Operator: Ladies and gentlemen, good day and welcome to Varun Beverages Limited earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari from CDR India. Thank you, and over to you, Mr. Poojari.
Anoop Poojari: Thank you. Good afternoon, everyone, and thank you for joining us on Varun Beverages' Q3 CY 2026 earnings conference call. We have with us Mr. Varun Jaipuria, Executive Vice Chairman and Whole-Time Director, and Mr. Raj Gandhi, President and Whole-Time Director of the company. Mr. Ravi Jaipuria, Chairman of the company, has had to excuse himself from today's call due to personal reasons. We will begin the call with opening remarks from the management, following which we will have the forum open for a question-and-answer session. Before we proceed, I would like to point out that some statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the results presentation shared with you earlier. I will now request Mr. Varun Jaipuria to make his opening remarks.
Varun Jaipuria: Good afternoon, everyone, and thank you for joining us on our earnings conference call. I hope you have had a good chance to review our results presentation for the third quarter and nine months ended 30 September 2026. We are pleased to report a strong performance in the third quarter of CY 2026. Consolidated sales volume revenue grew 28.7% with a volume growth of 22.5% in India and 39.9% in international markets. Revenue from operations increased by 33.2% year-on-year to INR 66,075.6 million, while EBITDA grew 25.1% to INR 14,267.1 million. Higher packaging costs weighed on margins during the quarter, although improved realizations and operating leverage from strong volume growth helped partially offset these pressures. In India, we continue to witness healthy volume growth during the quarter, extending the positive trend seen since May.
Varun Jaipuria: This performance was supported by our extensive distribution network, expanded manufacturing capacities, and ongoing investments in chilling infrastructure. We also saw improved realizations supported by growth in higher-value categories such as dairy and the introduction of premium offerings, including Ad Rush and the Evervess mixers range. Our international business continued to make strong progress during the quarter, with Africa remaining a key continent for expansion. With effect from 1 August 2026, the merger of Twizza with Bevco has been completed, and we expect to unlock significant operational synergies in the coming quarters. During the quarter, we have also stated beverage operations in Kenya and introduced two new beverage brands, BOLT UP and XTREME FIZZ, marking another step towards strengthening our footprint in the fast-growing African region. We also entered into an exclusive distribution agreement with Mondelez in Zimbabwe, further broadening our product offering in the market.
Varun Jaipuria: We are also taking measured steps towards diversifying our business into adjacent categories. The incorporation of KIVA Spirits and Company Limited marks an important step in exploring opportunities in ready-to-drink beverages, alcoholic beverages, and allied products. Our approach will remain focused on pursuing opportunities that leverage our execution capabilities and offer attractive long-term growth potential. In line with our dividend policy, the board of directors have approved an interim dividend of 25% of the face value, INR 0.50 per share, resulting in total cash outflow of INR 1,691 million. Looking ahead, our focus will remain on driving growth across our existing market, supported by investments we have already made over the recent years. Alongside this, we will selectively pursue opportunities to broaden our business while maintaining a clear emphasis on profitability and long-term value creation.
Varun Jaipuria: I would now like to invite Mr. Raj Gandhi to share the key highlights of our operational and financial performance. Thank you.
Raj Gandhi: Thank you, Mr. Vice Chairman. Good afternoon, and a warm welcome to everyone joining us today. Let me take you through the financial and operational performance of Q3 and nine months ended 30 September 2026. Revenue from operations net of excise duty and GST increased by 33.2% year-on-year to the level of INR 66,076 million in Q3 2026. For nine months in CY 2026, revenue grew by 23.3% to the level of INR 218,146 million. Growth during the quarter was primarily driven by a 28.7% increase in consolidated sales volume to the level of 354.4 million cases in India. Volume grew by a strong 22.5% during the quarter, while international territories recorded robust growth of 39.9%.
Raj Gandhi: Consolidated net realization per case for beverages improved by 2.2% year-on-year, supported by a 0.5% increase in India on account of growth in high-value categories and further launch of premium categories like Ad Rush, Evervess mixers range, calibrated discounting, and efficient price pack architecture. In international markets, realization per case improved on account of improved realization in South Africa and foreign exchange impact. In terms of volume mix, carbonated soft drinks accounted for 73.3%, juice-based drinks to the level of 4.8%, and packaged drinking water for 21.9% of total sales volume during the quarter. Coming to margins, gross margin moderated by 334 basis points year-on-year to 53.1% in Q3 calendar year 2026, primarily due to higher packaging material cost, including preform, shrink film, closures, cans arising from geopolitical disruptions. However, packaging cost contributed approximately 300 basis points of pressure on gross margin.
Raj Gandhi: In addition, sales of non-beverage products such as preforms and caps in India increased by approximately 104% during the quarter. Given their higher COGS, these products had an impact of approximately 100 basis points on gross margin in India. The impact of around a 16% increase in sugar price was largely offset by higher proportion of low-sugar and no-sugar products in India, with their share increasing from 44 levels in the corresponding Q3 of 2025 to the level of 88% in the Q3 of 2026 in India, almost double. This is after accounting for the sharing of sugar reduction benefits with PepsiCo through concentrated cost as part of the transition to a low-sugar portfolio. EBITDA increased by 25.1% year-on-year to the level of INR 14,267 million in Q3 of 2026, with EBITDA margin at 21.6%.
Raj Gandhi: The margin moderated only by 140 basis points in spite of higher material cost year-on-year, primarily due to the contraction in gross margin, primarily offset by operating leverage from robust volume growth across India and international territories. Importantly, despite the supply chain disruptions and input cost pressures arising from geopolitical developments, EBITDA margins in India remained broadly stable on a year-to-year basis during nine months 2026. PAT increased by 13.5% year-on-year to the level of INR 8,306 million in Q3 of calendar year 2026, compared with the INR 7,315 million in the corresponding quarter last year. Depreciation and finance by 34.5% and 53.5% respectively, primarily on account of acquisition of Twizza in South Africa and the associated debt funding. Other income declined by 18.8%, reflecting relatively stable currency movements during the quarter.
Raj Gandhi: For nine months calendar year 2026, EBITDA increased by 19.9% to the level of INR 52,746 million, while PAT grew up by 15.5% to INR 32,023 million. Looking ahead, we are encouraged by the strong volume growth delivered across India and international markets. Our endeavor will be to sustain healthy growth over the longer term, supported by effective utilization of our expanded capacities and market infrastructures. At the same time, we will remain focused on managing input costs and improving operating efficiencies to support profitability as we scale our operations. On that note, I will come to an end of our opening remarks and would like to now ask the moderator to open the forum for any questions or suggestions that you may have. Thank you.
Operator: Thank you very much, sir. Ladies and gentlemen, we will now begin with the question-and-answer session. Anyone who wishes to ask questions may please press star and one on your touchtone phone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking your question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Abneesh Roy from Nuvama. Please go ahead.
Abneesh Roy [Director of Research: Yeah, thanks, and congrats on strong volume growth in India and overseas also. My first question is on the gross margins. What will be the outlook for next quarter, if possible, within the March quarter? Coming specifically to this quarter, earlier the information sharing was that sugar, that change has happened, so very low sugar usage is there in terms of the portfolio, plus in terms of the packaging, lot of the buying has been done for the September quarter. So wanted to understand where things change versus that initial comment. On your specific comment that non-beverage has grown very sharply, preforms, caps, et cetera, so what is the reason for that? Could you bifurcate how much is the packaging increase, sugar increase, and this non-beverage increase? That can give us more clarity. Thank you.
Raj Gandhi: Abneesh, good afternoon. Abneesh, as in the opening remarks, we have clarified the food has not affected much because of the portfolio change, innovation from 44% to 48% low sugar or no sugar, which that has been managed very well. However, with the geopolitical factors, the cost of packaging has gone up, and your comment is correct, but that was relevant for the. The war started on 28 February or so, and that time we had stated that we are totally covered for the next quarter. Last quarter, you might have noticed there was no impact on the gross margins. But after that, all the purchases going forward are at the revised, increased, enhanced prices. We didn't stock for much longer period than the quarter, which we could manage last quarter, but now the prices are definitely higher.
Abneesh Roy [Director of Research: How do you see outlook?
Raj Gandhi: Outlook, see, this is a macro factor, both were macro factor, food and the packaging. But in our case, in spite of that, through the innovation, we are able to manage sugar very well. As far as material cost is concerned, cost-wise may not be possible to give any comment. However, how we will mitigate the way we, out of the 4% or 3%, we have mitigated more than half of this by reduction in cost. I think if your question is directed towards that, we will definitely be able to answer that, and how to preserve our margins, that will be little pointed and easier for us.
Varun Jaipuria: I think, Abneesh, see, looking at the geopolitical situation, nobody really knows, right, when this war is going to end and what is going to happen with the fuel prices coming down. Perhaps only Mr. Trump has the answer. Now the question is that the industry, of course, for two quarters has been feeling the pain of the cost going up because the raw material cost is increasing. I think there is enough chatter within the Beverage Association, which is all the players who were there, in terms of if the prices do remain high, then what other measures they will take? Because over two quarters, we usually do not act so fast on price pack architecture. But there is conversation if the pricing stays high, do they downsize certain packs, do they take certain pricing up, or will there be a trade margin reduction?
Varun Jaipuria: We will have to wait and see what happens on that.
Raj Gandhi: Abneesh, and to add what. Yeah.
Varun Jaipuria: Yeah, go ahead, please.
Raj Gandhi: What he was thinking.
Varun Jaipuria: Yeah.
Raj Gandhi: Avneesh, just to add what Varun Jaipuria stated, we have already brought Sting from 300 ml to 250. Depending upon the market condition, competitive scenario, et cetera, the other portfolio also from time to time will be reviewed.
Abneesh Roy [Director of Research: Thanks. Just one quick follow-up. This is extreme geopolitical situation which comes, say, once in 10 years and 20 years, and generally Pepsi is known to have discussion on how they can help here, especially given the new cola player has an in-house, obviously one of the largest PET supply, so they can absorb this cost while you and the other legacy player will have to face that. Any talks with Pepsi to handhold in this scenario?
Varun Jaipuria: I think it is too early. That is what I said right now. We are all figuring out what price pack can we do. Of course, cost is increasing not just for us. I am sure for PepsiCo as well, backend cost must be increasing. Hence, for the industry, the cost is increasing. We are going to wait and watch. I think, if you look at this quarter, we have done fairly very well in terms of volume and negating the 400 basis points of cost increase. Going forward, if we believe that we are not going to be able to negate it, then of course, the whole industry will take some action on price pack for sure to negate it.
Abneesh Roy [Director of Research: Sure. Second and last question on this Mondelez relationship in Africa, in Zimbabwe. Any numbers you can share from a longer term, three to five years? What can be the opportunity here? Do you see more markets getting adjacent markets in Africa from Mondelez?
Varun Jaipuria: See, it is very nascent, right? Mondelez is one of the best brands you can work with, right? We are very fortunate to partner up with them. They already have an existing business of about $11 million in Zimbabwe. Of course, the local partner they were working with, I am sure he was not able to harness the full potential of the market, hence, we are partnering up with them. I think once we are in the market, since we do understand Zimbabwe very, very well, it was a greenfield project for us a few years back, and of course, we have got a very high market share there, and the volumes are growing. I think let us get into it, let us get our teeth into it.
Varun Jaipuria: We are getting the whole portfolio for distribution, and we are quite hopeful once we understand what the whole market is and once we start the distribution properly, we can come back to you and give you some concrete answers on it.
Abneesh Roy [Director of Research: Sure. Thank you. That is all from my side. Thank you.
Raj Gandhi: Thank you, Abneesh.
Operator: Thank you. The next question is from the line of Vivek M. from Jefferies. Please go ahead.
Vivek M: Hi, good afternoon. Couple of questions. First is on the competition side. We have had one of the food companies which did mention that the competition seems to be abating right now. What are your thoughts on the same issue, please?
Varun Jaipuria: Competing with the?
Raj Gandhi: Abating.
Varun Jaipuria: Yes, sorry. What is your question on the competition exactly?
Vivek M: What I am saying is, like Tata Consumer on their conference call mentioned that they sounded far more confident on the, let us say, the market structure and how things are evolving. What is your view on the competition in general? Your latest thoughts, please.
Varun Jaipuria: No, I think we had subdued quarters due to the seasonality as what we had mentioned. If you see our Q1 as well, we had performed very well. High double-digit growth is what we had. Then Q2, due to seasonality, obviously had gone down, which we had clarified earlier. Now again, the weather has been very good. The price pack is holding up in the market. The growths are back. There is no reason why we believe that the growth should not be coming going forward. We have mentioned many times that the per caps in India are still very, very low right now compared to even our neighboring countries. The amount of expansion of growth which is there even for us and our competition today, we all can grow. Hence, if you see today, even if we have grown, I am sure all our competitors are growing.
Varun Jaipuria: Even Tata Consumer has given very good numbers is what I hear in terms of their beverage portfolio. There is no reason as to why we should all not keep growing.
Vivek M: Got it. The other thing, Varun, is, when I look at your India unit realizations, in the last six, seven quarters, there has been a downward pressure, and we saw that changing in early part of this year, and then we have seen further buildup from there. I know the raw material trends are also, or the trend has been difficult, which is why you explained about the price and the mix and everything. Does that also signal that, like December last year, the unit realization was at the bottom, the worst from a competition standpoint? Does that also signal from this unit realization in India trend?
Raj Gandhi: Vivek, instead of giving a forward statement, I draw your attention. Look at this quarter. That trend is already reversed, and there is increase in realization per case. I think that is a good indication, and you can build on that.
Varun Jaipuria: See, I think, Vivek, one more thing I will add. If you remove the raw material pressure, there is so much operational efficiency what we have built in, and there is so much operational leverage because the growth what we are getting. Even if you see a nine-month trend, we are trailing at 16% to 17% growth now largely, right, which is a good double-digit growth. I think there is a lot of initiatives what we have done internally as well. It could be the mid-cal saving what we brought in, bigger plant operation is what we brought in, lot of distributor consolidation is what we have done. These are routine things what we keep doing which gives us huge operational flexibility. Now, we believe going forward, these are routine things which will keep happening.
Varun Jaipuria: If the raw material element goes out and starts stabilizing, I think there should be no concerns when it comes to our margins.
Vivek M: Got it. The second question is on the international business. Obviously, the volume growth both organically and reported basis has been very good. Given that it is a geography or the cluster of geographies which we do not fully understand, can you just talk about your outlook from a next few quarter perspective on the international side and anything to call out for any of the geographies?
Varun Jaipuria: See, I think we are doing very well in Africa. I mean, most of the places, we are out of capacity. We are investing in CapEx in Morocco now because we do not have enough capacity there. We are investing in Zimbabwe since we do not have capacity. We are putting some more.
Raj Gandhi: DRC.
Varun Jaipuria: Yes. So in DRC, we are putting a line up as well. I think, again, we are sold out in most of the places. So I think the outlook is very, very positive. There is enough and more room to grow in Africa, it is again a very, very nascent market. I think if you see the last four, six, eight quarters, there is tremendous growth is what we are seeing, and they are just continuing.
Vivek M: Got it. Anything on the currency side of things, because that is one thing. There has not, I mean, it has yo-yoed a bit, but is that any of the markets, any worry on that front?
Varun Jaipuria: Not large impact.
Raj Gandhi: There is no worry, Vivek. The only thing is last year, there were bumpers. Currency had gone up. Local currencies had gone up vis-a-vis dollar. This year, this is stabilized, and there are a lot of commodities, minerals, metals, those natural resources which are in demand, and those currencies are holding on. In fact, the South African currency has become costlier since we acquired those.
Vivek M: Got it.
Raj Gandhi: actually.
Vivek M: Got it. Mr. Gandhi, last thing, which is, in the earlier quarter, you had mentioned about there was some impact of regulatory issues on the energy drink, I think, in June, as well as, if I recall correctly, you mentioned for July. How things are on the energy drink side in this quarter?
Varun Jaipuria: Energy is coming back. I am sure you are aware of the whole issue which happened with FSSAI that they had banned the use of the word energy because the registration for most energy brands in India was done under carbonated beverages, not under energy as a category, because energy as a category did not exist in India. The ruling what they had was you cannot use energy. Of course, that created some turmoil in the market amongst the retailers and the distributors. I think that is why everybody, and we see Sting holding a very, very high market share in the energy segment. Sting is coming back, yeah. Sting is coming back. The volumes are looking promising, and it is building back.
Vivek M: Got it. Would you be able to quantify where it is today versus if 100 is the baseline? Because the growth that we have seen, your comment suggests that it is still not up to the mark. Is that a fair understanding, which means the rest of the portfolio growth has been faster than what the headline number suggests then?
Varun Jaipuria: No, of course, that has to be there, right? Because in the middle, people were not sure if they want to stock up energy or not from every distributor, not just us, competitor products, and retailers are not sure if they want to stock up energy. Let us assume the negativity was 25%. Now we can say we are slightly positive. I think month on month on a quarter, we are moving towards the positive range versus where we were at least. If that puts in the right context for you.
Vivek M: Yeah, this helps. Thank you very much. Wishing you and your team all the very best.
Varun Jaipuria: Thank you.
Raj Gandhi: Thank you, Vivek.
Operator: Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address questions from all the participants in the conference, kindly limit yourself to two per participant. Should you have a follow-up question, please rejoin the queue. The next question is from the line of Aditya Soman from CLSA. Please go ahead.
Aditya Soman: Hi, good afternoon. Two questions from me. Firstly, can you give us a sense of the volumes for volume growth that you are seeing for the non-carbonated business? Secondly, you indicated that you have taken a price increase or whatever, volume cut for Sting. When was this taken? Broadly, the price increase that we are seeing in the portfolio as well for India, from a timing perspective, should we expect that to play out fully in the December quarter?
Varun Jaipuria: Price increase. Sorry, I am not clear. When you say we have taken a price increase on the portfolio, means what exactly?
Aditya Soman: We have seen the net realizations improve in India, as well as you indicated that for Sting, you have reduced the grammage rate or the volume.
Varun Jaipuria: Yeah.
Aditya Soman: When was this taken so we can estimate better for the quarter?
Varun Jaipuria: Yeah, there is no pricing which we have taken on the CSD portfolio. That has come through operational efficiency, like I had mentioned, and the consolidation of distributors and bigger plant productions, more operational efficiency, mid-cal sugar saving, some saving in trade spends we did. There is no pricing on the CSD portfolio, or there is no change in the pack size what we have done this quarter. On Sting, the downside what we did from INR 300 to INR 250, I will have to get you the exact date. I think it was May or June, around about that time.
Raj Gandhi: Last quarter sometime.
Varun Jaipuria: Last?
Raj Gandhi: Within the last quarter.
Varun Jaipuria: Within the last quarter, maybe July, maybe. We will have to get back, I think. I am not sure.
Raj Gandhi: Yeah. Aditya, we will come back exact number, but from the top of memory, it is sometime in the last quarter only. The trade spend, these are the two contributors which rationalization of trade spend, these has contributed to the much better realization.
Varun Jaipuria: Yeah, because we are stocked in the market by distributor stocks, plant stocks, but then they got used up. Yeah, we will get you the exact numbers on those.
Aditya Soman: No, very clear. Thanks.
Varun Jaipuria: Thank you.
Operator: Thank you.
Raj Gandhi: Thank you, Aditya.
Operator: The next question is from the line of Devanshu Bansal from Emkay Global. Please go ahead.
Devanshu Bansal: Hi, Varun. Thanks for the opportunity, and congratulations on the very strong domestic volume growth. Varun, my question is to better understand how unorganized industry is playing out, right? While the margin is a hit for us, it is a bigger hit for these smaller unorganized players. So we have preserved our magic price points. I wanted to check if this can lead to better growth for us in the coming quarter or next year. Any views if you could share?
Varun Jaipuria: See, the example I give everybody is if you go to the southern markets, the industry mix in the southern markets are almost 50% of B brands. Whereas if you come to the northern markets, only probably 15%, 18%. If you go there, I mean, as for us, we are growing, they are growing, we have been growing. So there is a different market and different consumer who is consuming our price points versus the INR 10 plus price points. Now, of course, the margin pressures are high. Our water growths are better because water is where the most amount of pressure is for B brand and local players due to the increase in availability and the increase in raw material cost. I think, I am sure they are growing. I do not have the exact number, but we are looking at a good double-digit growth in terms of what we have delivered.
Devanshu Bansal: My question was more from our growth perspective. Can this turbulent period lead to better growth for us? Obviously, because we are not changing our price points. Can we grow faster versus what we were expecting earlier?
Varun Jaipuria: See, my only question is, when they are selling full sugar at INR 10, I am not sure how B brands are able to sell. I have no idea how they are running their business or what they are doing. I cannot be able to answer on that. We know that our growths are coming 20% plus, which we are very happy about, and we are hoping we can deliver better numbers.
Devanshu Bansal: No, fair enough. Thank you so much. Secondly, sir, PET is ballpark 10% to 15% of your sales, right? We have indicated a-
Varun Jaipuria: Sorry, your voice was breaking. Could you repeat that?
Devanshu Bansal: I am saying, PET is ballpark 10% to 15% of your sales. We have indicated a 300 basis points margin impact, which says the raw material increase is only 20%, 30%, right? But if you see crude prices, they are up like 50 odd percent. Wanted to check if this entire crude increase is baked in the current P&L, or we may see some more sort of impact as we go down the lane?
Raj Gandhi: The 100% crude price is already built in, because all these fresh stocks are being consumed. The prices, of course, when we are, we time or the thing, which the purchases which help us, and also, if you remember, we had invested in RPET.
Varun Jaipuria: Backward integration.
Raj Gandhi: RPET as a backward integration in-house, RPET supplies, which I think about, exact number I will let you know, around 30% or more is RPET, which is much cheaper than the virgin
Varun Jaipuria: Than virgin PET.
Raj Gandhi: That has helped us to keep this pricing under control. Yes, we have the cost advantage, if it is flowed back in the market, definitely it can also help in increasing the share also. That maths-wise works better, but as Varun said, we are happy with 20 plus percentage, any upside to that comes, we will share with
Varun Jaipuria: We welcome it happily.
Raj Gandhi: Yeah.
Devanshu Bansal: No, that is very encouraging to hear. Thanks for taking my questions. All the best.
Varun Jaipuria: Thank you.
Operator: Thank you. The next question is from the line of Anand Shah from Axis Capital. Please go ahead.
Anand Shah: Yeah. Hi, team. Just a couple of questions here. Firstly, anything you can share on this expansion on existing categories, and especially KIVA? I mean, it is early days, but what kind of capital deployment you are looking at and what kind of plans?
Varun Jaipuria: Yeah, so very, very early days. I think, AlcoBev is an interesting space to get into, especially RTDs, the way they are growing in India, and I think Africa, there is a huge scope to grow them. RTDs, if you see, they are growing at about 13% to 15%. So we are looking to see where can we partner up and get into RTDs. That is the first thing. Secondly, even global brands like PepsiCo, Coke, all the other guys, they have entered RTD in the US, in UK, and Canada with their core brands, which is Pepsi, Mountain Dew, 7UP, because that is what the younger generation is drinking now. So I think our plans are to enter with RTD right now. That is the first thing. We are also looking, which we are in talks with right now, with a lot of global players to partner up and bring to India.
Varun Jaipuria: See, our idea in alcohol is largely going to be, if we do the whole portfolio, we would like to play the prestige plus. So we are not looking at margin-dilutive portfolios. If we can maintain higher margins, work with international brands, get the right brand, and premiumize the portfolio. So it is still a lot of things work in play, and hopefully in the next call we have, we will be able to give you more clarity.
Anand Shah: Got it. Here you will be open to inorganic as well?
Varun Jaipuria: Of course.
Anand Shah: Yeah. Got it. Lastly, you did call out a little bit of impact on Sting in the interim, now it is coming back. While it would have had some volume impact, it would have also had realization impact, right? Given its higher realizations versus the other portfolio.
Varun Jaipuria: Yeah. Nullified as well, because we had a 300 ml earlier. Since COGS have gone up, we did downsize to 250, so there has been obviously some negation of the raw material impact when we did downsize.
Anand Shah: Got it. Beyond seeing any other price pack architecture changes you have done, like from 300 to 250 ml? Anything that you want to call out?
Varun Jaipuria: No, not as yet. This year, I think, which was very important for us, was to just maintain and make sure that we get into the high double-digit growth, right? A lot of price intervention which we had done was looking at how dynamic the market was. So we wanted stability, but now I think the earlier question, I think Vivek or Manish has asked, how does it look going forward with all the raw material pressures? So, we are going to see what the industry does here, it is a rapidly fast-moving industry. It is not like it was earlier. We are on our toes as well. Our job is to make sure we can maintain our margin as best as we can and offset it as much as we can.
Varun Jaipuria: I think we have done a good job this quarter, hopefully going forward, we will plan in terms of how the industry moves.
Anand Shah: Got it. Fairly clear. Just very last, anything you want to call out on October as well? Are you seeing similar momentum sort of continue?
Raj Gandhi: Quarter is still in progress, Anand. I think we should wait.
Anand Shah: Okay, got it. Fairly clear. Thanks a lot.
Varun Jaipuria: Thank you.
Operator: Thank you. The next question is from the line of Arnab Mitra from Goldman Sachs. Please go ahead.
Arnab Mitra: Yeah. Hi, thanks for the opportunity. My first question was on the Africa business. If you could just let us know the constant currency growth, and how much was the currency benefit on the top line? A related question is that, as you go into the season in Africa, which is December quarter, March quarter, given the capacity situation, do you think the volume growth can taper off from these very high levels, or do you think you have enough capacities to be able to sustain growth even in the season in Africa?
Raj Gandhi: See, there are two questions. One is the currency. This year, we said that the currency is more stable, so there is no effect, negative or positive. If there is anything marginal and gets compensated within one country to the other. Last year, yes, we called out there was a good benefit of the currency, which we had duly accounted for. The second question of yours is about the capacity. We are preparing ourselves fully because South Africa, DRC, the season is November, December, January, and there we are already running our plants full speed. Morocco, the season was August, where the capacity is short. Hopefully before the next season, at all locations, we will have enough capacity installed. As far as South Africa is concerned, with the Twizza acquisition, we have enough capacity, and I don't think we will face this year a shortage.
Raj Gandhi: The only little bit gap was found in Zimbabwe, which Zambia had overcapacity and will, on monthly basis, will be supporting Zimbabwe from this month itself.
Varun Jaipuria: For next year, we are anyways adding more capacity in Zimbabwe as well.
Arnab Mitra: Got it. My second question was on international business margins. It seems to have held up better than the standalone in terms of gross margin also. One is, has it been easier to pass pricing there, or is it more to do with your own initiatives on backward integration, and therefore will the margins be better protected there because they would also have the same inflationary pressures?
Raj Gandhi: See, the margin is slightly improved because Twizza had the backward integration, and other places also we have started. The improvement in margins is because of that. Rest, the economies of scale also have started playing in. In the opening remarks, as we stated, Twizza is already effective 1 August, is already integrated into Bevco, so a lot of synergies there also have already started showing up.
Arnab Mitra: Just one quick follow-up. The input cost pressure on PET and cans and all, they are fully reflecting in Q3, even in the international business?
Raj Gandhi: In international, this is 272 basis points as against around 300 in India. India is looking slightly higher.
Varun Jaipuria: It has all been accounted for in the quarter. Yes, it has all been accounted for. Yes.
Arnab Mitra: Got it. That is it from my side. Thanks. All the best.
Varun Jaipuria: Thank you.
Raj Gandhi: Thank you.
Operator: Thank you. The next question is from the line of Jay Doshi from Kotak Securities. Please go ahead.
Jay Doshi: Hi, thanks for the opportunity. I have a few questions. First one on international, just continuing. This year, you have managed to sort of deliver 20% plus organic volume growth every single quarter. Can this kind of momentum continue for another couple of years? Is this the new normal run rate we should think of for the international business volume growth?
Varun Jaipuria: In the world we live in today, who knows what is going to happen tomorrow, but we hope we will keep delivering the numbers which we have been delivering quarter on quarter. I think what we normally say is that if we believe that per capita in India are very less because the penetration is very low, and Africa, we believe the penetration is even lower. I think the more investment we are putting in, the more countries we are getting into. There is an example what my father always gives. When we entered Zimbabwe, the market, the whole market was 35 million cases. Now we are doing almost 75 million cases after 6 to 7 years, and our competition is doing about 35 million.
Varun Jaipuria: I think there it really depends upon how many players do you have, what investment you are making, and I think there is no reason why the growth should not continue.
Jay Doshi: Basically, this is a structural pickup in growth and not season-related or favorable weather or anything?
Varun Jaipuria: See, I think, Jay, I think I will come back, because we look at the business quarter on quarter, and I do not believe that is the right way to look at any business of our scale at least, because the penetrations are so low, given it is India as well. The penetrations are so low in most of our markets. There is population growth happening in all our markets. I think when we compare Q1 versus Q1 or Q2 versus Q2 and say it did not go well, I think we have to look at the business at a long-term consolidated basis. If you see our history over 5, 6 years as well, every year there is a CAGR growth of double digit, profit growth, EBITDA growth. This is a long-term business, and we are here for the next 5 years, 10 years, 15 years.
Varun Jaipuria: This is a story which is going to play out. India consumption story is going to be huge, as we know. Africa is going to be huge as well. Hence, we are very bullish, and we are very bullish to keep investing in both Africa and India at the same time.
Raj Gandhi: At the same number of 20, in 20s growth in the last 30 years, we have consistently delivered.
Varun Jaipuria: You do have the raw material prices going up or the weather going down or the competition doing something, but I think consistent delivery of shareholder return and profitability has been there along with volume. Yes, we do believe, and we are very bullish.
Jay Doshi: Thank you. The next question is, how has been the consumer acceptance and repeat purchase for low-sugar variants of Mountain Dew and Pepsi across markets? I mean, across states in India.
Varun Jaipuria: See, it has been accepted, I would say, largely. 85% to 90% of the places, there is huge acceptance. Of course, certain places, they have a palate of high sugar. There, we do have challenges, but then we do not segment into state, into district and see what is happening. As long as the overall brand is growing and doing well, we are very happy with that.
Jay Doshi: Right. Third question, you mentioned that Beverage Association is considering price increases if inflation remains elevated. Is the new entrance also a member of this association or it is just the-
Varun Jaipuria: No, no, I never. When I said Beverage Association means that there is talk amongst the competition and there is talk amongst the industry that everybody is under pressure, they are figuring out what to do and how do you negate the cost. There is no common conversation which happens in a room, but I am just telling you this is what the general conversation is because there is margin pressure due to raw material price.
Jay Doshi: Understood. The last one is, can you give us some color on what is the level of AI adoption in the organization at this point of time? Do you have any efficiency or productivity targets from a medium-term perspective? Where do you sort of score versus other bottlers of PepsiCo globally and maybe other bottlers of Coca-Cola in India as per your assessment?
Varun Jaipuria: I think we have done a lot of work here in the last few years. We score, at least according to PepsiCo, we are doing a pretty good job. We cover more than 4 million outlets. All of the outlets are geo lat-long mapped now. All our distributors are mapped across India, all the thousands of them we have. All our route operations, route sizing, time to delivery, all of that, speed to delivery is mapped. This is the AI tool what we use, which lets us know which distributor should be serving what sort of an outlet base and what the distance should be. Once we put all these in, that has reduced our distributor attrition in the market. We have started having larger scale distributors as well, so the distribution has become more stable. That is one big thing what we have done.
Varun Jaipuria: The second big thing what we have done is that we have an order management system which we have done with eBay now. Every single distributor of ours, we have visibility of how many SKUs he is picking up, how often is he taking the trucks, how often the loaders are going, what brands are going, what we want to push with them. Every day we get a push report, so that makes it much more easier and clearer as one controlled tower visibility, which we did not have earlier, and that has helped us kind of increase our range and flavor profile as well in the market.
Varun Jaipuria: The couple other things what we have done and which we are working on right now, we have come up with a B2B app, we call it Bandhan, because sometimes the PSR or sales guy is not there in the market, then how can the retailer place an order? We have just launched it not even 6 months back, and monthly we have got half a million retailers ordering from it now. The next goal for us is the first goal is obviously adoption. Once people do adopt, then we gamify it and see how do we get them hooked on more on the app to give them a personalized service. That is the other thing what we have done in a big way since we are working.
Varun Jaipuria: Another thing which is very important for us is that we have got more than 1 million coolers in the market now, or we have got a large number of coolers in the market. We have got an app now which is giving us almost half a million images every month. Our question is that we want to know what the purity of the cooler is, how the cooler is performing. All that data has started coming in now. The question is that, of course, we are working with different companies in AI layers because the amount of data which is coming out is so huge. Our first task was to clean out the data to make sure the right data is there.
Varun Jaipuria: A lot of work is there, and I think a lot of it is kind of benefiting us in terms of increasing our distribution and ensuring that we have a larger range available in the market to the consumer.
Jay Doshi: Thank you so much for the detailed response. Wish you the very best. Thank you.
Operator: Thank you. The next question is from the line of Latika Chopra from J.P. Morgan. Please go ahead.
Latika Chopra: Yeah. Hi. Thank you for the opportunity. My first question was around a bit clarifying on your comments on margins. Given that you were saying that both for the Indian and international business, the full cost is now reflected in the September quarter, and probably you will look for more efficiencies and hopefully pricing as well. Is it fair to assume that given the visibility that you have, the gross margins would have troughed in this quarter?
Raj Gandhi: Latika, hi. Based for the present price trends, we can broadly say yes. I hope there are no more surprises on the macro factors. Whatever situation today is there, the answer is yes. Only upside may be there by, as we stated, price pack architecture, et cetera, like in this thing we have done, how much and how fast we can roll it down to the other packs. That is correct understanding with you.
Latika Chopra: The second question I had was on price pack itself. Ahead of the upcoming season, how are you thinking about the INR 10 price point, given now the volumes in that pack have come down to 150 ml? Would you take this as a viable opportunity to drive penetration, or would you shy away from pushing this price point because of the margin perspective?
Varun Jaipuria: See, Latika, like I had mentioned earlier, the INR 10 pricing was never part of our larger portfolio play. I think even this quarter, our INR 10 price point would be a 0.2% or 0.3% percentage to our overall volume. I do not think so we are focusing on the INR 10 because we believe the pricing and the offering what we have and the consumer profile which is there right now will still give us very, very good growth, and which it has this quarter. So we are not looking to do it because even though you go down to 150, the price and unit economics, it just does not make sense. We would not like to build a business which is not sustainable in the long term.
Varun Jaipuria: With our current portfolio already, it could be dairy, it could be energy, it could be the CSD portfolio, we see all of them growing strong double digits.
Latika Chopra: All right. The last bit was, if you could share some color on your investment plans, CapEx plans, basically for CY2027, and where would you see CapEx for CY2026 landing at? If you could also give us some breakup between India and overseas here. Also clarify if it includes any investment that you plan for the new businesses.
Raj Gandhi: Yes, Latika, as far as 2026 is concerned, the CapEx is already over. Now it is only for 2027. As we mentioned, international markets, we have to add lines in South Africa, Zimbabwe, Morocco, DRC, Zambia, at all these locations. The combined CapEx for all this is under $100 million, maybe anything between $90 to $100 million USD for the international markets. As far as India is concerned, the total CapEx, including one greenfield plant at Suratgarh-
Varun Jaipuria: Suratgarh.
Raj Gandhi: at Suratgarh, Rajasthan, that VCs and one PET line at-
Varun Jaipuria: It is about INR 1,000 crores. It is about INR 1,000 crores in India and about $90 million would be international, correct?
Raj Gandhi: Yeah, that is right.
Latika Chopra: Sure. Thank you, gentlemen.
Varun Jaipuria: Thank you.
Raj Gandhi: Thank you.
Operator: Thank you. The next question is from the line of Bhavya Gandhi from Bajaj Alternate Investment Management Limited. Please go ahead.
Bhavya Gandhi: Yeah. Hi, thanks for the opportunity. Just wanted to understand on the rPET side, because you said currently the cost is lower, so what is the rPET mix in the total packaging as a part of the total volume, if you can provide some number on that. Structurally, second question is regarding the gross margins. Structurally, because you are getting into newer products, in the intermittent period, can we expect that the gross margin could be softened in the intermittent period till you scale those brands, newer product categories. So, if you can throw some light on that as well.
Varun Jaipuria: Our rPET mix, Bhavya, is in about close to 25%, which has helped negate the overall resin cost, is what we were mentioning earlier. To your second question, in terms of the new product launches, within the beverage portfolio, we are not seeing any margin dilution in terms of what the launches we will be doing or we have done or what we will scale up. The rest of the businesses is too early to answer right now. Once we have a concrete plan, we will come back to you.
Bhavya Gandhi: This entire rPET piece is internally sourced or because rPET before the West Asia crisis used to be at a higher rate, and because the rPET regulation is in place, can we expect that structurally, assuming that the war ends one day, the packaging cost will be on a higher side on a structural basis.
Varun Jaipuria: No. We are obviously using a large part of it internally, but we are obviously buying some from outside. But at the moment, given the price of oil and virgin PET, it is much cheaper than virgin PET.
Bhavya Gandhi: Yeah. On a longer-term basis, if you can, assuming that the war is not in place, because the rPET regulation is in place.
Raj Gandhi: Yeah, this will definitely go up, and the next plant will be operational in, I think, one or two quarters, and this number will definitely go up. Yes.
Bhavya Gandhi: Okay.
Varun Jaipuria: No, I think.
Bhavya Gandhi: Thank you so much.
Varun Jaipuria: Yeah, please go ahead.
Bhavya Gandhi: Sorry. You wanted to say something first?
Varun Jaipuria: No, no, please go ahead. No, no, it is fine. Thank you.
Operator: Thank you. The next question is from the line of Atul Mehra from Motilal Oswal Asset Management. Please go ahead.
Atul Mehra: Yeah. Hi, good afternoon, and thanks for the opportunity. From a longer-term perspective, if we look at our history, there has been a great evolution in terms of things we have done, and even at this point in time, you are adding new categories. From a longer-term perspective, how do you guys envisage what this company will look like maybe 5 years, 10 years down the line? Thanks.
Varun Jaipuria: See, I think the first starting point is that our core business is the beverage business, what we are already doing. That will be inherently a large part of the group, even today, even 5 years, even 10 years. Hence, bringing back growth in this business, in our core business, has been of the highest priority. We are very happy to say this quarter has given that result, and at a 9-month basis period as well, the performance has been very good. Inherently, the way we are looking at it, largely we will be an F&B company. AlcoBev, again, is what we are trying to enter into. We believe there are synergies in terms of what we do today at a Varun Beverages level versus AlcoBev level in terms of the end number of outlets, which is the off-premise outlets is where VBL goes, could be the restaurants and bars.
Varun Jaipuria: We do go with a complete portfolio of mixers, CSD, energy, and I think to increase the portfolio as well, if we are able to add in some AlcoBev, we go with a consolidated portfolio, and we already do have relationships with most of the outlets where we go, right? AlcoBev, it does fit into the scheme of things. Secondly, AlcoBev is a fast-growing category, as mentioned earlier as well. Apart from that, we are looking at other expansions, what we can do in the food and beverage space. Once that is clear, we will come back to you.
Atul Mehra: Sure, sounds good. Thank you, and all the best.
Varun Jaipuria: If you have any ideas, please let me know.
Atul Mehra: We will catch up offline.
Varun Jaipuria: Done.
Operator: Thank you. Thank you. The next question is from the line of Harit Kapoor from Investec. Please go ahead.
Harit Kapoor: Yeah. Hi, good afternoon. Just one question was on the ad and marketing spend. You did speak about rationalization of trade spends, et cetera. I just wanted to understand in the current context, where costs are high, et cetera, do the I know large part of the ad spend doesn't sit in your book, but how does the ad market spend play out, and your relation with PepsiCo in terms of how does that play out in times of high inflation? Does the ad marketing spend, which is PepsiCo's piece, actually stay at normative levels? My question is from the fact that if those levels are still higher, then that's a source of competitive advantage. I just wanted to understand how it works in periods of high inflation.
Varun Jaipuria: I think, see, it depends how the industry is moving, right? Today, let's say for us, if there's a trade spend, what we can rationalize by, let's say, INR 5 hypothetically, right? We're not doing it if the competition is not doing it, because we've got certain price points we can't move away from. There's a INR 10 price point which we don't play largely. There's a INR 20, INR 50, and there's a INR 100 price point, right? There are inherent price points with which you cannot move away from them. The only lever you have is, because the industry we play in, we give one of the highest margins compared to any other CPG group, right? We are at 16%, 17%, 18% margins in terms of MRP margins in a lot of our packs.
Varun Jaipuria: Now, I'm assuming, which we don't micromanage, even with PepsiCo, they do have a calendar full year in terms of their marketing spends and how they look at the business. Of course, I'm sure if the industry is rationalizing or the growth aren't as what they thought, I'm sure they look at their books and their P&L as well, and they manage it themselves also.
Harit Kapoor: Okay. The second bit was on early part of this year, you mentioned that you've done all this distribution in CY25. We didn't get the full benefit because it was a tough year. This year, you're going to probably do kind of mid-high teen kind of volume growth for the year. For India, I'm talking about. I just wanted to understand, does your distribution expansion plan start to kick in again from next year? Or do you think there's still significantly, in the current 4-plus million outlets, there's still significant amounts of scope? Do you need numeric distribution incrementally? How are you thinking about that?
Varun Jaipuria: No, we are looking at both here. Post-September is when we already start working towards our next year distribution plans. Of course, 2025 was not a great year, but hence in 2026, the kind of investment with the distributors that made was less aggressive, I would say, because they did have the vehicles and the investment in the warehouses they had built. But now looking at 2026 and the performance we have had, again in 2027, for 2027, I would say, we are aggressively planning numeric distribution. At the same time, we are planning weighted distribution also.
Harit Kapoor: In your opinion, this 4+ million number still has legs to move forward in terms of.
Varun Jaipuria: Oh, 100%. We are already at about 4.2 million as per our last read, which is there, and we are hoping to add a couple of 100,000 outlets every year.
Harit Kapoor: Got it. Wish you all the best. Thank you.
Varun Jaipuria: Thank you.
Operator: Thank you. The next question is from the line of Anurag Dayal from PhillipCapital. Please go ahead.
Anurag Dayal: Yeah. Hi, thanks for the opportunity. One clarification, just want to understand on the gross margin guide. So we had this 100 basis point impact because of sale of non-beverage, including preforms and caps. Do we expect this impact to continue next quarter as well? Secondly, just want to understand that why we are selling it so much. Do we have some agreement with some third-party seller? Because if it is inflationary, wouldn't it be good to consume it internally instead of selling it higher outside?
Raj Gandhi: This is over and above what we use for ourselves, for the others. This is only marginal and helps us amortize part of our fixed expenses. This is additional contribution coming to us. If we sacrifice this, that much recovery of fixed assets will not come.
Anurag Dayal: Okay. Is it going to stay at 100 basis points or something, or to ease from here? What all is that?
Raj Gandhi: It depends. If the material is available and we capture, this will help us absolute figure going up. Percentage, it may slightly affect, but till the time it contributes to the bottom line, I think we should continue to do it. The escalated figure may look like up to 28 February numbers because pre-war versus post-war, rather maybe one or two months further, because we had inventory up to June, actually.
Anurag Dayal: Thank you. Secondly, on this CALPIS launch, I mean, where we are there, just planning to do it in the second half of the year?
Varun Jaipuria: Yeah, CALPIS, we are still working on the marketing plans, and we will be ready during December, January, and launch the brand.
Anurag Dayal: Do we have any initial plan, if you could share, how we are going to launch it, or are you still under development?
Varun Jaipuria: It is pretty much under development, because usually what happens is that we tie it up with our marketing calendar. Even with PepsiCo, the entire marketing calendar usually gets frozen around December. We are looking into obviously launch some key markets across India where we have production capability, and try out different regions to see what are the taste profile of the consumer and how it picks up. Then, of course, finalize the marketing calendar, and usually that kicks in around late February or March. We still have some time.
Anurag Dayal: Sure. I think that is about it. Thank you so much.
Operator: Thank you. Ladies and gentlemen, we will take that as the last question for today. I would now like to hand the conference over to the management for closing comments. Thank you, and over to you, sir.
Raj Gandhi: Thank you. I hope we have been able to answer all your questions satisfactorily. Should you need any further clarifications or would like to know more about the company, please feel free to contact our investor relations team. Thank you once again for your interest and support, and for taking the time to join us on this call. Look forward to interacting with you soon. Thank you.
Operator: Thank you, members of the management. On behalf of Varun Beverages Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your line. Thank you.
