net revenue up 20.4 percent and volumes up 19.8 percent. Profitability remained robust, but the EBITDA margin decline highlights that mix changes from international acquisitions can dilute margins in the near term even as they expand scale.

Strategically, the extension of the PepsiCo India agreement to 2049 reduces long-term uncertainty around the franchise and signals a durable partnership. The CALPIS franchise and the Kenya acquisition announcement indicate that the company is broadening its portfolio and route-to-market footprint, while continuing to invest heavily in market infrastructure to support demand delivery.