Low-sugar fizz, high-cost squeeze: Varun Beverages battles margin pressure

Higher packaging costs and geopolitical supply-chain disruptions squeezed Varun Beverages' margins in the September quarter, even as strong sales volumes, premiumisation and a shift towards low-sugar drinks helped the PepsiCo bottler report steady revenue growth.

The company’s gross margin contracted 334 basis points year-on-year to 53.1% in Q3 CY2026, while its EBITDA margin fell 140 basis points to 21.6%, the company said in an exchane filing on Friday.

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Higher costs of preforms, shrink films, closures and cans were the primary drag.

Margins also faced pressure from a change in product mix, with sales of non-beverage products such as preforms and caps rising 104% during the quarter. Since these products carry a higher cost of goods sold, their increased contribution to sales weighed on India's gross margin by around 100 basis points, the company said.

Additionally, Sugar prices rose around 16% during the quarter, but Varun Beverages said the impact was largely offset by a sharp increase in the share of low- and no-sugar products in India.

Their contribution to sales volumes rose to 88% in Q3 CY2026 from 44% a year earlier, as the company expanded its lower-sugar portfolio.

The shift comes amid broader cost pressures across the consumer goods industry. A Business Standard report in October, citing analysts and brokerage estimates, put year-on-year sugar inflation at 18-20%, with sugar accounting for 10-16% of input costs in segments including carbonated beverages, biscuits and confectionery. The ability to manage the impact varies with companies’ product mix and pricing power.

Meanwhile, premiumisation helped Varun Beverages improve realisations.

Beverage realisation per case rose 2.2% at the consolidated level, supported by higher-value categories and launches such as Ad Rush and Evervess mixers. In India, realisation increased 0.5%, aided by calibrated discounting and its price-pack strategy.

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Revenue from operations rose 33.2% to Rs 6,607.6 crore, while EBITDA increased 25.1% to Rs 1,426.7 crore. Net profit grew 13.5% to Rs 830.6 crore. Consolidated sales volumes jumped 28.7%, with India volumes up 22.5% and international volumes rising 39.9%.

“Higher packaging costs weighed on margins during the quarter, although improved realisations and operating leverage from strong volume growth helped partially offset these pressures,” Executive Vice Chairman Varun Jaipuria said.