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PepsiCo bottler Varun Beverages Ltd’s (VBL) solid volume growth in the September quarter (Q3CY26) was overshadowed by margin compression. Investors didn’t take this well, pulling the stock down 5.5% on Friday. The company follows a January-December financial year and the September quarter is its third.
VBL’s consolidated volume grew 28.7% year-on-year to 354.4 million cases in Q3CY26, driven by 22.5% growth in India and 39.9% in international markets. India volume growth, aided by a low base and favourable weather, was a key highlight, especially after disappointment in the previous quarter, and momentum continued in October, said Jefferies India.
India volume growth in Q2CY26 was 14.4%. DAM Capital noted that in CY25, a weak summer coincided with the expansion of Campa Cola (operated by Reliance Consumer Products), making it difficult to separate the impact of weather from competition. However, with a normal summer, India volume growth in Q2CY26 and Q3CY26, suggests the slowdown was largely weather led, DAM Capital said, adding that double-digit growth will continue.
Consolidated revenue rose 33.2% year-on-year to ₹6,607 crore in Q3CY26, beating consensus estimates, while beverage realization per case increased 2.2%. India unit realization inched up by 0.5%, reversing recent declines, aided by premiumization and trade spend rationalization. However, improved realizations and robust volumes could not offset the pressure from higher packaging costs, including preforms, shrink films, closures and cans, driven by geopolitical disruptions.
Consequently, gross margin shrunk 334 basis points (bps) year-on-year to 53.1% in Q3CY26. Elevated packaging costs eroded almost nearly 300 bps from India gross margin, and 272 bps internationally. Overall Ebitda margin drop was curtailed to 140 bps year-on-year to 21.6%.
Management’s outlook is cautiously optimistic, indicating that the full impact of cost inflation has been reflected in Q3CY26. Based on current input-price trends, management expects gross margins to stabilize, assuming there are no further adverse macroeconomic developments. To be sure, the cost inflation problem is not unique to Varun Beverages. So, it expects the broader industry to respond through price hikes or reduced trade spending, and plans to follow suit.
Varun Beverages has not undertaken hikes in its carbonated soft drinks portfolio, but has reduced grammage in Sting from 300 ml to 250 ml. Also, it is not worried about competition from small/unorganized regional companies. It is not looking to compete at unviable lower price points and remains focused on ₹20, ₹50 and ₹100 prices.
After muted distributor investment in CY26, it plans aggressive numeric and weighted distribution expansion in CY27. It now reaches about 4.2 million outlets and aims to add around 200,000 outlets annually. It has earmarked a capex of ₹1,000 crore for the India business and $90-100 million for international capacity expansions.
But some analysts are wary about this. Planned CY27 capex entails significant investment, while returns from newer initiatives such as KIVA's ready-to-drink and alcobev businesses remain uncertain, said Nuvama Research. DAM Capital cut its CY27 earnings per share estimates by 6.5% to factor in higher depreciation due to large capex.
In Q3CY26, depreciation and finance costs increased by 34.5% and 53.5% year-on-year, respectively, due to the acquisition of Twizza in South Africa and the associated debt funding. This constrained growth in profit after tax. Amid worries of intensifying competition from Campa, shares of Varun Beverages are down 20% so far in CY26. Its challenge therefore lies in sustaining volume growth along with margins.
Harsha Jethmalani is a Deputy Editor at Mint with over a decade of experience covering stock markets and corporate India. As a key member of the Mark to Market team, she specializes in delivering cutting-edge commentary on market trends, the economy, and corporate financial reports.<br><br>Born and raised in Mumbai, Harsha’s entry into business journalism was a serendipitous pivot. Graduating during the 2008–2009 financial crisis, her initial goal of becoming a research analyst at an MNC was rerouted. However, what began as a chance career move quickly became a conscious choice; she discovered that financial journalism is a powerful storytelling tool capable of influencing and empowering the financial decisions of a massive audience.<br><br>Harsha began her career in 2009 at IRIS Business Services (Myiris.com), tracking mutual funds and interviewing fund managers. In 2011, she joined the Network18 Group, writing extensively on equity market trends for Moneycontrol.com and hosting pre- and post-market audio updates. Following a stint covering personal finance at Dalal Times, she joined Mint in 2016 as a Content Producer, steadily rising through the ranks to her current editorial position.<br><br>A defining highlight of her tenure at Mint was her extensive coverage of India's historic Goods and Services Tax (GST) reform. She chronicled the massive indirect tax overhaul from its initial conceptual and execution hurdles to its eventual streamlining. Her impactful reporting earned official recognition when her article exposing a spike in gold smuggling ahead of the GST rollout was formally acknowledged by the Office of the Director General of Audit (Central), Kolkata. Currently, Harsha closely tracks the IT, cement, real estate, and paint sectors. Her sharp news sense and ability to spot emerging trends consistently bring fresh, actionable perspectives to market analysis.<br><br>She holds a postgraduate degree in financial markets from Indira Gandhi National Open University and a Bachelor of Management Studies from Vivekanand Education Society, Chembur, Mumbai.
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