Nestle India Q4 Results: Profit Rises At Fastest Pace In Six Quarters
A packet and a cooked bowl of Maggi 2-Minute Noodles, manufactured by Nestle India Ltd. (Photographer: Kuni Takahashi/Bloomberg)

Nestle India Q4 Results: Profit Rises At Fastest Pace In Six Quarters

Nestle India Ltd.’s net profit grew at its fastest pace in six quarters, defying the broader slowdown that affected everyone from the makers of soaps and shampoos to cars and appliances.

Net profit rose 38.4 percent year-on-year—the fastest pace since the quarter ended June 2018—to Rs 473 crore in the October-December period, the maker of Maggi noodles and Kit Kat chocolate said in an exchange filing. That’s in line with the Rs 464-crore consensus estimate of analysts tracked by Bloomberg.

Nestle India—that follows January-December fiscal—reported an 8.7 percent rise in its revenue at Rs 3,149 crore during the quarter, also meeting the Rs 3,143-crore forecast.

This comes at a time Indians cut back spending amid stagnating wage growth, dragging the economy’s GDP to a decade-low. Value growth—a combination of volumes and price-led expansion—for fast-moving consumer goods makers slowed for the fifth straight quarter, according to Nielsen India.

Nestle India’s domestic sales, too, increased 10 percent year-on-year to Rs 2,961 crore during the quarter. Its exports, however, declined 9.5 percent to Rs 170 crore as exports to Turkey fell. Exports contribute 6 percent to Nestle India’s overall revenue.

“Although Nestle has been able to report a strong 10 percent domestic sales growth in a tepid demand scenario, it has also benefited from a relatively lower exposure to rural India (25 percent of sales) which has seen significant slowdown in demand from past few quarters,” Prabhudas Lilladher said in a post-earnings research report.

Motilal Oswal in a report said the company’s long-term narrative on top line and earnings growth remains “extremely attractive” not just because of successful implementation of growth strategy in recent years but also because of the packaged food segment in India offering immense growth opportunities.

Nestle India’s operating margin expanded to 21.5 percent in the fourth quarter from 19 percent a year ago. But its gross margins contracted 220 basis points to 56.8 percent as raw material costs rose, which, according to the company, was because of an increase in the prices of milk and dairy products. Raw material costs rose 22 percent to Rs 1,469 crore during the quarter, it said.

“The trend of higher commodity prices witnessed in recent quarters is likely to continue in the near future,” Suresh Narayanan, chairman and managing director at Nestle India, said in the statement.

Emkay Research said the company offered greater volume growth visibility than peers, given its strong pace of innovation, higher urban salience and portfolio as well as distribution expansion. “However, upsides to earnings aren’t visible given steep input inflation and higher spends to drive growth,” the brokerage said in a report.

According to Prabhudas Lilladher, rising raw material costs might cast a shadow on the company’s earnings in the future. “We estimate a 110-basis-point decline in gross [margin] and 40-basis-point decline in Ebidta margin in CY20 due to high input cost inflation,” the brokerage said.

Other Highlights

  • For the full financial year ended December 2019, Nestle India’s profit rose 22 percent year-on-year to Rs 1,970 crore.
  • Its revenue rose 9.5 percent year-on-year to Rs 12,369 crore.
  • Domestic sales increased 10.9 percent to Rs 11,656.79 crore.
  • Ebidta margin remained flat at 23.1 percent.
  • Maggi Noodles, Kitkat, Nestlé Munch, Ceregrow, Maggi Masala-ae-Magic, Nescafé Ready-To-Drink and Nangrow delivered strong performances during the year.

Edelweiss Research said Nestle continued to focus on premiumisation and innovation agenda with launches such as Kitkat Dessert Delight Rich Chocolate Fudge, the Maggi Fusian range and Milo cocoa-malt beverage mix. “In (instant) noodles, the company has crossed the pre-Maggi fiasco levels, highlighting that growth is back to normal in the category.”

Also read: Innovation Cushions FMCG Companies During India’s Consumption Slowdown

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