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Ladies and gentlemen, good day, and welcome to Varun Beverages Limited Earnings Conference Call. [Operator Instructions]
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, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on Varun Beverages Q1 CY 2022 Earnings Conference Call. We have with us Mr. Ravi Jaipuria, Chairman of the company; Mr. Varun Jaipuria, Executive Vice Chairman and Whole-time Director; Mr. Raj Gandhi, Group CFO and Whole-time Director; and Mr. Kapil Agarwal, Whole-time Director of the company. We will initiate the call with opening remarks from the management, following which we'll have the forum open for a question-and-answer session. Before we begin, I would like to state 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. Ravi Jaipuria to make his opening remarks.
Good afternoon, everyone, and thank you for joining us on our earnings conference call. I hope all of you had the opportunity to go through our results presentation that provides details of our operational and financial performance for the quarter. We have started the year on a strong note, delivering notable growth across all parameters, robust demand in both domestic and international markets, also supported by the early onset of summer in India, translated to healthy volumes during the quarter, which grew by 18.7%. This, along with improved net realizations, resulted in a solid net revenue growth of 26.2% quarter 1 2022. On the profitability front as well, we have delivered enhanced performance despite significant increase in input costs witnessed during the quarter. Our EBITDA grew by 39.1% and our margins improved to 18.8% in quarter 1 2022. On the demand front, we are seeing a solid uptick in consumption. The summer season in the domestic market has begun well. And as we enter the peak months, we are well prepared to cater to the anticipated demand by optimizing our capacity utilization across all plants and further enhancing our reach across establishment and underpenetrated markets. During the quarter, the Board approved the proposal to manufacture Kurkure Puffcorn for PepsiCo India as part of their network of co-packers. The commercial production is expected to begin from quarter 3 of 2022.
As we look ahead on the back of an improving demand environment, we remain confident of delivering healthy volume growth in the medium to long term. We are also happy to share that as a token of appreciation to all our shareholders, the Board today has recommended a bonus issue of 1 equity share for every 2 shares held by shareholders of the company as on the record date. Overall, our initiatives today towards improving our market share, building infrastructure and expanding reach continue to hold us in good stead, and we are confident of delivering strong and sustainable growth going forward. I would now invite Mr. Gandhi to provide the highlights of the operational and financial performance. Thank you very much.
Thank you, Mr. Chairman. Good afternoon, and a warm welcome to everyone joining us today. Let me provide an overview of financial performance for the first quarter ended 31st March 2022. Revenue from operations adjusted for excise GST grew by 26.2% year-on-year in the Q1 2022 to the level of INR 28,274 million. Total sales volume grew by 18.7% to the level of INR 179.7 million cases in Q1 2022 from the earlier level of 151.4 million cases in the calendar -- in the quarter 1 of 2021. On account of strong demand environment across geographies, CSD constituted 70% juice mix of 7% in packaged drinking water mix of 23% of total sales volume in Q1 2022. Realization per case improved by 6.3% to 157.3 in Q1 2022 led by price hike in select SKUs, change in SKU mix and high realization in international markets. On the profitability front, EBITDA increased by 39.1% to the level of INR 5,310 million in Q1 2022. Gross margins for Q1 2022 reduced by 427 basis points to the level of 51.5% from 55.8% in Q1 2021, primarily because of increase in preform prices by around 30% over Q1 2021. Despite the decline in gross margin, the company was able to improve its EBITDA margin to 18.8% during the quarter because of higher operating leverage driven by strong volume growth and higher realization. Finance costs declined by 19% to the level of INR 469.6 million during Q1 2022, primarily because of lower average cost of borrowing. Debt increased by 98.2% to the level of INR 2,710 million in Q1 2022 from INR 136 crores or INR 1,367 million in Q1 2021, driven by improvement in margins, reduction in finance costs and higher profitability from international operations. Overall, during the quarter, we have reported an encouraging performance. We have seen a strong demand environment and are excited about our prospects going into the peak season and our outlook remains positive for all our product categories over the medium to long term. On that note, I come to an end of the 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 Instructions] The first question is from the line of Percy Panthaki from IIFL.
When you were doing the Pepsi acquisition, just before that, you had shared that your market shares in South and West would be around 25%, and in your core geographies -- existing geographies, they were about 40%. Now of course, we do not expect you to update us on this on a regular quarterly basis. But since it's been 3 years since then, would you give us an idea on what kind of market share stand today versus what you had shared earlier?
Percy, the only thing I can tell you is, after our acquisition for the last 2 years, we could do very little because both the years, in the peak season, COVID was there. And so what we really needed to do was enhance our go-to market, increase our distribution, which we had started in '19, but could not completely go through with that in 2021 because of the peak season disturbance, which -- this year is the first year when we are seeing the change happening and when our distribution enhancement is starting to give us encouragement and giving us results. So that is why you are seeing better numbers, and even in the off-seasonality quarter, we are seeing better results because the territories which we had acquired have started doing well.
So the context in which I asked this was, if I look at this quarterly result and try to calculate the organic volume growth on a 3-year basis using 3 years because 2 years also is not a normal base because of COVID. So now we have to look at 3 years. So on that basis, the organic volume growth for the India business is 10.5%. I just wanted to understand whether the industry itself is growing at this rate? Or is it market share gains, which is leading to such robust growth? Because in this kind of a consumption environment, no other FMCG companies reporting a 10% kind of volume growth. In fact, most of them will report close to 0 volume growth this quarter. So just understanding the source of the growth? Is it a broad-based industry growth itself? And if so, why is this industry so different from the rest of the FMCG pack? And if not, then obviously, it's a market share gain.
Well, partly, the industry is growing. So it is not only that we are growing. I think competition is growing also. Obviously, our enhanced go-to-market is giving us some results. So where we feel we might be doing better, but I can't really be sure of that because those numbers are not available. But I think overall, if you look at it, the season has started a little earlier also this year. The summer started a little earlier. So I think everything put together -- and overall, our real enhancement in go-to-market, which is the key issue in this trade and putting enough chilling equipment is what is helping us grow the market.
Any data you can share on the increase in distribution touch points or the increase in the chilling infrastructure that you have set?
Sure. Percy, that data is [indiscernible] in the quarter result presentation also is given here. What I would like to tell you is, how we are increasing our penetration in the market, not only the distribution go-to-market. Also, we are trying to enrich our product portfolio over last year. If you see in the last 2 years what has changed for us in sale, which is energy drink. And last year, the growth in that particular segment was 440% and became 5% of our mix. And in this quarter also, that has grown 131%. Also, the dairy products, which we have started and we are already booked to our capacity to the full. Tropicana, which we took -- first, there are phases. First, they had never franchise Tropicana anywhere in the world that they choose when they gave it to us. Second, because always for the last 10, 15 years, we're getting co-packers from third parties. We put a facility started in-house and made is profitable so that we can earn and flow back this for the growth of that. And happy to inform that we are already 100% capacity utilization on Tropicana, and we are feeling necessary to double our capacity by next year. And if we do that, the way the demand is coming -- unfulfilled demand in that field, I mean there is a huge growth potential. So one -- another sector rather than go-to-market in the product portfolio engagement.
Understood. Understood. Also, can you give us some guidance on your CapEx, not the total amount, but things like in the international geographies, where do you think, if at all, you would require capacity enhancement? And whether it can be done through a brownfield or would you need a greenfield?
And similarly, in India, now that you have a very sort of robust footprint presence in almost every state, do you think that most of the capacity enhancement in India can also be done through brownfield rather than greenfield given that most of our facilities have sort of excess land on which brownfield expansion can be done.
See, we try and enhance our capacity wherever it is possible in -- by brownfield since we have plants in most of the states. But due to our water utilization, some of the locations -- even though we can put up another line, the water -- the amount of water we draw does not allow us to put any more lines there. So we have to go for greenfield plants. So that is one of the conditions which changes some of the brownfields into greenfields. And the one state which we didn't have a plant, which was Bihar, we have just started our plant in -- on April 1, and that is doing extremely well for us.
This year's result, Percy, you will see in the presentation that [ Sandila ], we increased the capacity, which was the brownfield. Bihar, we didn't have a plant and the last time that we mentioned, it was more driven for arbitrage within freight versus fixed expenses. But that proved to be a very good season, and that capacity is becoming very handy to cater to the growth there. So it's going to be a mix of the 2, at least for some more years.
And on the international front, see, last year, we had doubled the water capacity in Morocco, which due to Delta, it could not be implemented during the season time, which was implemented in August. The fruit of which will be available this year, and that's running full to its capacity. And in Zimbabwe, we are adding our capacity this year. By May, June, it will be implemented before the season there. And that capacity increase is going to boosts because last year, Zimbabwe got exports from Zambia. This year Zambia will be feeding DRC where we are not going to make any investment in the [indiscernible] test the market. So these are the international CapEx plans.
Right. So in terms of monetary amounts, if you can give some rough number for CY '24.
Won't be very large, Percy. This year, it won't be very large because the water line was already put last year in Morocco, and DRC is going to be fed from our Zambia line. It's only one line which we are having. So about $10 million to $15 million is the total CapEx we are looking at internationally.
The next question is from the line of Himanshu from YES Securities.
So sir, firstly, just to understand this quarter's performance, I mean there was a commendable reduction in expenses below the gross margin line. So just wanted to understand, I mean this sort of operating leverage, I mean is this completely operating leverage or there were certain one-off benefits or cost reductions as well that we sort of saw? Just wanted to understand whether we can operate at broadly these level of employee and other expenses basically? And can we benefit significantly in that case once the gross margin start recovering again?
This is mostly an operating leverage, yes, because volume has gone up, and there was not change in fixed expenses.
So you mean to say, if this sort of volume growth sort of continues for us, I mean -- and once the gross margins recover, in that case, we should be looking at significant margin expansion, right?
See, the gross margins presently, as we stated that what we have done is because the demand was quite strong and the commodity prices have gone up, the discounts were curtailed to the maximum. And once the price increase happens, discounts may come back. So I don't see a big jump in the profit margin, except to the further operating leverage. As we have stated in our earlier call, about 23% of our annual volume we do in the first quarter. And the second quarter is 1.5x around the first quarter's volume equivalent. So operating leverage in next quarter definitely will be there and operating margin in next quarter is definitely going to be much superior than the first quarter. But it is not true for all the fourth quarter, third quarter may look likely first quarter, fourth quarter will be different.
Right, sir. Right. And sir, in terms of gross margins, can you talk a bit about in the current quarter, how are we seeing our raw material prices? Whether we might need some amount of price hikes?
Well, if you saw, we had borrowed extra money, and we had store enough -- our key ingredient is PET resin, which we have kept -- stored enough for the full season. So we don't see any challenge on that front, even if the prices go up because we are already sitting on stocks with us and concentrate is fixed. So there's nothing. Sugar prices are reasonably within the same way in maybe INR 1 or INR 2 up or down. So we don't see any cost escalation further. And the competition has taken some price increase, and we have also taken some price increases, so that benefit will come in this quarter.
Understood. And sir, second question was on the write-off. I think we've taken a INR 14.5 crore write-off on some plant and machinery. So -- but we don't see that flowing through the P&L. So is it a direct adjustment from the balance sheet that has happened in that case?
It is through the other expenses coming to the [ P&L ], and this is -- actually there basically, we were left only with glass line, water line in our consolidation process was already shifted to Gujarat plant. And water -- the glass is unfortunately not growing. So we -- it took the plant and machinery plus a very small can line right-off because after glass doesn't work, only a small can line sending a plant doesn't make sense because we have seen with our experience larger plants, the cost of production per case reduces substantially, which now we are up to. And that consolidation process for the next few years may be going ahead. Therefore, there can't be straight answer like in the earlier question that will everything be brownfield. Maybe, may not be because consolidation is going to be key in the next few years.
Got it. So adjusting for this INR 14 crore, our operating margins are even higher because you're saying this INR 14.5 crore is a part of other expenses. That's correct, right, sir?
That's right.
The next question is from the line of [ Shrenik Vichaar ] from LIC Mutual Fund.
Congrats on great set of numbers. Sir, could you please explain if electricity issues are being faced in various parts of the country. So will that impact our business in any form going forward?
Well, we are not facing any major electricity issues anywhere. But if there is any, it doesn't affect our business because we are fully backed up with generators. So as the overall production, there will be no constraint. It might be that if there is less electricity, the cost might go up slightly because of generators, but it's not very significant. So...
No, sir, I mean to say from the distribution side, the retail outlets and will they be affected?
So we are not seeing any challenge as of now.
Sure, sir. And could you share the utilization levels currently? And previous year, if I'm not wrong, it was around 60%, 65% in the peak season.
Well, it is...
Last year, we didn't have a peak season, unfortunately. So April, May, both were COVID. So you can't take a -- but this year, we are trying to utilize our lines as much as possible, actually. We are running our lines fully actually.
Okay. And sir, just last question, could you share the volume growth expectation and EBITDA margin expectations for CY '22?
Well, we have just said that our first quarter is about 23% of the mix. So we expect, hopefully, the volume should be based on that, and EBITDA margins are always higher in the second quarter because of the volume going up. So it's looking quite healthy.
On a full year basis, CY '22, full year basis margins, what can we expect?
We, I think, did 21% or so in '19, which are a normal margins at operating leverage a little bit here and there. If you calculate for us. It will be a little difficult to give any guidance on that.
The next question is from the line of Dhruv Bhimrajka with Monarch AIF.
My question, just 2, 3 small questions. One is, what would be our volume split between domestic and international markets for the first quarter?
Out of 180, 147 is India. Balance is international.
Okay. So 147 and 33, right?
Yes.
Okay. And sir, as of the quarter ending 4Q CY '21, we had a net debt of approximately [ INR 3,005 crores ]. So in these 4 months, what is the debt that we have repaid, if any? And what would be our net debt as on date or as at end of the first quarter?
Yes, it's [ INR 3,100 crores ] and some old figure as on 31st March. And that also included because of the inventory which we created for PET stocking.
Okay. So -- and so there's no debt repayment aspect in the first quarter, right?
This is -- yes, because in this first quarter, we have paid for the CapEx for Jammu plant, which is for backward integration. We also have paid for [ Sandila ] plant, which is a brownfield expansion. We have also paid more or less fully for Bihar plant, which got implemented in this month. So that CapEx has been without raising any additional debt is already taken care.
Okay. Okay. And sir, for -- so you said -- last question is that for CY '22, you said, for international markets, there would be up USD 10 million to USD 15 million CapEx. So how much would it be for the India market then?
In fact, this up to May that $10 million to $15 million, which is from the internal accruals being paid already side by side, no debt increase. For India, actually, I think what we would like to restrict us is by saying that -- which we are saying for the last 5 years, equal to the depreciation figure to cater to the normal organic growth, 10% to 12% level. If we grow, say, 1.5x, so 1.5 years equal and depreciation, if you say grow 2 years equivalent. So 2 years equivalent depreciation figure. So I mean we have given a guidance to this formula. And projecting future is a little difficult and here, actually, what I would like to tell you is, by June end, we will know broadly which direction we are going ahead. And at that point of time, we'll be firming up our capital -- CapEx plan, and we'll be able to share. Until then, it's only speculating. I think would like to stay a little away from there.
The next question is from the line of Jaykumar Doshi from Kotak.
Congratulations for great set of numbers. My first question is, 16%, 17% volume growth in India is very impressive in context of what we are seeing in FMCG as well as alcobev company that has recently reported. So is this growth broad-based across geographies? Are you able to sort of -- is the environment conducive for you to grow double digits in North and East markets as well?
This has been broad based. So it's not only the South and West, it's been -- the growth has been reasonably good throughout the country. We've got a little bit depending on the rain and the weather, but mostly, it's been broad-based.
That's great. Good to know. So in -- from South and West, when do you think -- have we hit kind of an inflection point or will we see accelerated growth in this season? Or do you think that it will be next season?
Well, I think we are already seeing accelerated growth from South and West all the territories, which we have acquired. So wherever there are very weak territories, we are seeing additional growth coming in.
So it just started to counter with.
Yes, it has started.
Right. On international markets, again, 30% volume growth is very good. Other than Sri Lanka, are you seeing any kind of operating challenges or currency-related issues in any market? Or do you see any risk in context of...
No. No. No. Even in Sri Lanka, we are -- business-wise, we are still doing all right. We would be one of the companies which is still not going negative in Sri Lanka and continuing with minor growth. Obviously, the foreign exchange challenges are there, which we are managing. And there will be some challenges, but it's such a small part of our business. And actually, if you look at the first quarter growth, Sri Lanka has grown at 37%. So Sri Lanka is also growing for us.
I would assume, it's local currency. It must be local currency that is 37% growth.
In fact, these are volumes. So...
No. No. This is volume, no? This is volume. So this is not currency related.
Understood.
This is actual volume growth. So currency related is completely different.
And my final question is, the partnership with Pepsi Foods business and starting as a co-packer, are there other players globally in other markets where this model has evolved? And the idea of asking is, beverages is a well-established model of bottling all across the world, and it's a very high gross margin business as compared to Foods business. So are there similar partnerships that have evolved, which -- where we can look to get a better understanding of how this juggling can ...
Not to our knowledge. So we might be the first in the foray. So we are also learning from it. So that's why it will be an interesting start, and let's see where it takes us.
The next question is from the line of Nihal Jham from Edelweiss.
Congratulations on the strong performance. Sir, 3 questions from my side. The first one was, just delving into the strong volume growth, if you had to compare, say, from 3 years back, has there been any significant change in the product mix other than, say, this thing being added versus CY '19?
If you look at it, the 3 products which Mr. Gandhi said, Sting, of course, has been a very strong performer for us. Our value-added dairy has done extremely well, and Tropicana juice has done extremely well for us. So all the 3 categories have done extremely on for us. Apart from the, of course, our core business, which is CSD and other juice and water category.
Absolutely. That's helpful. Mr. Jaipuria, would it be possible just to give an approximate proportion of what these 3 specific products will make up at this point in time of our total volumes?
These new products last year, 23 million, 24 million versus [indiscernible].
No, I think it's about -- Sting is about 6% to 7% of our mix.
Yes, in this quarter.
In this quarter. I'm giving you a very approximate number. So -- what is the mix? And in value-added dairy and Tropicana, we've run out of capacity. So we are producing 100% to what our capacity is. And unfortunately, it will not show seasonality, therefore, going up because we'll continue producing 100% of our capacity. So those volumes will only go up now once we add capacity to this -- to both these products. So Tropicana is 2%.
And Dairy?
Dairy is about 0.5% for the time being. So that's basically the capacity of the unit which we had put up in Pathankot.
Tropicana and Dairy both are fungible on the same equipment. That's another constraint, but...
So that equipment is giving us about 2.5% mix for the time being and about 7.5% is Sting. So between the 3, you're talking about 10%.
Which you can say would be close to negative actually 2 to 3 years down?
Which was practically not there, yes. Practically, very small.
That is very helpful. The second question was on this puffcorn arrangement. I know you've answered this, but just at this point in time while the current arrangement of the co-packing, is there a discussion on the table that you take out the distribution similar to the beverage business? And just to understand, that would say the food business require a manufacturing setup as intensive as it is for business? Or how would it be, say, different in case this?
It's a bit too early. Let us start with the first unit. So let us understand this. And right now, it's a co-packing arrangement only. So I think we'll stick to that for the time being and understand it before we can talk in a few more.
Sure. My last question was on the debt side. We've obviously given the strong run rate in performance. There will be significant cash generation that will accrue in Q2 second quarter and for the year. Other than debt repayment -- or is it fair to assume that most of this will be used for debt repayment? Or how should we look at?
I think part of it will be definitely used for debt reduction, and some of it will be used for CapEx enhancement because with the run rate of growth, which is happening, we would have to spend some more money on CapEx.
The next question is from the line of Devanshu Bansal from Emkay Global Financial Services.
Congratulations on a really strong set of numbers. Sir, to build on the question asked earlier on international. So as I knew the base quarter was also quite strong here, and on that base, we have grown about 30% in volumes. So just wanted to understand the drivers of this strong growth as well as any outlook here that you can give us for the coming years would be helpful.
I think one was, if you looked at Morocco, by the time we were able to put up our line, it has passed the season because of COVID. We couldn't get the people. So that performance is -- that enhancement of the additional line has started giving us results. And Zimbabwe is also the additional what we did last year has started giving us results. So -- and even if you look at Sri Lanka, which has done very well. So if you look at -- Morocco has grown at 50% for us. So that has given a big spike, and Zimbabwe has done well for us. Actually, all the countries have done well for us. So it's very difficult. So I think it's not just a spike, I think the overall business has improved, and I think we look at some good results coming going forward also.
Sir, going ahead, any outlook you can provide as if Morocco now CY '22 would be a good base. And upon that, what would -- what is your outlook on growth in these geographies?
Well, Morocco has become a reasonable sized business for us. And because of the growth in volumes, which has become a profitable and good business for us, which we were struggling for quite some time before. So that's the guidance I can give you.
Sure, sir. Sir, I also wanted to understand since [indiscernible] is a very large market. So how is the traction for other new launch, Mountain Dew Ice? And are there any marketing plans that we intend to launch going ahead?
No, I think we've got our hands full this year with the Sting and Mountain Dew Ice we had already launched last year. So it's doing extremely well for us. And with value-added dairy as well as Tropicana, we have got enough and even Gatorade is doing extremely well this year for us. So I think we have enough products apart from our core business, which is growing at very healthy volumes, which you're already seeing.
Sir, I was specifically asking for Mountain Dew Ice, not a new product.
No. Mountain Dew Ice is doing well for us, but we are -- whatever limited capacity we have, we are producing it and it is selling to the capacity actually.
Sure, sir. Lastly, in terms of PET stocking that we did in December '21, what would be the accrued price levels at which we stock the PET in December?
That's very difficult, but we bought it at a reasonably decent price because we bought it mostly at the end of the year.
[indiscernible] second was the derisking against the logistics rate [ or issues ] at least this decision proved [indiscernible] time for us, and we still have enough for the whole season.
Sir, my question was from going beyond H1. So if crude prices increase from current levels, then maybe gross margins can see...
I think we're pretty well covered until -- a little more than H1. So maybe even the third quarter is reasonably covered.
The next question is from the line of Sumant Kumar from Motilal Oswal.
So can you talk about the out of whole conjunction trend? And how is the contribution in this quarter?
See, the biggest growth which is coming is out of home now. So out of home, people are all in the market. So that has increased significantly because till last year, the home consumption was -- major quantity was going in home consumption, but now home consumption is about 30%, 35% and on the go is about 65%.
Okay. So major volume growth happened in this quarter is, can we say 60%, 65% is volume growth from the out of home?
Out of home is more, absolutely. Because there's no more restrictions so everybody is going out because before it was mostly at home.
Okay. And 6% realization growth trend. This trend is going to continue for the coming quarter also?
It looks like it should be.
Okay. And sir, what is the CapEx number for ex CY '22?
It's a bit difficult to tell you exactly. But as Mr. Gandhi said, the guideline that if it is about 10% growth, our CapEx would be approximately toward depreciation level. And if this growth doubles, then our CapEx would be double of our depreciation there. Approximately, in line with that.
The next question is from the line of Rakesh Roy from Indsec Securities and Finance Limited.
My first question is regarding your international business.
I'm sorry to interrupt you, sir, but we cannot hear you clearly.
Hello?
Yes, please go ahead.
I just want to -- can you highlight on the international business, especially in line with the Sri Lanka issue and Nepal issue, sir?
There's no issue in Nepal.
Yes. Nepal, sir, they are trying to restrict some import from other countries.
No, but they are not restricting manufacturers. So that is for luxury goods, and that is for basically traders. It's not for manufacturers, so it's not impacting us at all.
Okay, sir. Right, sir. And Nepal -- it was Sri Lanka. Sorry, sir, Sri Lanka.
Sri Lanka, I mean we all know this is a foreign exchange crisis, which we are managing. So the business is doing extremely well still. We are managing with it, and I think it's -- and it's such a small part of our total business, it's 1%, 1.5% of our total volumes. So I think we just need to wait and see what happens. I feel they'll come out of it. Will it take 3 months? Will it take 6 months? I don't know, but we are managing and our parent company is also supporting us. So we are -- sure, we'll manage.
Right, sir. So sir, my next question is regarding, out of India total volume, 147, how much is the southwest market?
About 1/3.
1/3, sir.
Yes.
Okay. Sir, regarding your new -- say, you -- just want to try to understand so you're geographical mix regarding India business, sir. Can you give me the idea, how much is geography-wise mix?
What? I didn't get your question.
The geography-wise mix, [indiscernible] North and South, East and West.
This will keep changing. This will keep changing. Every quarter is a different mix because seasonalities are different for every quarter. And we really not had a full year of proper -- a proper year, which we hope we'll get this year. So I think we should -- you should give us this year to really find the real mix of each geography. It won't be right to give the mix for summer -- April, May, June is always higher in North. October, November, December or January February, March would be better in South and West. So it's very -- every quarter is a different story.
The next question is from the line of Sanjay [ Satapathy ] from Ampersand Capital.
Hello? Hello?
Yes, sir, we can hear you.
Yes. Sorry. Sorry. Sir, I just wanted to confirm, this INR 15 crores WDV that you said, so we should reduce our other expense and see the normalized margin by adjusting that? Is that what you said, right?
That's right.
Yes. So that is 19%?
Whatever that is ...
Yes. And the second thing that you mentioned passing me that typically this quarter 1 is 23% of your sales volume. Am I right, sir?
Generally.
Approximately.
Okay. And lastly, just wanted to confirm with you that this 25% CAGR over a 2-year period that we are seeing, most people are finding difficult to kind of understand that why it is happening and why -- what is sustainable. That is because historically, you have been saying that this beverage business will grow at about 10% to 15% volume growth annually. So are you kind of saying that this kind of a growth is a one-off and it will come back to that level pretty soon. Or you're saying that because of the initiatives that you have been taking, you have been getting some kind of market share and that is why one can look for not 10%, but rather 15% kind of a growth sustainable in the near future?
Well, we've always said, the market should be growing at 10% to 15%, and we will always keep trying to do better than that. But will we succeed or not? I don't know. Our job is to keep trying.
Understood. And if at all, you will be successful that is primarily because of this [indiscernible] South, which will turn around and also the factories that you are expanding, right, sir?
Well, we hope so.
And last question, sir, I just wanted to take with you that I'm seeing that between your different categories, the juice segment instead of relatively subdued. And is there any exposition for that in terms of the outlook? And how it will kind of -- also growth, which is similar to the other segments?
Well, as we've said that juice is not really subdued, it's done extremely well, but we have run out of capacity on Tropicana. So as soon as the second facility will be ready, we expect to see 100% growth on that when the facilities are ready.
And when will be that, sir?
Hopefully, it should be next year sometime.
The last question that you -- in discussion of margin -- finally, gross margin has gone down. You have done some operational savings. So I missed that point, I thought that you were talking about some kind of 21% kind of EBITDA margin.
That is throughout on a yearly basis. So our first quarter is a subdued quarter. So our EBITDA margins are always lower. If you see our second quarter, you'll see our margins much higher. So on an average basis throughout the year, it averages out to about 21%, and that's the guidance we have been giving basically. And...
Despite the raw material prices going up so much?
That's right.
The next question is from the line of Alisha Mahawla from Envision Capital.
While most of my questions have been answered, I just wanted to understand with respect to the Kurkure Puffcorn. What is the kind of investment that we're looking to make?
About INR 20 crores, INR 23 crores.
It's a very small investment. We are testing it out. So it's about INR 20 crores, INR 23 crores.
Okay. And this is only for co-packing, we're not going to be doing any manufacturing?
So manufacturing, of course. We will be manufacturing and giving it to PepsiCo.
Okay. And this is for PAN India? Or do we have select geographies?
No, it's their choice, wherever they want to take it. We just have to produce it and give it to them and where they will sell, it's their call.
The next question is from the line of Suvarna Joshi from Quantum Advisors.
Most of my questions have been answered, but I have 2 questions. One is, you mentioned that the realization has improved because of price hikes and also the product mix. So if you can just help us understand the mix between price hike and realization -- sorry, price hike and the product mix, which is contributing to percent or kind of a realization improvement on a Y-o-Y basis. That is question number one. The second question is, I wanted to understand the mix in terms of SKUs. Now when we were in the COVID period and in-home consumption was very high. We had seen that larger pack sizes were doing much more sales. And now with out-of-home consumption being the driver, I'm certain that it has more to do with the smaller. So can you just indicate as in what kind of pack sizes are doing better for us? And how do we stand over here despite the margin kind of -- the gross margin pressures that we are seeing?
See, fundamentally, you're absolutely correct that as the go-to-market has opened up, the small size, the 250 ml bottles, single size bottle have started doing extremely well, and the major growth is coming in that pack. And as far as your margins are concerned, you've asked, partly the increment in pricing has been very small. But what we've been able to do is reduce our discounting as the demand is high, and we've been able to convince the distributors and retailers that the costs have gone up, so we will not be able to give that kind of discounting.
Right. So it is not the effective price hikes that we have taken, which is like [indiscernible].
Partly, I would say. [indiscernible] maybe 1% or 2% is pricing, and the balance is efficiency, and of course, cutting discounts.
And how much of it would be from the product mix?
Product mix, I don't think you've made that big a difference. It's basically a minor difference. Of course, single service is slightly more profitable because it's more on the road pack. So that has helped. So all the things mixed together has given us a 6%.
The next question is from the line of Devanshu Bansal from Emkay Global Financial Services.
In continuation with the earlier question, I just wanted to understand, are in-home consumption trend sustaining? Or you're sort of seeing a decline with on-the-go picking up? So this is basically to understand...
I won't say declining, but the major growth is coming on on-the-go. So what the market was subdued that has opened up. So people are going out. They're drinking out. Restaurants have opened. Hotels have opened. Cinema halls have opened. People are traveling from one place to another. So railway stations, bus stations, all that has opened up. So that is where the major growths are coming, but I don't think the habit which has been formed by drinking at home has come down.
Sure. And secondly, I also wanted to understand these -- if I understand it correctly, the distributor commissions or discounts that you used to sort of account for have now been moved below gross margin level. And so is this understanding correct?
The commissions have not been changed. It's just that because of the cost, I think both the companies or all the beverage companies are giving more in the market as they were all felt the same. So I guess they have curtailed part of the discounting and partly the got covered up by the extra volume, which we are doing.
Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.
Thank you very much. I hope we have been able to answer all your questions satisfactory. 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, time and for taking the time particularly out to join on this call. Look forward to interacting with you soon. Thank you very much, once again.
Thank you. On behalf of Varun Beverages Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.