Nestle India, as it battles inflation as well as a tepid demand scenario, is focussing on protecting growth instead of raising prices to maintain its profits margins, the company’s chairman and managing director Suresh Narayanan indicated while addressing investors during a virtual call on July 28.
“In 2018, if you look at the CAGR of commodity inflation, it was at 3 percent and 15 percent in 2022. There are two ways in which the company can tackle this. One is to take industry-led price increases and the other to control costs,” said Narayanan.
“However, the game of market share starts to work against you, when you take indiscriminate price increases to mitigate the situation,” he added.
Nestle India, hence, is working on balancing pricing, and margin expectation and at the same time also trying to retain the growth for the future, said the CMD and hence took price hikes in the range of 8.5 percent to mitigate the impact of 15 percent inflation.
Nestle India grew 16.8 percent in the quarter-gone-by, of this 8.9 percent was price-led and 7.9 percent volume-led.
“Volume is still growing extremely well. That is the bottom line. The day we start having sharp volume decline irrespective of the value growth, irrespective of the profit growth, we will have a system that is hollowed up and eaten from within,” said Narayanan.
The CMD also said that there have been early signs of softening in edible oil prices and packaging, however, he added that green coffee, wheat, fuel, and fresh milk prices, other key commodities for the company are expected to remain firm.
Nestle India reported a 4.31 percent year-on-year (YoY) decline in its net profit for the June quarter (Q2) to Rs 515 crore as compared to Rs 539 crore reported in the year-ago period. The company’s revenue from sales during the quarter stood at Rs 4,006.86 crore, up 15.72 percent YoY, from Rs 3,462.35 crore registered last year in Q2. Nestle India follows a January to December financial year.
According to the company, it witnessed strong growth across the categories in the June quarter. The milk products and nutrition category witnessed double-digit growth across brands with Milkmaid leading the way, it said. The confectionery category led by KITKAT and Nestlé MUNCH performed with strong double-digit growth, while the beverages category turned in another double-digit growth across channels, it said. The foods category continued its strong double-digit streak of growth, with improved market share in Maggi Noodles, said Nestle India.
Brokerage firm Edelweiss said while the company delivered a good beat on sales, its results were a miss on margins. Nestle’s gross margin contracted by 304 basis points due to raw material inflation and its EBITDA margin fell by 295 basis points.Nestle India has also announced the acquisition of pet food business Purina in India and its entry into this new segment. The company bought the pet care firm for Rs 123 crore.