Nestle India Q1 Preview: Price hikes to support bottom-line, eyes on commodity inflation

Analysts will closely monitor the management’s commentaries on demand and material costs.

KitKat-maker Nestle India is set to report its earnings for the first quarter of the current fiscal year on July 25. The deflation in certain commodities, coupled with price hikes and improved operating leverage shall support the staples giant’s margins and bottomline.

According to a Moneycontrol poll of eight brokerages, Nestle is likely to report an eight percent jump in revenue at Rs 5,060 crore compared to Rs 4,659 crore reported in the same quarter last year.

Net profit is likely to surge 14 percent to Rs 789 crore in the June quarter, from Rs 698 crore from the corresponding quarter during the previous fiscal year.

Earnings estimates of analysts polled by Moneycontrol are in a narrow range, so any positive or negative surprises may elicit a sharp reaction in the stock.

The most optimistic estimate sees Nestle India’s net profit jumping 17 percent on-year, but the most pessimistic projection suggests that net profit will rise seven percent.

What factors are impacting the earnings?

Nestle India’s revenue is expected to grow 9 percent led by price hikes, rural-led distribution expansion and new product development, noted Axis Securities.

Commodity prices: Nestle India’s EBITDA margin is expected to expand from 22.8 percent in Q1FY24 as a result of deflation in palm oil and milk prices. The company also passed on raw material inflation to the consumers, bumping up the price of chocolates and coffee.

Segment performance: Brokerages are mixed on out-of-home products. While Kotak expects the segment to increase its contribution to the topline, Prabhudas Lilladher said, “OOH products had a setback due to heatwaves in many parts of the country whereas beverages did well due to intense summers.

Volume growth: Kotak noted that volume (tonnage) growth might come in at 5 percent, which is largely in line with the previous quarter. There is also an increase seen in pricing growth (versus last quarter) which would be driven by price hikes in Maggi and coffee.

What to look out for in the quarterly show?

Analysts will closely monitor the management’s commentaries on demand and material costs. They will also pay attention to raw material prices and their effect on EBITDA margins, as well as the growing competitive pressure across segments.

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