Nestle India Q1 Results Review - Growth Moderation In A Tough Environment; Strength In The Core: Systematix

Systematix Research Report

Nestle India Ltd. delivered Q1 FY25 results significantly below our and consensus expectations. Revenue growth of 3% YoY (on a high base of +15%) was largely driven by pricing, with volume growth of 1% YoY impacted by subdued consumption demand amid ongoing food inflation concerns.

Domestic sales grew slightly higher at 4% YoY, with all product groups delivering growth led by beverages growing in double-digits. Performance was strong in key channels of organized retail trade (double-digit growth) and out-of-home (now with 830+ branded kiosks) driven by portfolio innovations, ‘Rurban’ distribution expansion, penetration and premiumization.

While gross margin expansion was robust at +280 basis points YoY to 57.6% aided by range-bound raw material costs, management flagged inflationary headwinds in some key inputs (coffee, cocoa, cereals and grains) which could limit gross margin expansion in coming quarters.

With most of the gross margin gains getting re-invested in brand-building/ marketing spends (other expenses +11% YoY, +170 bps YoY to 24% of sales), operating margin expansion was limited to 40 bps YoY at 23.1%, leading to Ebitda/adjusted profit after tax growth of 6%/7% YoY.

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