Varun Beverages Q1 profit rises 50% on tax writeback; revenue, EBITDA strong

Varun Beverages, the franchisee of PepsiCo, has reported a massive 50 percent year-on-year growth in Q1 CY20 consolidated profit at Rs 60.06 crore, supported by tax writeback.

Profit was impacted by the provision of Rs 66.53 crore for impairment in the value of certain plant and equipment, glass bottles & plastic shells, which was reported as an exceptional item.

The company said it had re-measured its outstanding deferred tax balances and written back an amount of Rs 73.18 crore to the statement of Profit and Loss.

The company follows January-December as its financial year.

Revenue from operations during the quarter increased 23.3 percent year-on-year to Rs 1,676.4 crore, impacted by lockdown for the last 10 days of March.

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"The company has been able to sell its complete inventory of finished goods that was built up in the month of March in anticipation of the upcoming season," Varun Beverages said.

Moreover, the company has operated few of its production facilities in April as the demand scenario is improving with the relaxation in the lockdown, it added.

Total sales volumes during the quarter were up 26.2 percent YoY at 11.4 crore-unit cases compared to 9.03 crore-unit cases in Q12019.

"Though the company managed to post 26 percent overall volume growth for the quarter on account of the acquisition of franchise rights of south & west India territories from Pepsi India; 13.7 percent decline in organic volumes poses a concern for the company’s growth going forward," ICICI Direct said.

With lockdown imposed on account of COVID-19 across geographies and expected to remain till May 2020 end at least, the brokerage expects Q2 CY20 (which accounts for 45 percent of the sales) to witness significant volume de-growth.

"We remain cautious due to the considerable negative impact on operating cash flows given sharp volume decline in CY20E. Moreover, the company’s high leveraged balance sheet makes it even more vulnerable," ICICI Direct said.

At operating level, earnings before interest, tax, depreciation and amortisation grew by 24.2 percent year-on-year to Rs 271.15 crore in the quarter ended March 2020.

"While we are currently witnessing curtailed demand both in India and in our international geographies as a result of the ongoing macro-situation, we believe, in the near-term there should be a gradual bounce back in volumes," Ravi Jaipuria, Chairman at Varun Beverages said.