Maggi instant noodles maker Nestle India will showcase its earnings report for the second quarter of the current fiscal year on October 17. For the quarter, margins are likely to be under stress from high coffee and cocoa prices.
According to a Moneycontrol poll of seven brokerages, Nestle India is likely to report a 6 percent year-on-year jump in revenue at Rs 5,336 crore compared to Rs 5,036.8 crore reported in the same quarter last year.
Net profit is likely to fall to Rs 888 crore in the June quarter, from Rs 908 crore from the corresponding quarter during the previous fiscal year, as a result of an exceptional item last year. However, adjusted PAT for the quarter is likely to rise around 7 percent, as per estimates by Axis Securities.
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.
What factors are driving the earnings?
Nestle India’s growth in recent quarters has been pricing-led, and some brokerages expect this trend to continue as the company has seen continued commodity inflation.
Margins under pressure: As coffee, cocoa and certain other raw materials see sharp inflationary trends, gross margins are expected to be under pressure. "This, along with higher overheads YoY will lead to flattish EBITDA margin to 24.5 percent," said Yes Securities.
Volume growth: Kotak Institutional Equities noted that volume (tonnage) growth might come in between 2 to 3 percent, marking come improvement from the past quarter. There is also a 4-5 percent increase seen in pricing growth, which would be driven by price hikes in chocolate and coffee. "We anticipate that the company has implemented a price hike in response to rising commodity prices," added Motilal Oswal.
Segment Performance: Infant nutrition is under stress due to increase competition from
pharma players, said PhilipCapital. The brokerage added that Maggi is also seeing pressure due
to local players, while ITC is offering noodles at Rs 5 per pack and better trade margin than Nestle. Nuvama Institutional Equities concurred with this view.
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.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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