BackPrice hikes drive Nestlé revenue but profit slips
Costs of key raw and packaging materials were at 10-year highs and expenses continued to surge this quarter, impacting profit from operations, Nestle said
PremiumNEW DELHI : Maggi noodles maker Nestlé India Ltd on Thursday reported a 1.25% decline in March quarter profit to ₹594.7 crore as raw material costs rose sharply.
In the year-ago period, the company had reported a profit of ₹602.25 crore.
Total expenses grew 13% year-on-year to ₹3195.9 crore in January-March from ₹2,828.6 crore a year ago.
Revenue from operations stood at ₹3,980.70 crore, up 10% compared to the year ago period, due to pricing growth in milk products, coffee and Maggi noodles. Export sales, however, decreased by 1.3% year-on-year.
Suresh Narayanan, chairman and managing director, Nestlé India said costs of key raw and packaging materials were at 10-year highs and expenses continued to surge this quarter, impacting profit from operations.
“Continued inflation is likely to be a key factor in the short to medium term. We are confident of facing this turbulence with strategies of scale, efficiencies, mix and pricing all of which we will deploy judiciously," he said.
The company's most popular brand Maggi noodles saw robust volumes, while confectionery brands such as KitKat and Nestlé Munch registered double-digit growth. The performance was aided by media campaigns, festive interventions, apart from consumer promotions, trade inputs and focused distribution drives, the company said
Within categories, the company’s prepared dishes and cooking aids brands such as noodles reported “strong growth momentum" aided by media and mega portfolio activation. Maggi Sauces and Maggi Masala-aeMagic growth was hit by a high base and gradual shift from in-home cooking to out-of-home consumption during the quarter. Meanwhile, nutrition products performed well, coupled with pricing actions. Milk products continue to face challenges from competition, the company said.
Within beverages, Nescafé Classic and Sunrise delivered double-digit growth.
“I am pleased to share that in this quarter we have delivered double-digit domestic sales driven by volume and mix, which once again demonstrates the strength of our brands, consumer resonance and the resilience of the Nestlé India team and our partners," said Narayanan.
The company said it witnessed sustained rural growth, complemented by strong demand in smaller towns and urban agglomerates. “Our robust performance in e-commerce continued as the channel grew by 71% and now contributes 6.3% of domestic sales. We will continue to leverage e-commerce further through meaningful shopper insights, data analytics, speed, sharp communication and customization," Narayanan said.
Analysts tracking the company said Nestlé India’s earnings were in line with estimates on the revenue front but disappointed on margins.
Surge in milk, edible oil, coffee and wheat prices led to a sharp margin contraction of 313 bps. The company was able to save 23 bps and 70 bps (as percentage of sales) in employee and overhead spends, respectively, said analysts at ICICI Securities.
Companies witnessed high inflation in the quarter. Aggressive price hikes taken by FMCG firms enabled only a partial passing on of costs from commodity inflation, they said.
“Inflation has also adversely impacted demand in semi-urban and rural regions. Though we believe commodity inflation would cool down in the longer run, the next few quarters would continue to remain challenging for FMCG companies from both volume growth and margin perspective," analysts at ICICI Securities added.
Nestle said its commodity outlook for edible oils, coffee, wheat, fuel in the short-to-medium term remains “firm to bullish". “Input costs are expected to be on bullish trend both globally and locally. Fresh milk costs are expected to remain firm with continued increase in demand and rise in feed costs to farmers," the company said.
Abneesh Roy at Edelweiss Securities said the company reported a “decent performance" on the sales front with key brands doing well. However, gross margins and EBITDA margins both disappointed.
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