Nestle India: Noodles good, coffee better in first half of 2018
As growth in Maggi noodles comes to more normal levels, Nestle India needs other categories to step up—the confectionery segment has done so in the first half
Nestle India Ltd’s beverages portfolio hit one out of the park in the first half of calendar year 2018 (H1 CY18). The Maggi noodles build-up continued to contribute, said the company, but a flattening market share gain suggests it is growing along with the market, or is slightly ahead.
The company’s annual analyst meet presentation breaks out critical variables such as volume growth, category-wise growth and market share figures for the first half of the year. The Maggi instant noodles’ sales rebuild, after they were banned and then reintroduced, is a closely watched metric. In the six months ended 30 June, Maggi’s market share in instant noodles was 59.1%, down 40 basis points from a year ago.
One basis point is one-hundredth of a percentage point.
However, the trailing 12-month market share as of 30 June at 59.7% is still higher compared to 58.7% a year ago. The market share gains have tapered and indicated that noodles’ growth is likely to mirror the market growth. Still, that’s nothing to scoff at. Sales of this category, which also includes sauces and soups, rose by 15% in the first half of the year, led by volumes.
Nestle India’s market share in instant coffee rose by 3 percentage points to 50.2% in the first half of 2018, which partly explains the sharp increase in sales growth to 23.1%. Its liquid beverage variants added to growth as well.
While the company’s milk and nutrition products—infant formula and baby foods, and milk products—will remain the largest contributor to sales, this segment’s growth is usually lower compared to its other segments.
As growth in fast-growing categories such as noodles comes to more normal levels, Nestle India needs other categories to step up. Confectionery sales growth has stepped up in the first half.
New products or variants will continue to support the company’s aim to maintain double-digit growth. In the first half of 2018, new products’ contribution to sales was 3% compared to 2.8% a year ago.
Nestle India will join a growing number of consumer goods companies, which realize that India is a country made up of many markets. For instance, some products could sell well in some states, but not in others. As these markets grow in size, large companies see merit in customizing some products or variants for these markets. What shape this takes for Nestle India needs to be seen.
While its sales machine seems to be humming along, commodity prices are helping it, too. The company’s commodity price index is down by 5.8% in the June quarter, from over a year ago.
The main risks for Nestle India at this point appear to be stiff competition in the three smaller categories, but ones that are growing ahead in sales growth. Spike in commodity prices is yet another risk. While the outlook for Nestle India’s growth appears positive, a 43% increase in the stock in the past six months indicates that it may already be priced in.
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