Nestle India Quarterly Results: Profit Tops Estimates, Rises 27%

• Revenue rose 9% to Rs 5,268 crore (Bloomberg estimate: Rs 5,236.1 crore).

• Ebitda grew 23% to Rs 1,349 crore (Bloomberg estimate: Rs 1,236.8 crore).

• Margin at 25.6% versus 22.7% (Bloomberg estimate: 23.6%).

• E-commerce contributed 6.8% of sales.

During the quarter, Nestle India’s domestic sales increased 8.9% over the previous year to Rs 5,021.6 crore, while exports rose 19% to Rs 232.82 crore.

Unlike peer Hindustan Unilever Ltd., Nestle India has sustained strong growth in a tough environment, marked by rising food inflation and volatile commodity prices, mainly due to lower product penetration in key categories and higher growth in small towns and village—a strategy the company terms as “rurban". Nestle's rural sales at 22% are under-indexed.

Confectionery, particularly the Kitkat brand, has propelled India to become the second-largest market globally, the company said. The milk products and nutrition category saw robust growth despite inflationary pressure.

India also emerged as the largest market worldwide for Maggi.

Separately, the Indian arm of the Swiss food giant formed a joint venture with Dr. Reddy's Laboratories to extend science-backed nutritional solutions to more consumers leveraging the latter's distribution network. 

Dr. Reddy's would own 51% of the JV, with the chocolate-maker owning the rest.

Nestle India also said that the company will soon launch its popular and premium coffee brand Nespresso in India, to cater to growing demand. "In recent years, coffee consumption in India has witnessed a surge, with a discernible trend towards in-home consumption," the company said.

The first outlet will be located in Delhi, and later expand to other key cities. Nespresso coffees and machines will also be sold on online channels.

Looking ahead, Nestle India said that prices of commodities like coffee and cocoa are expected to increase, and milk prices are likely to escalate further during the scorching summer months in the country.

However, commodity headwinds are not the only challenge facing Nestle. The company is also battling negative news on other fronts. Its addition of sugar in infant food in developing markets has come under scrutiny.

The Food Safety and Standards Authority of India has started collecting samples of Nestle’s Cerelac baby cereals to assess any violation of regulations, with regards to high sugar levels. FSSAI's scientific panel are examining the matter. It will take 15-20 days to submit a detailed report.

"The FSSAI issue might cloud returns in near term," said Amnish Aggarwal, head of institutional research, Prabhudas Lilladher Pvt. Currently, the stock trades at 65.5 times CY25 earnings per share, with PAT CAGR at 11.1%.

Shares of Nestle were trading 0.3% lower at Rs 2,494.35 apiece on the Bombay Stock Exchange after the results announcement, as compared with a 0.03% gain in the benchmark Sensex.