Home >Markets >Mark To Market >Nestle India bounces back to double-digit growth in September quarter

Packaged foods company, Nestle India Ltd couldn’t reap the benefits of the spike in at-home consumption during the June quarter. Its revenues had increased by around 2% year-on-year, paling miserably in comparison to the 26.4% growth seen by peer, Britannia Industries Ltd.

The September quarter brings respite to Nestle’s investors with revenue growth recovering to 10.2%. Note that Britannia’s revenue growth stood at almost 11% last quarter. Nestle’s sequential recovery is encouraging to say the least. Edelweiss Securities Ltd analysts said, “After one quarter of covid-related disruption, domestic sales quickly bounced back to double digit growth trajectory--for 11 of past 12 quarters."

Nestlé India's domestic sales growth in the September quarter bounced back smartly from the June quarter lows
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Nestlé India's domestic sales growth in the September quarter bounced back smartly from the June quarter lows

For the September quarter, Nestle derived 95% of its revenues from domestic sales, which increased by 10.2% on a year-on-year basis. Exports contributed remaining revenues. Nestle saw robust 97% growth in e‐commerce, which now accounts for about 4% of domestic sales. The company maintains overall sales growth was driven by a combination of volume and product mix. The company said key brands such as Maggi Noodles, Maggi Sauces, Kitkat, Nestle Munch, Nescafe Classic and Nescafe Sunrise saw double digit growth helped by an increase in in‐home consumption. At the same time, while demand for out of home categories has improved, the segment continues to be impacted by the overall environment given the pandemic.

Earnings before interest, tax, depreciation and amortisation (Ebitda) margin expanded by 112 basis points to 24.9%. One basis point is one-hundredth of a percentage point. A slower rate of increase in other expenses helped, despite a relatively faster pace of growth in employee costs.

Meanwhile, Nestle has guided for a capex investment of Rs2600 crore over the next three to four years. This is to augment existing manufacturing capacities, as well as towards under construction factory in Sanand, Gujarat. Varun Singh, analyst IDBI Capital Markets & Securities Ltd, “Nestle’s capex guidance shows it has turned aggressive, positively. Note that over the calendar years 2012-2019, the company’s cumulative capex stood at Rs2400 crore."

Shares of Nestle have been resilient and are now just about 5.5% away from its pre-covid highs seen in February on NSE. The stock’s valuations are high. At the current market price, the shares trade at nearly 52 times forecasted earnings for calendar year 2022, based on IDBI Capital’s estimates. Nestle follows a January to December fiscal year. According to Edelweiss Securities, “The focus on innovation, launches, market share and premiumisation is likely to boost volume-led growth. Besides, the company’s new strategy—top line and market share focus—is encouraging." Even so, pricey valuations may well cap sharp upsides in the stock from a near-term perspective.

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