Varun Beverages shares fall over 4% as Q3 margin pressure weighs despite a 33% YoY revenue growth

Shares of Varun Beverages came under pressure on Friday, falling 4.39% to hit an intraday low of Rs 396.55 apiece after the company reported a moderation in operating margins for the September quarter (Q3 CY2026).

The stock pared some of its losses but continued to trade in the red. At 1:34 pm, Varun Beverages shares were trading at Rs 402.25, down 3.03% from the previous close.

The decline came despite the company reporting strong growth in revenue, profitability and sales volumes, with higher packaging material costs weighing on margins during the quarter.


Varun Beverages Q3 results

Varun Beverages reported a 13.5% year-on-year increase in consolidated profit after tax (PAT) to Rs 830.59 crore in Q3 CY2026, compared with Rs 731.51 crore in the corresponding quarter last year.

Revenue from operations, net of excise and GST, grew 33.2% year-on-year to Rs 6,607.56 crore from Rs 4,960.69 crore in Q3 CY2025.

EBITDA increased 25.1% to Rs 1,426.71 crore from Rs 1,140.41 crore in the year-ago quarter.

However, EBITDA margin moderated by 140 basis points year-on-year to 21.6% in Q3 CY2026, primarily due to a contraction in gross margins. Operating leverage from strong volume growth across India and international markets partially offset the pressure.

Gross margin declined 334 basis points to 53.1% during the quarter, primarily due to higher packaging material costs, including preforms, shrink films, closures and cans, amid geopolitical disruptions.

Margins were also affected by a 104% increase in sales of non-beverage products such as preforms and caps in India. These products carry a higher cost of goods sold (COGS), impacting gross margins by approximately 100 basis points in the domestic business.

The board has also approved an interim dividend of 25% of the face value, translating into Rs 0.50 per share. The dividend will entail a total cash outflow of approximately Rs 169.10 crore.

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The increase in sugar prices of around 16% was largely offset by a shift towards low-sugar and no-sugar products. Their contribution to the Indian portfolio increased to 88% in Q3 CY2026 from 44% in the corresponding quarter last year, said the company.

Consolidated sales volumes increased 28.7% year-on-year to 354.4 million cases in Q3 CY2026, compared with 275.3 million cases in Q3 CY2025.

India volumes grew 22.5%, while international volumes increased 39.9%. International volumes included 15.3 million cases contributed by the acquisition of Twizza in South Africa during the quarter.

Consolidated beverage realisation per case improved 2.2% year-on-year. In India, realisation increased 0.5%, supported by growth in higher-value categories, the launch of premium products such as Ad Rush and Evervess mixers, calibrated discounting and an efficient price-pack architecture.

In international markets, improved realisations in South Africa and foreign exchange movements supported per-case realisation.

In terms of the product mix, carbonated soft drinks (CSD) accounted for 73.3% of sales volumes in Q3 CY2026, while packaged drinking water contributed 21.9% and juice-based beverages (JBD) accounted for 4.8%.

Management commentary

Commenting on the Q3 CY2026 performance, Varun Jaipuria, Executive Vice Chairman of Varun Beverages, said higher packaging costs weighed on margins during the quarter, although improved realisations and operating leverage from strong volume growth helped partially offset the pressure.

He said the international business continued to make strong progress, with Africa remaining a key market for expansion.

With effect from August 1, 2026, the merger of Twizza with BevCo has been completed. The company expects to unlock significant operational synergies in the coming quarters.

During the quarter, Varun Beverages also commenced beverage operations in Kenya and introduced two new beverage brands, BOLT UP and XTREME FIZZ, strengthening its presence in the fast-growing African market.

Additionally, the company entered into an exclusive distribution agreement with Mondelez in Zimbabwe, further expanding its product portfolio in the market.

Varun Beverages' diversification plans and dividend

The company is also taking measured steps to diversify into adjacent business categories.

The incorporation of KIVA Spirits and Company Limited marks an important step towards exploring opportunities in ready-to-drink beverages, alcoholic beverages and allied products.

Management said its approach would remain focused on opportunities that leverage the company's execution capabilities and offer attractive long-term growth potential.

Looking ahead, management said its focus would remain on driving growth across existing markets, supported by investments made over recent years. The company will also selectively pursue opportunities to broaden its business while maintaining an emphasis on profitability and long-term value creation.

Disclosure: This article has been written by Kumar Gaurav, who is not a Sebi-registered Research Analyst or an Investment Adviser. Gaurav and their ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective Sebi-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here