Delta Corporation’s net earnings are expected to jump 16 percent to $103 million in the financial year 2019 on anticipated volume growth, despite competition from Pepsi, which is likely to cut the group’s market share, according to forecasts by analysts.
Indian Varun Beverages, manufacturers of Pepsi, broke ground for a mineral drinks plant in Zimbabwe in November 2015 before commencing operations this year in March, cutting Delta’s long-held monopoly in the soft drinks business.
Market watchers, however, contend a good command in market share still puts Delta — biggest company on the Zimbabwe Stock Exchange by market capitalisation — in a competitive position ahead of peers.
Additionally, measures by management to contain costs and remodel products in line with the evolving styles and market trends, should result in higher sales, better margins and will be a defence measure for the beverages manufacturer.
In light of this, revenue is seen growing a further 12 percent to $640 million in the financial year 2019 on positive economic outlook.
During the year to March 31, 2018, Delta reported an 18 percent growth in revenue to $572 million on firm demand.
“We revise our forecasts based on the positive results and now expect revenue to grow a further 12 percent to $640 million for FY19 on a slightly more positive economic outlook. We expect a 16,3 percent increase in net attributable income to $102,91 million, up from $88,51 million,” said stockbrokers IH Securities.
Earnings per share are seen increasing to 8 cents with an EBITDA margin of 23,8 percent.
The year 2018 is also an election year, which is expected to increase demand for alcohol at rallies and other gatherings during campaign processes.
Resultantly, volumes should increase across categories although at a slower rate than 2018.
IH Securities forecast lager volumes to register 20 percent growth year on year with prices remaining stable as part of the Delta’s strategy.
Sorghum beer is also forecasted to grow by 5 percent. Market watchers, however, say despite competition from Pepsi intensifying and grey imports that still find their way on the market, Delta still remains strong.
“We believe Delta has the economies of scale and distribution to maintain significant but lower market share, naturally forex will continue to be an issue for both Delta and its competitor Pepsi,” said IH.
The Pepsi plant bottles one of the world’s most popular fizzy drink, Pepsi, including leading brands Mirinda, Mountain Dew and 7up.
While Delta may be unfazed with competition from Pepsi products, priced lower than its brands, pressure points are likely to stem from foreign currency shortages.
The operating environment, though with a positive sentiment and outlook, is still limited by foreign currency shortages, a situation likely to remain in the near future. This will compromise the beverages maker’s ability to service its market.
Indications are that its associates, African Distillers Limited, Schweppes Zimbabwe Limited and Nampak Zimbabwe were all constrained by foreign currency shortages to import essential raw materials especially for packaging.
Delta currently needs between $60 million to $75 million to meet foreign obligations a year and have been struggling to get this allocation from the central bank.
This has resulted in intermittent shortages in some key raw materials, affecting mainly the sorghum beers and sparkling beverages.
Sparkling beverages take up 50 percent of these foreign currency requirements as the imports include the concentrate as well as packaging.
Another listed firm, Dairibord Holdings Limited also indicated foreign currency had a major knock on its operations and ability to meet demand.