(Bloomberg)
(Bloomberg)

Nestlé India management is giving its investors something to munch on

  • Nestle India's revenue rose 9% year-on-year to 2,982 crore in January-March. Within this, domestic sales accounting for 94.6% of total revenue fared well, clocking a 10.2% revenue growth
  • The company will launch organic food products in the ‘milk products and nutrition,’ category

Mumbai: The mood at Nestlé India Ltd is cheerful. The company’s shares closed around 1% higher on Wednesday.

To be clear, the March quarter results announced on Tuesday after market hours were not impressive, but management commentary seemed to have comforted investors.

At a time when consumer staples companies sounded worried on the demand slowdown, the message from Nestlé India’s management is contrarian. “The market momentum remained strong," said Suresh Narayanan, chairman and managing director of Nestlé India, in a press statement.

Analysts from Jefferies India Pvt. Ltd point out in a report on 14 May, “This is due to lower salience of rural in the portfolio (25-30%) where the impact of the slowdown is higher."

The company, popular for its Maggi noodles, has seen 9% increase in its revenues for the March quarter over the same period last year to 2,982 crore, out of which domestic sales accounted for 94.6%, clocking 10.2% growth.

According to Jefferies India, volume growth works out to be about 7% year-on-year. The remaining share of revenues for Nestlé India comes from exports, which declined by 9% owing to lower coffee exports to Turkey.

Mumbai: The mood at Nestlé India Ltd is cheerful. The company’s shares closed around 1% higher on Wednesday.

To be clear, the March quarter results announced on Tuesday after market hours were not impressive, but management commentary seemed to have comforted investors.

At a time when consumer staples companies sounded worried on the demand slowdown, the message from Nestlé India’s management is contrarian. “The market momentum remained strong," said Suresh Narayanan, chairman and managing director of Nestlé India, in a press statement.

Analysts from Jefferies India Pvt. Ltd point out in a report on 14 May, “This is due to lower salience of rural in the portfolio (25-30%) where the impact of the slowdown is higher."

The company, popular for its Maggi noodles, has seen 9% increase in its revenues for the March quarter over the same period last year to 2,982 crore, out of which domestic sales accounted for 94.6%, clocking 10.2% growth.

According to Jefferies India, volume growth works out to be about 7% year-on-year. The remaining share of revenues for Nestlé India comes from exports, which declined by 9% owing to lower coffee exports to Turkey.


Earnings before interest, tax, depreciation and amortization (Ebitda) margin declined by 83 basis points to 24.4%. A basis point is 0.01%.

Still, it is encouraging that the extent of decline in the Ebitda margin was lower compared to the December quarter. Some analysts said that advertising spends growth may have been relatively lower during the March quarter.

The company’s gross margin declined during the quarter, due to higher raw material costs. Overall, this meant Ebitda increased at a slower pace of 5.4% to 729 crore. Nonetheless, strong other income growth and a decline in depreciation costs led to 9% growth in pre-tax profit to 713 crore.

In the past one year, the Nestlé India stock has gained around 8%, though it has fallen in this calendar year. Currently, it trades at nearly 52 times estimated earnings for the year till December 2019, based on Bloomberg data. Valuations are not particularly mouth-watering.

Sure, Nestlé India’s better urban reach could well put the company in a sweet spot at a time when the rural market is slowing. However, new product launches are crucial for revenue and earnings growth.

The company said it will be launching organic food products in the “milk products and nutrition" category in the coming months. Investors would do well to watch the progress on this front.

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