Nestle India reported a net profit of Rs. 515 crores:

Nestle India reported a net profit of Rs. 515 crores:

Nestle India reported a total revenue growth of 16.1% YoY and 1.4% QoQ to Rs. 4036.6 crores. The net profit decreased by 4.3% YoY and 13.3% QoQ to Rs. 515.3 crores. Domestic sales increased by 16.4% with a healthy balance of pricing and volume & mix, and export sales increased by 0.7%. The cost of materials increased due to inflation, particularly edible oil, milk and its derivatives, and packaging materials, partly offset by better realizations. The 15% raw material inflation led to a 304bps decline in gross margins, to 54.0%. The EBITDA decreased by 3.4% YoY and 11.4% QoQ to Rs. 819.5 crores, while the EBITDA margin came in at 20.3%, which declined by 409bps YoY and 293bps QoQ.

Maintaining steady growth through the launch of new products.

The milk products and nutrition sectors witnessed double-digit growth, driven by strong growth in the Milkmaid brand. The out-of-home categories such as confectionaries and liquid beverages registered a strong growth of above 20% on the back of the opening up of offices and business-led initiatives, while the food category continued its strong double-digit streak of growth with improved market share in MAGGI Noodles. The company continued to see strong momentum in megacities and metros, as well as strong acceleration across smaller towns and classes.

Nestle is continuously focusing on entering new categories to maintain its consistent growth momentum in the medium to long term. The company acquired the pet food business of Purina Petcare India Pvt. Ltd. (PFB) from its parent entity Nestlé S.A. for Rs. 123.5 crores. The pet food business (PFB) has evolved very positively and has an exciting future with pet adoption on the rise post-pandemic. PFB has clocked a CAGR of 39.4% over CY18–21 and a turnover of Rs. 36 crores in FY22, valued at a price-to-sales ratio of 3.4x its sales. It derived 14% of its sales from the e-commerce channel. The pet food market in India has been estimated at Rs. 4,000 crores, with dry dog food comprising 75% of the category.
Going forward, leveraging Nestlé India’s network would further accelerate the growth of the pet food business in India. Nestle India Ltd. (NIL) is the market leader in instant noodles and baby food products in India and the No. 2 player in the instant coffee and chocolate segment. One of the most interesting aspects of NIL in recent years has been the spontaneous pace of launches. Since 2016, NIL has launched over 90 products across segments, including new launches as well as variants to boost volume growth and market share gain, with 20 projects in the pipeline.

Nestle continues to focus on innovation to drive growth. New launches across segments have led to strong volume growth over the last few years. The management stated that innovation will be undertaken across product categories and that some of the products launched in the global market can also be introduced in the domestic market. The company is also considering adding new categories that will add value to its existing portfolio. It is expected that the aggressive pace of new innovations, the success of new launches, and the improvement in demand could further accelerate the company’s growth. The major risks for the NIL are increased competitive intensity, rising input prices with an inability to pass on the same, and higher-than-expected A&P spending.

Valuations:

NIL will continue to deliver strong growth going forward as well and will gain share in the core categories, led by distribution expansion, further strengthening of its position in rural areas with the launch of new products backed by R&D capabilities, and growth in the premium portfolio. These factors, along with market leadership in 80% of its categories, mean the company has enough pricing power to further drive premiumization along with volume growth. The EPS was Rs. 53 in the June quarter. The stock is trading at a PE ratio of 80x. The EBITDA was at 50.4x. The ROCE and ROE stood at 147% and 113%, respectively. The stock was trading at Rs. 19196 on September 7th, down by 0.81%.