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Nestle Q2 Results Preview: Experts look at 11% rise in revenues on demand spike

Key monitorables will be the outlook on consumption trend; raw material prices, pricing action and new product development launch pipeline”.

October 19, 2021 / 08:20 AM IST
 
 
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The FMCG giant, Nestle India is expected to see its revenues at Rs 3,900 crore with an increase of 11-14 percent on-quarter and by 8-11 percent over the last year, experts suggest. They expect the EBITDA to increase by about 11 percent QoQ and by about 7-8 percent YoY to Rs 950 crore. The company's PAT is expected at Rs 625 crore which is an increase of about 15 percent QoQ and 6 percent YoY.

According to ICICI Direct, the revenues are expected to grow because the demand for milk-based products and noodles has remained strong. The price hikes implemented by the company are also likely to partially contribute to growth.

KR Choksey expects a double-digit growth in domestic sales, driven by an increased demand for ready-to-eat food products and anticipated significant increase for in-home consumption.

The company is aiming to expand its rural distribution channel to benefit from the rising consumption levels in smaller cities and villages and the e-commerce channel is also growing at a faster clip which will benefit the company.

“We expect domestic volume growth to accelerate as chocolate consumption comes back and challenges relating to manufacturing ease off,” said a report from Phillip Capital.

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As per the experts, the company's gross margins are expected to witness a YoY contraction of 125 bps on account of inflationary pressure on input costs. Gross margin pressure will be partially negated by improvement in operational efficiencies (lower overheads) but will still result in a decline of EBITDA margins by about 100 bps.

According to Bloomberg data, the prices of key raw materials for the company have increased quite significantly. Palm oil prices have increased by about 60 percent in the past one year and coffee prices have shot off  57.5 percent.

“We model 90 bps YoY decline in gross margin due to input cost inflation (edible oils and packaging materials), offset by selective price hikes. We expect EBITDA margin to decline 50 bps YoY with lower other expenses partly offsetting GM pressures,” said a Kotak Securities report.

“Higher RM costs to weigh on gross margin. Healthy operating leverage, cost efficiency programme will lead to flat EBITDA Margin,” Phillip Capital said.

Kotak Securities expects the revenues to grow 9 percent  to Rs 3,870 crore from Rs 3,542 crore in the previous year, while EBITDA is pegged at Rs 961 crore - up 7 percent from Rs 899 crore a year ago. It expects PAT to clock YoY growth of 5 percent to Rs 635 crore from Rs 603 crore in the previous year.

HDFC Securities expect the revenues to grow 9.5 percent YoY to Rs 3,880 crore, EBITDA to be at Rs 990 crore with a growth of 9.5 percent YoY and PAT at 680 crore with a growth of 16.5 percent. It expects an EBITDA margin of 25.5 percent and a net margin of 17.5 percent.

According to KR Choksey, the revenue are expected to be around Rs 3,914 crore with a YoY growth of 11 percent, EBITDA at Rs 971 crore and PAT at Rs 650 crore with a respective growth of 10 percent and 11 percent.

It suggests that the key monitorables will be the guidance on price and volume, capacity utilisation levels, mix of segmental products, new products/innovations and cost-control initiatives. These will set the tone about the performance in the coming quarters.

Axis Securities is more conservative in its approach and expects the net profit to be flat at Rs 586 crore with revenues growing by 8 percent to Rs 3,824 crore. “Earnings to de-grow YoY in line with flattish operating performance and lower other income. Key monitorables will be the outlook on consumption trend; raw material prices, pricing action and new product development launch pipeline,” it said.

The stock closed at Rs. 19,438.45 on Monday, up Rs.113 from its previous day’s close. It has generated returns of 26 percent over the past 1 year, 5.7 percent in this financial year, 10.1 percent during the last 3 months and -3.7 percent in the past one month.
Gaurav Sharma
first published: Oct 19, 2021 08:20 am

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