Conference Call with Varun Beverages Management and Analysts on Q1CY20 performance and outlook. Listen in to the full transcript.
Call Participants: Ravi Jaipuria - Promoter and Founding Chairman, Varun Jaipuria - Whole Time Director, Raj Gandhi - Director, Kapil Agarwal - Director & CEO, Vikas Bhatia - CFO
Introductory Remarks from Ravi Jaipuria
Good Afternoon everybody and thank you for joining us in the earnings conference call. I hope all of you had the opportunity to go through our results presentation which provides details of our operations and financial performance for the first quarter ended March 31st, 2020. We started the new fiscal year on a strong note with healthy demand and robust volumes. Growth across our domestic and international markets enabled us to deliver our top line growth of 23%, EBITDA growth of 24% and PAT growth by 50% during the quarter.
However, a countrywide lockdown and similar restrictions in many of our international geographies during the last 10 days of March moderated both our domestic and international business. Performance during the quarter would have otherwise been even better. Total sales volume was up 26.2% YoY in Q1 2020.
We registered double digit volume growth in the month of January and February. However, organic sales volume got severely impacted in the last 10 days of March due to the lockdown. As a result, organic volume for the quarter declined by 13.7% in India and 9.3% on a consolidated basis.
Over the last two months, worldwide economies and various industries across India and International markets have been facing an unprecedented situation due to the Covid-19 pandemic. Our primary focus during this challenging period has been towards undertaking all necessary measures to ensure cash flows, ensure safety of our employees, business partners, communities and to overall safeguard the interests of all our stakeholders.
On the operational front, in compliance with the government authorities and advisors, we have temporarily closed operations at our office across India and have already implemented work from home. As per the relaxations provided by the government of India for essential services and particularly packaged food and beverages, we have got the permissions from respective state governments to operate in several production facilities.
These units are currently operational at a lower utilization level and we are undertaking all necessary measures to ensure and maintain the IS standard of hygiene and social distancing. In anticipation of the favourable uneconomic season, we have built up additional stock of inventory in the month of March and we have been able to sell most of the inventory. Furthermore, with initial relaxation in lockdown measures, we have also started to see an initial recovery in demand and in sync, we have fairly started production in most facilities. I have also been actively in contact with all our distributors in order to ensure streamlined delivery and supply.
Our business model consisting of its own logistics supply chain systems and end to end infrastructure facilities provide adequate cushion to our business operations despite an industry wise supply chain disruption in the country. We are also very encouraged that VBL has a healthy balance sheet and strong financial status which we believe, most certainly should see through this disorderly challenge.
To conclude, we are currently facing 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. This will be enabled by easing of lockdown restrictions and restoration of consumer sentiments. We are confident that once things stabilise, we will once again see encouraging growth and we will further strengthen our position as a leading player in the beverage industry.
Raj Gandhi providing highlights on operations and financial performance:
Good afternoon and a warm welcome to everyone joining in today. Here’s the overview of the financial performance of the first quarter ended 31st March, 2020.
Revenue from operations grew at 23.1% YoY in Q1 2020 to Rs. 16,764.4 million
EBITDA increased by 24.2% to the level of Rs 2,711.6 million
Total sales volumes were up 26.2% YoY at 114 million cases in Q1 2020 as compared to 90.3 million cases in Q1 2019
CSD constituted 67%, Juice 7% and Packaged Drinking water 26% of total sales volumes in Q1 2020
Post lockdown restriction imposed by the Govt. of India due to the COVID-19 pandemic, organic sales volumes got severely impacted in the last 10 days of March. Resultantly, organic volumes for the quarter declined by 13.7% in India and 9.3% on a consolidated basis even after double digit organic growth in the months of Jan and Feb
Realization per case has come down by 2.3% in Q1 2020 essentially on account of lower sales realization in Zimbabwe in USD terms
On the positive side, EBITDA increased by 24.2% to Rs. 2,711.6 million in Q1 2020 from Rs. 2,183.8 million in Q1 2019. EBITDA margins expanded by 11 bps in Q1 2020 as the major part of savings in raw material cost was offset by higher fixed cost amid negligible sales during the last 10 days of March
Gross margins improved by 300 bps during Q1 2020 primarily due to favorable PET chips prices
Depreciation and Finance Cost have increased by 36.4% and 47.3% respectively in-line with the increase in scale of business post consolidation of South and West India sub-territories w.e.f. 1st May 2019
The exceptional items amounting to Rs. 665.3 mn for the current quarter represents provision for impairment in the value of certain plant and equipment, glass bottles & plastic shells
The Company has made an assessment of the impact of Ordinance and decided to continue with the existing tax structure until utilization of accumulated minimum alternative tax (MAT) credit and expiry of other tax benefits/holidays available
In accordance with the Ind AS 12 "Income Taxes", the Company is also required to re-measure its deferred tax balances, for amounts that are expected to reverse in future when the Company would migrate to the new tax regime. The Company has re-measured its outstanding deferred tax balances and written back an amount of Rs. 731.85 mn to the Statement of Profit and Loss.
To conclude, in these challenging times, as an organization, we have instituted some cost realization measures to conserve cash flows and ensure steady profitability. The company has also been timely servicing all its debt obligations. Overall, our focus remains on free cash flows over the coming years and in the whole, we look forward to delivering sustainable, operational and financial performance going ahead.