Maggi noodles maker Nestle India will showcase its earnings report for the third quarter of the current fiscal year on January 31. For the quarter, margins are likely to be under stress from high coffee and cocoa prices. Weak operational performance is also expected to drag the company's net profit.
According to a Moneycontrol poll of 10 brokerages, Nestle India is likely to report a 3.9 percent year-on-year rise in revenue at Rs 4,781 crore compared to Rs 4,600 crore reported in the same quarter last year.
Net profit for the quarter is likely to fall 9 percent to Rs 696 crore as against Rs 763 reported in the December quarter of the previous financial year.
Earnings estimates of analysts polled by Moneycontrol are in a diverse range. The most optimistic estimate sees Nestle India’s net profit rising by 3.6 percent, while the most pessimistic suggests the net profit could tumble over 16 percent on-year.
What factors are driving the earnings?
Brokerages expect increased competitive intensity in infant nutrition, undoing of price laddering in bundle packs of Maggi, downtrading in coffee business to weigh on revenue growth.
Segment Performance: Nutrition, culinary, and the chocolate portfolio are witnessing a moderation in growth. Beverage business performance was on the back of strong pricing-led growth in coffee. The dairy business remains under stress, noted Antique Stock Broking.
Volume Growth: Analysts at Kotak Institutional Equities expect volume (tonnage) growth at 2 percent versus a low-single digit decline in Q2, as growth continues to be impacted by muted consumer demand and elevated commodity prices.
Margins: While the company has likely implemented a price hike in response to rising commodity prices in cocoa, coffee and palm oil, margins are still likely to be under pressure. Higher A&P spends would also lead to an EBITDA margin contraction.
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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