Varun Beverages' margin slips as costs outpace revenue growth
Operating margin fell 1.84 percentage points YoY; management cited packaging costs and higher non-beverage sales as gross-margin pressures.
Filed 30 Oct 2026, 14:58 IST · Varun Beverages Ltd (VBL)
Key takeaways
- Revenue rose 34.94% YoY, but expenses grew 38.18%, narrowing operating margin by 1.84 percentage points to 21.59%.
- Sequentially, operating margin fell 6.13 percentage points as revenue declined 21.82% while expenses fell only 15.18%.
- Other income contributed 11.17% of pre-tax profit, while interest expense rose 58.57% YoY, making profit growth less operationally clean.
Price around the results
Margin pressure returns after the Q1FY27 rebound
Varun Beverages reported consolidated revenue growth of 34.94% YoY, but operating profit grew only 24.35% as costs increased faster than sales. Operating margin narrowed by 1.84 percentage points YoY and by 6.13 percentage points QoQ, after rising to 27.72% in Q1FY27 from 23.26% in Q4FY26. The margin remains 8.44 percentage points above the 13.15% median for 24 FMCG peers that have reported the quarter.
Packaging and product mix weighed on profitability
Management said geopolitical issues lifted packaging costs and reduced gross margin by about 300 basis points, while higher sales of non-beverage products reduced India gross margin by about 100 basis points. It also said sugar prices rose about 16%, partly offset by a higher mix of low-sugar and no-sugar products. Interest expense rose 58.57% YoY and 25.95% QoQ, while a 1.76-percentage-point QoQ decline in the tax rate provided some offset; other income accounted for 11.17% of pre-tax profit.
Management points to capacity, Africa and merger synergies
Management said expanded manufacturing capacity and investments in chilling infrastructure supported volume growth, while consolidated sales volumes rose 28.7% in the period cited in its presentation, including 22.5% in India and 39.9% internationally. The company said it started beverage operations in Kenya, views Africa as a key expansion continent and completed the Twizza-BevCo merger effective 1 August 2026; management expects significant operational synergies in the coming quarters. Management also said it is pursuing adjacent categories through KIVA Spirits and distributing Mondelez products in Zimbabwe.
Current market reaction is not yet available
The results are too fresh for a market response. After the six previous results, the stock rose five times and fell once, with a median absolute move of 4.00%, so post-result moves have usually been material but mostly positive. The current quarter's operating margin is still above the peer median despite the sequential setback.
Q2FY27 at a glance
Consolidated figures as filed with NSE — filed ahead of third-party databases, not yet independently cross-checked.
| Line item | Q2FY27 | Q1FY27 | QoQ | YoY |
|---|---|---|---|---|
| Revenue | ₹6,608 cr | ₹8,451 cr | -21.82% | +34.94% |
| Other income | ₹118 cr | ₹100 cr | +17.46% | -19.66% |
| Expenses | ₹5,181 cr | ₹6,108 cr | -15.18% | +38.18% |
| Operating profit | ₹1,427 cr | ₹2,343 cr | -39.11% | +24.35% |
| Operating margin (%) | 21.59% | 27.72% | — | — |
| Interest | ₹72 cr | ₹57 cr | +25.95% | +58.57% |
| Depreciation | ₹420 cr | ₹409 cr | +2.67% | +36.53% |
| Profit before tax | ₹1,053 cr | ₹1,977 cr | -46.76% | +11.87% |
| Tax | ₹222 cr | ₹452 cr | -50.86% | +13.44% |
| Net profit | ₹831 cr | ₹1,525 cr | -45.55% | +11.46% |
| EPS (₹) | ₹2.45 | ₹4.50 | -45.56% | +11.87% |
Operating margin of 21.59% compares with a Fast Moving Consumer Goods sector median of 13.15% across 24 peers that have reported Q2FY27.
What management said
From the company’s own investor presentation. Each point is checked against the source document before it appears here.
This quarter
- Consolidated sales volumes grew 28.7% in Q3 CY2026, including 22.5% growth in India and 39.9% internationally.
- The company introduced premium offerings including Ad Rush and the Evervess mixers range during the quarter.
Guidance & outlook
- The company expects to unlock significant operational synergies from the Twizza-BevCo merger in the coming quarters.
- The company will focus on growth in existing markets, selectively broaden its business and maintain emphasis on profitability and long-term value creation.
- The company targets water usage of 1.40 times by 2030.
Expansion
- The company has expanded manufacturing capacities and invested in chilling infrastructure to support volume growth in India.
- The company started beverage operations in Kenya during the quarter.
- The company identifies Africa as a key continent for expansion.
- The company incorporated KIVA Spirits and Company Limited to pursue ready-to-drink, alcoholic beverages and allied products.
New orders
- The company entered an exclusive distribution agreement for Mondelez chocolate, biscuit, candy and gum products in Zimbabwe.
New products
- The company introduced the BOLT UP and XTREME FIZZ beverage brands in Africa.
New initiatives
- The company incorporated KIVA Spirits and Company Limited to explore adjacent beverage and alcoholic beverage categories.
- The company entered an exclusive agreement to distribute Mondelez products in Zimbabwe.
- The merger of Twizza into Bevco was completed effective 1 August 2026.
Problems & risks
- Higher packaging costs caused by geopolitical issues reduced gross margins by about 300 basis points.
- Higher sales of non-beverage products with higher costs reduced gross margins by about 100 basis points in India.
- Sugar prices increased by about 16% during the quarter.
- The company faced significant supply chain disruptions due to geopolitical issues during the year.
What to watch
- Whether operating margin recovers from 21.59% after the 6.13-percentage-point QoQ decline.
- Whether the roughly 300-basis-point packaging-cost pressure and 100-basis-point non-beverage mix drag ease.
- Whether other income's 11.17% share of pre-tax profit declines as operating earnings contribute more.