Nestle India needs to up its game to justify premium valuations
revenue growth in the past eight years. Against an expectation of around 5% revenue growth, Nestle India posted revenue growth of 1.3% on back of some of its key brands witnessing pressure due to softer consumer demand.
The profitability also suffered on account of inflationary prices of coffee and cocoa. The operating profit margin corrected by 100 bps to 23.4%. Raw material cost stood at 43.6% of revenues-same as the year ago elevated level of 43.7%. It has increased its investment in advertising and marketing during the quarter. Other expenses (as a proportion of revenues) increased to 23.6% against corresponding year-ago level of 21.6%. Despite this, muted consumer demand ensured that only five of the company's top 12 brands grew at double-digits.
The Nestle India stock closed 3.3% lower on Thursday.
Incidentally, the sales from the ecommerce channel contributed to over 8% of domestic sales and posted high double-digit growth-the highest in the last seven quarters. Nestle's out-of-home business comprising hot and cold vending solutions as well as food products continued to be one of its fastest growing businesses posting strong double-digit growth. Its pet care business posted high single-digit growth.
In its bid to make its products healthier, the company has introduced new Cerelac variants with no refined sugar. The expanded Cerelac range in India will consist of 21 variants-of which 14 variants will have no refined sugar.
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