Nestle India Q1 profit shrinks but revenue growth meets expectation

Fast-moving consumer goods major Nestle India posted lower profit for the fiscal first quarter after taking a hit in margins from higher cost of materials, but it just about beat street estimates with double-digit revenue growth.

Nestle India posted a net profit of Rs 594.71 crore for the three months ended March 31, compared with Rs 602.25 crore in the same period a year ago. While analysts had expected the company to take a hit in margins, they were still expecting the company to post low single-digit profit growth, which it missed.

The company’s revenue rose almost 10.2% to Rs 3,980.7 crore, beating expectations. Most analysts were expecting the firm to come with high single-digit revenue growth, though a few did project the topline growth around 10%.

Nestle India’s share price was down nearly 1% in a strong Mumbai market and was trading at Rs 18,140 apiece in mid-day on Thursday.

Other key highlights:

1) Total sales and domestic sales for the quarter increased by 9.7% and 10.2%, respectively.

2) Domestic sales growth is broad-based and largely driven by volume and mix.

3) Export sales were lower by 1% largely due to change in product mix.

4) The cost outlook for key commodities like edible oils, fresh milk, coffee, wheat, fuel remains firm to bullish.

5) Costs of packaging materials continue to increase amid supply constraints, rising fuel and transportation costs, hinting at continued pressure on margins.

6) Beverages (coffee) and confectionery business posted double-digit growth.

7) Nutrition and noodles business unit also performed well but the sauces and milk products business were impacted.

8) Profit margin from operations at 21% was a tad lower than 22.2% for 2021 calendar year.

Management commentary

Suresh Narayanan, Chairman and Managing Director, Nestlé India said key brands continued to perform well with Maggi Noodles, KitKat, Nestlé Munch, Nescafé Classic and Sunrise posting double-digit growth in this quarter.

“This growth across a range of categories was enabled by a mix of innovative campaigns, attractive consumer promotions, analytics-based consumer insights, geo-targeted distribution drives and leveraging the opportunity of festive seasons. Our endeavour is to continue on the path of penetration led volume growth with determination.”

He also said that Nestle India continued to progress well on its rural-urban journey and this had borne fruit with strong sustained rural growth performance, complemented by strong growth in smaller town classes and urban agglomerates. “Our robust performance in e-commerce continued as the channel grew by 71% and now contributes 6.3% of domestic sales,” he said.

On the flip side, he reiterated what the firm had highlighted in previous quarters. “The cost of key raw and packaging materials is witnessing 10-year highs, and costs continued to surge this quarter which has impacted 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.