Nestle India profit rises 65%; higher prices lift revenues

Packaged foods company Nestle India on Thursday said net profit in the December quarter rose 65% from a year earlier, primarily because of a one-time expense related to an employee benefit pension plan a year ago.

Net profit for the period stood at ₹628 crore versus ₹379 crore reported a year earlier. Revenue from operations grew 13.5% to touch ₹4,256.79 crore thanks to higher volumes and prices, Nestle said in a filing to the exchanges. In the year-ago period, the company reported revenue from operations of ₹3,748 crore.

The company said it will step up capex investments over the next two years as existing factories reach peak capacity.

Last year, Nestle had promised investments of ₹5,000 crore in India over the next few years.

“So, a large amount of capex is coming in the next two years. It’s very clear, we need this now. Many of our plants are at very, very high levels of capacity utilization. It’s been planned for a long time," David McDaniel, executive director, finance and control and chief financial officer at the company said during the company’s post earnings call on Thursday.

Investments are primarily planned for the company’s packaged foods and chocolates portfolio. “The plan right now looks like ₹1,300 crore in 2023 and ₹2,000 crore in 2024, and the balance thereafter," McDaniel said.

The maker of Maggi noodles and Kit Kat chocolates follows a calendar year. For the full year, total sales stood at ₹16,790 crore; the company reported net profit of ₹2,390 crore in calendar year 2022.

Commenting on full-year earnings, Suresh Narayanan, chairman and managing director, Nestlé India, said the company delivered its highest double-digit growth in a decade.During the year, the company continued to strengthen its RURBAN (focus on small towns and villages) approach by sharpening its geographic focus, increasing distribution points, and going deeper into smaller towns and cities.

“This faith, investment and execution in RURBAN is bearing fruits for our company in terms of strong and sustained growth in smaller towns and especially rural villages," he said. Nestle’s footprint in these markets grew 13% in 2022. The company is “quite enthused" and “encouraged" by the growth its reported in rural markets. “Last couple of quarters has been strong double-digit growth,"

Narayanan added. Analysts at ICICI Securities said the results were in line with its estimates on the revenue front. and surpassed estimates on the operating profit and margins front. Gross margin during the quarter contracted by 217 basis points mainly due to elevated milk prices.

“Nestle India has seen very strong sales growth in 2022 led by mix of volumes and prices. The company has maintained profitability despite ~300 basis points contraction in gross margins in calendar year 2022. We believe raw material prices would eventually come down and the company has pricing power to recoup margins in future," analysts said.

The company said that demand outlook in the short to medium term continues to be “robust" with domestic outlook of prices evolving because of supply and weather conditions. However, key categories such as cereals, grains and coffee continued to be at a 10-year high. Edible oil too was at a 10-year high and moderated towards the last quarter (December), the company said in its short-to-medium term commodity outlook.

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