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Thursday, May 1, 2025

Varun Beverages Q1 Profit Jumps 35% to Rs 726 Crore on Robust Volume Growth

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Varun Beverages Q1 2025 Profit Surges 35% to Rs 726.49 Crore on Robust Volume Growth

PepsiCo's bottling partner Varun Beverages Ltd reported a stellar first quarter for the calendar year 2025, with profit soaring 35.22% year-on-year to Rs 726.49 crore. The impressive performance was primarily driven by strong volume growth across markets and improved operational efficiencies, particularly in the company's home market of India.

Financial Highlights: Revenue and Profitability

The beverage giant's revenue from operations reached Rs 5,680.03 crore, marking a significant 29.15% increase compared to Rs 4,397.98 crore recorded in the same period last year. This robust top-line growth translated into strong earnings before interest, taxes, depreciation, and amortization (EBITDA) of Rs 1,264 crore, up 27.8% year-on-year.

While EBITDA margins in India improved by 111 basis points due to operational efficiencies stemming from volume growth, the company reported a marginal decline of 20 basis points in consolidated EBITDA margins. This slight contraction was attributed to lower profitability in the recently acquired South African market.

Volume Growth: The Key Driver

The company's performance was anchored by impressive consolidated sales volume growth of 30.1%, reaching 312.4 million cases in Q1 CY2025 compared to 240.2 million cases in Q1 CY2024. This growth can be broken down into two components:

  • Organic Growth: Strong 15.5% organic volume growth in India, demonstrating the company's execution capabilities in its core market
  • Inorganic Growth: Significant volume contributions from newly integrated operations in South Africa and the Democratic Republic of Congo (DRC)

Net realization per case increased by 1.8% in India, reflecting successful pricing initiatives, while remaining flat in international markets (excluding South Africa). At the consolidated level, net realization per case declined by 0.9%, primarily due to lower realizations from owned brands in the South African market.

South African Performance

The South African territory, which represents a significant recent expansion for Varun Beverages, achieved 141 million cases in the trailing four quarters, representing approximately 13% growth over the same period last year. This highlights the successful integration efforts and growth trajectory in this important new market.

Product Mix Analysis

The company's beverage portfolio maintained a mix dominated by carbonated soft drinks (CSD), which constituted 75% of the total volume. Non-carbonated beverages (NCB) accounted for 7%, while packaged drinking water made up 18% of the sales volume in Q1 CY2025.

Notably, Varun Beverages reported that the mix of low sugar/no sugar products increased to approximately 59% of consolidated sales volumes, reflecting growing consumer preference for healthier beverage options and the company's successful response to this trend.

Margin Performance

Gross margins saw a decline of 171 basis points compared to Q1 CY2024, settling at 54.6%. This contraction was attributed to two primary factors:

  • The relatively lower margin profile of owned brands in the South African market
  • A higher mix of carbonated soft drinks (CSD) in the Indian market

Despite this gross margin contraction, the company's overall profitability improved significantly due to strong volume growth and lower finance costs.

Management Commentary

Commenting on the performance, Ravi Jaipuria, Chairman of Varun Beverages Limited, expressed satisfaction with the quarterly results: "We are pleased to report a strong operational and financial performance in the first quarter of CY2025. Consolidated sales volumes grew by 30.1% YoY, driven by healthy organic volume growth of 15.5% in India. The integration of the SA territory has progressed well, with focused efforts on strengthening on-ground infrastructure, streamlining operations, and enhancing execution across the market."

Addressing the South African market specifically, he added: "Historically, net realizations in SA are lower due to a higher mix of own brands; however, we are actively working to scale PepsiCo's portfolio, which is expected to support improvements in realizations and margins going forward."

Dividend Announcement

In line with its commitment to shareholder returns, Varun Beverages' board recommended a final dividend of Rs 0.50 per equity share (face value Rs 2) for the year ended December 31, 2024. This dividend was approved by shareholders at the Annual General Meeting held on April 3, 2025, and subsequently paid in April 2025.

Additionally, the board has approved an interim dividend of 25% of face value, amounting to Rs 0.50 per share. The total cash outflow for dividends would be approximately Rs 1,691 million, reinforcing the company's focus on delivering value to shareholders while maintaining growth momentum.

Disclaimer: The views and investment tips expressed in this article are for informational purposes only and do not represent financial advice. The views expressed are those of the sources cited and not necessarily those of this website or its management. Investing in equities or other financial instruments carries the risk of financial loss. Readers must exercise due caution and conduct their own research before making any investment decisions. We are not liable for any losses incurred as a result of decisions made based on this article. Please consult a qualified financial advisor before making any investment.

Ather Energy IPO Secures Full Subscription in Final Hours with Strong Retail Support

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Ather Energy IPO Secures Full Subscription in Final Hours with Strong Retail Support

Ather Energy's ₹3,000-crore initial public offering (IPO) managed to cross the finish line on Wednesday after a late surge in institutional demand pushed the issue into full subscription territory. The electric two-wheeler manufacturer's public offering closed with 1.5 times overall subscription, despite persistent concerns about valuation and weak grey market signals.

Subscription Details: Retail Investors Lead the Way

The subscription breakdown revealed interesting insights into investor sentiment toward this emerging EV player:

  • Retail investors showed the strongest support, subscribing 1.89 times their allotted quota
  • Qualified institutional buyers (QIBs) demonstrated significant interest in the final stretch, subscribing 1.76 times their allocation
  • Non-institutional investors (NIIs) displayed more caution, subscribing to just 69% of their portion

This pattern suggests retail investors remain optimistic about the long-term prospects of India's electric mobility sector, while institutional participants made a calculated late-hour push that proved crucial for the IPO's success.

Grey Market Premium Shows Warning Signs

Despite achieving full subscription, warning signs persist in the grey market, where Ather's unlisted shares traded at ₹322—just ₹1 above the upper price band of ₹321. This minimal premium of 0.31% indicates tepid expectations for listing gains.

The Grey Market Premium (GMP) has steadily declined throughout the IPO period:

  • Pre-issue: ₹7 premium
  • Monday: ₹3 premium
  • Tuesday: Approximately ₹1 premium

Market analysts attribute this decline primarily to broader market weakness last week, though some suggest sentiment could recover if equity markets stabilize in the coming days.

Offer Structure and Valuation

The IPO comprised two components:

  • Fresh issue worth ₹2,626 crore
  • Offer-for-sale (OFS) of ₹355 crore

At the upper price band of ₹321, Ather Energy is valued at approximately $1.4 billion—notably a 44% markdown from earlier fundraising targets. This significant valuation adjustment reflects the more cautious investor sentiment prevailing in the current global economic environment.

The company had already secured ₹1,340 crore from anchor investors before the public offering, with participants including prominent names like SBI Mutual Fund, Franklin Templeton, and the Abu Dhabi Investment Authority.

Planned Use of Proceeds

The Bengaluru-based electric scooter manufacturer has outlined several strategic initiatives for the IPO proceeds:

  • Establishing a new manufacturing facility in Maharashtra
  • Repaying existing borrowings
  • Investing in research and development
  • Enhancing marketing capabilities
  • Other general corporate purposes

Mixed Analyst Recommendations

Investment experts remain divided on Ather Energy's prospects, offering varied recommendations:

Geojit Financial Services acknowledged valuation concerns but maintained a positive long-term outlook: "At the upper price band of ₹321, Ather's EV/Sales ratio of 7.1x (FY24) appears expensive. However, as a pioneer in the E2W segment and in a strong growth phase, we recommend a 'Subscribe' rating for high-risk investors with a long-term view."

Arihant Capital took a slightly more optimistic stance on near-term prospects: "At the upper band of ₹321, the issue is valued at an EV/Sales ratio of 8x, based on 9MFY25 sales of ₹1,579 crore. We are recommending a 'Subscribe for listing gain' rating."

Company Positioning and Background

Ather Energy has built its reputation on several distinctive aspects:

  • Strong focus on in-house research and development
  • Premium positioning in the electric two-wheeler market
  • Recent portfolio expansion with the launch of the Ather Rizta

Among its early institutional backers, IIT Madras holds 15.58 lakh shares and is expected to realize approximately ₹50 crore from the listing. This connection to one of India's premier technical institutions adds credibility to the company's technological foundations.

The late surge in institutional interest that helped push the IPO across the subscription threshold demonstrates that while investors may have concerns about valuation in the current market environment, there remains substantial belief in Ather Energy's growth story and its position in India's expanding electric vehicle ecosystem.

Disclaimer: The views and investment tips expressed in this article are for informational purposes only and do not represent financial advice. The views expressed are those of the sources cited and not necessarily those of this website or its management. Investing in equities or other financial instruments carries the risk of financial loss. Readers must exercise due caution and conduct their own research before making any investment decisions. We are not liable for any losses incurred as a result of decisions made based on this article. Please consult a qualified financial advisor before making any investment.