"Zindagi ek safar hai suhana, yahan kal kya ho kisne jaana" - Nestle India Chairman and MD Suresh Narayanan opened the Q4 earnings concall with these lines from a hit Bollywood song of yesteryears, which basically means there’s no knowing what tomorrow brings. He highlighted that the company had managed to remain consistent in the face of a storm.
The storm he was talking about is the rise in commodity prices. Key raw material prices for the company, which include milk, edible oils, wheat, green coffee, and packaging, have soared between 30-140 percent in the past six years.
To mitigate this, the company has been hiking prices, even in the smaller — chotu — packs. To deal with commodity inflation, FMCG firms usually resort to price hikes or grammage reduction. “We chose not to cut grammage. We want our consumers to get a meaningful product,” said Narayanan.
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But the price hikes have come at the cost of volumes. “We lost out on some market share in noodles in the low-unit packs,” he said. Overall volume for the Maggi and Kitkat maker was the lowest in Q4 at 126,000 tonnes, compared to 148,000 tonnes in Q3, and 138,000 tonnes in Q2 and Q1 each. The company follows a January to December financial year.
The company has also seen slowing growth in tier 2-6 cities towns (less than 1 lakh population). In these areas, growth has moderated from 14 percent in Q2 to 13 percent in Q3 and finally 5 percent in Q4. But, the management is confident that this loss in volumes is temporary.
Meanwhile, demand momentum in metros and tier-1 cities continues to be strong, with an increased focus on premiumisation. This has helped the company deliver 14 percent revenue growth in the quarter gone by.
Rural growth also remains resilient, at 26 percent in Q4 compared to 25 percent in Q3. However, rural India contributes to only 20 percent of Nestle’s topline.
Confectionary and capex
In Q4, the highest growth — 25 percent — was recorded by the company’s confectionery and chocolates segment, followed by 19 percent growth in powdered and liquid beverages, 15.6 percent in prepared dishes and cooking aids, and finally 9.5 percent in milk products and nutrition.
“The overall confectionery market grew 10-12 percent last year, while we grew 25 percent, thus beating the industry,” said Narayanan, adding that the segment will see increased investment over the next few years to close in on the market share gap with Mondelez, the biggest player in this market.
Also Read: What could brighten the outlook for FMCG stocks
When it comes to overall capital expenditure plans, David McDaniel, CFO, said that they invested Rs 500 crore in 2022 and have planned a capex of Rs 1,300 crore in 2023, and Rs 2,000 crore in 2024.
In his concluding remarks, Narayanan said that the company’s focus remains penetration-led volume growth. “We may be delayed but we will not be denied,” he said.
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