Nestle India Q2 Results: Profit Falls Missing Estimates As Costs Rise

Nestle India Q2 profit fell, missing estimates, as sustained input cost inflation offset the benefits from price hikes.

<div class="paragraphs"><p>Packets of Maggi instant noodles on a production line at a Nestle factory. (Photo: Company Website)</p></div>
Packets of Maggi instant noodles on a production line at a Nestle factory. (Photo: Company Website)

Nestle India Ltd.’s second-quarter profit fell, missing estimates, as sustained input cost inflation offset the benefits from price hikes.

Net profit of the maker of Maggi instant noodles and KitKat chocolates—that follows calendar-year financial reporting—fell 13% sequentially to Rs 515.3 crore in the three months ended June, according to its exchange filing. That compares with the Rs 582.2-crore consensus estimate of analysts tracked by Bloomberg.

On a year-on-year basis, the company reported a 4.31% drop in net profits from Rs 538.58 crore.

Nestle India Q2 CY22 Highlights (QoQ)

  • Revenue rose 1% to Rs 4,036.6 crore, compared with the Rs 3,856-crore forecast.

  • Operating profit fell 11% to Rs 819.4 crore, against the projected Rs 879.4 crore.

  • Margin came in at 20.3% versus 23.2%. Analysts had pegged the metric at 22.8%.

  • Total expenses rose 5% to Rs 3,355.6 crore; other expenses rose 4.87% to Rs 908.7 crore impacted by a surge in fuel prices.

Nestle India’s domestic sales rose 1.4% over a year earlier to Rs 3,848.4 crore, driven by volume and product mix. Its exports rose 1% to Rs 158.4 crore.

"The growth is broad based, and while being primarily driven by pricing, has a healthy underlying volume and mix evolution," said Suresh Narayanan, chairman and managing director at Nestle India. "Our endeavour this quarter was to secure our ‘engines of growth’ in this inflationary context and to enable sharp overall business recovery when the pressures abate."

Out-of-home consumption got back to accelerated growth driven by opening up of hotels, education centres and workplaces during the quarter.

"As far as channels are concerned, organized trade witnessed strong growth albeit on a subdued base impacted by Covid wave 2," the company said in a statement. The e-commerce channel, it said, sustained good growth despite higher base from Covid-related tailwinds in the year-ago quarter and contributed 6.4% to the quarterly sales.

On inflation, Narayanan said: "We are witnessing early signs of softening in few of the commodities like edible oils and packaging materials."

Fresh milk, fuels, grains and green coffee costs, however, are expected to remain firm with continued increase in demand and volatility.

Category-wise, the management of the company said milk products and nutrition witnessed "a double-digit growth" across brands with Milkmaid leading the way. The confectionery category led by KitKat and Nestlé Munch performed with "strong double-digit growth" aided by media campaigns, attractive consumer promotions, trade inputs and focused distribution drives, it said.

Beverages also recorded double-digit growth across channels, while the foods category continued its "strong double-digit streak of growth", with improved market share in Maggi Noodles, it said.

"We continued to see strong momentum in mega cities and metros, as well as strong acceleration across smaller town classes," said Narayanan. "We are also heartened by a smart uptick in sales in rural markets this quarter which augurs well for a credible momentum in future." The Maggi maker has been dealing with slowdown in rural markets in the recent quarters.

Share of Nestle India were trading 0.15% higher after the results were announced compared with a 1.35% gain in the benchmark Nifty 50.