Varun Beverages' consolidated net profit slumped 64.69% to Rs 142.97 crore on 41.58% drop in revenue from operations to Rs 1,665.69 crore in Q2 June 2020 over Q2 June 2019.
Post lockdown restriction imposed by the Government of India due to the COVID-19 pandemic, sales volumes got severely impacted in the last 10 days of March 2020 and through-out the second quarter. Profit before tax (PBT) tumbled 68.76% to Rs 181.86 crore in Q2 June 2020 as against Rs 582.30 crore in Q2 June 2019. Current tax expense skid 82.77% at Rs 17.19 crore as against Rs 99.79 crore in Q2 June 2019. The result was declared during trading hours today, 4 August 2020.
EBITDA tumbled 52.1% to Rs 377.70 crore in Q2 June 2020 from Rs 787.90 crore in Q2 June 2019. Gross margins improved by 300 bps during Q2 2020 primarily due to favorable PET chips prices and higher mix of CSD. EBITDA margin fell 501 bps in Q2 FY2020 compared with Q2 FY2019. However, the margin rose 685 bps as against Q1 FY2020 on a similar revenue base on account of cost control measures undertaken during the COVID-19 period and higher gross margin.
The company said that its volumes got severely impacted since Janta curfew of 22 March 2020 and the subsequent lockdown restrictions during the second quarter. As per the relaxations provided by the Government of India for essential services and particularly packaged food and beverages, Varun Beverages (VBL) got the permissions from respective State Governments to operate most of its production facilities during the quarter. Sales volumes started picking up gradually from about 25% in April 2020 to about 75% in June 2020 as compared to same period previous year. With the cost control measures undertaken by the company during this period along with increase in gross margins, EBITDA margins are at 23% in Q2 FY2020 as compared to 20.3% in CY 2019 and 16.2% in Q1 FY2020.
The company has not availed moratorium for its debt repayments and has already serviced all its debt obligations for CY 2020. Net debt stood at Rs 2,939.20 crore as on 30 June 2020 as against Rs 3,246.10 crore as on 31 December 2019. Debt-Equity ratio stood at 0.84x as on 30 June 2020. The board has recommended an interim dividend of Rs 2.50 per share.
Ravi Jaipuria, the chairman of VBL, said, "The quarter started amidst an uncertain and unpredictable operating environment with the proliferation of COVID-19 pandemic leading to multiple lockdowns across markets. With this period being a key season for our product portfolio, the operating constraints severely impacted organic volumes and the overall performance throughout the second quarter. On a brighter note, as the unlock phase started, we witnessed a steady uptick in demand on a month-on-month basis and accordingly we resumed operations at various facilities. The company has also been able to steadily ramp-up operations across facilities and gradually reverting to near-normal business in the current months."
The overall input cost environment has been favourable as there has been moderation in key raw materials and with sharp focus on cutting non-essential costs, we have been able to report healthy margins in Q2 2020 as compared to Q1 2020 on a similar revenue base. While constraints continue due to restriction in several parts of the country and near-term demand outlook remains uncertain, the decline in out-of-home consumption of beverages was partially offset by increase in in-home demand. With new phases of unlock announcements, we are taking measures to scale up the capacity utilisation to pre-COVID-19 levels. Consumers, especially in urban markets, are banking on online channels to buy groceries and essential products, and as recovery in rural demand surges, we should once again see encouraging growth, going forward. With overall macro-economic environment expected to normalize by the end of this calendar year, we remain confident of a strong demand revival in our product category in the coming fiscal, which, we believe, should enable us to deliver a robust operational and financial performance, going ahead," he added.
Shares of VBL advanced 4.56% to Rs 715.55. Varun Beverages is one of the largest franchisee of PepsiCo in the world (outside USA). The company produces and distributes a wide range of carbonated soft drinks (CSDs), as well as a large selection of non-carbonated beverages (NCBs), including packaged drinking water sold under trade marks owned by PepsiCo.
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