Earnings Outlook
Input cost pressure may weigh on Nestle India Jul-Sept
This story was originally published at 22:36 IST on 9 October 2024
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By Narayana Krishna
HYDERABAD - Inflationary pressure on certain key raw materials and moderate volume growth in some product segments is likely to weigh on consumer goods major Nestle India Ltd's earnings for the September quarter, analysts said.
Continued inflationary pressures on some commodities, especially coffee, cocoa and milk, are expected to weigh heavily on Nestle India's performance. While the net profit is seen impacted by higher raw material prices, analysts said revenue expansion is expected to be led by price hikes, improved distribution reach, and moderate volume increases.
The company’s standalone net profit for the quarter is seen declining 3% year-on-year to INR 8.8 billion, while its revenue is seen up 6% on year at INR 53.2 billion, according to the average of the estimates of nine brokerage houses.
For Jul-Sept last year, Nestle India had reported a net profit of INR 9.1 billion on net sales of INR 50.4 billion. Sequentially, Nestle India's net profit is seen up 17.4%, while net sales are seen rising 10.6%. For Apr-Jun, the company reported a net profit of INR 7.5 billion on net sales of INR 48.1 billion.
Brokerage estimates for the company's net profit ranged from INR 8.5 billion to INR 9.0 billion, while those for net sales ranged between INR 52.1 billion and INR 53.9 billion.
Nestle India is scheduled to announce its Jul-Sep earnings on Oct 17.
While Emkay Global anticipates 6.5% revenue growth, Kotak Institutional Equities models slightly higher growth at 7% year-on-year, supported by 7% growth in domestic sales and an 8% increase in exports. Both brokerage firms expect volume growth in the range of 2-3%, bolstered by price hikes in chocolates and coffee.
YES Securities and Motilal Oswal forecast year-on-year revenue growth of around 6%, with YES Securities expecting domestic sales to rise by the same percentage.
Brokerage Nuvama sees revenue growing 4.9% year-on-year, and pointed to a slowdown in key segments such as Maggi noodles and infant nutrition products. Prabhudas Lilladher foresees 3% volume growth, and pointed to tepid demand and challenges posed by inflationary pressures on key agricultural commodities such as wheat, palm oil, sugar, and coffee.
While staples may see some recovery on the back of rural demand and a normal monsoon, inflationary headwinds remain strong. In particular, Nuvama notes concerns over rising costs of cocoa and coffee, though it expects a gradual pass-through of these expenses to consumers.
Kotak Institutional Equities and Prabhudas Lilladher see volatile commodity prices impacting the company's gross margins sequentially. Inflation in raw materials is also expected to limit the company's pricing flexibility, despite some brokerages forecasting price increases.
EBITDA MARGINS
Antique Stock Broking expects Nestle India's Jul-Sept earnings before interest, tax, depreciation and amortisation or EBITDA margin to improve by 51 basis points year-on-year, though this growth is anticipated to be restricted by higher advertising and promotion spending. Emkay Global forecasts a minor improvement in the EBITDA margin, predicting a rise of 10 bps year-on-year at 24.6%.
Meanwhile, YES Securities sees the EBITDA margin remaining flat at 24.5% due to higher overhead costs. Nuvama, too, foresees a flat EBITDA margin for Nestle India in Jul-Sept.
On the other hand, Kotak Institutional Equities estimates the EBITDA margin at 23.9%, down 50 bps year-on-year, although the brokerage house predicts a quarter-on-quarter improvement of 98 bps. Prabhudas Lilladher too predicts a year-on-year decline of 89 bps, with a sequential improvement of 77 bps, leading to an EBITDA margin of 23.5%.
The average of the estimates of eight brokerages for Nestle India's Jul-Sep EBITDA is INR 12.9 billion; the EBITDA estimates ranged from INR 12.6 billion to INR 13.4 billion.
Following are the Jul-Sep earnings estimates for Nestle India Ltd based on reports compiled by Informist from nine brokerage houses:
|
Brokerage firm |
Net sales |
Net profit |
EBITDA (in mln rupees) |
|
---(in mln rupees)--- |
|||
|
Antique Stock Broking Ltd |
52,062.00 |
8,628.00 |
12,693.00 |
|
Elara Securities (India) Pvt Ltd |
52,646.00 |
8,846.00 |
12,564.00 |
|
Emkay Global Financial Services Ltd |
53,716.00 |
8,970.00 |
13,165.00 |
|
Kotak Institutional Equities |
53,870.00 |
8,649.00 |
12,867.00 |
|
Motilal Oswal Financial Services Ltd |
53,452.00 |
9,012.00 |
13,421.00 |
|
Nuvama Wealth Management Ltd |
52,820.00 |
8,862.00 |
12,867.00 |
|
Prabhudas Lilladher Pvt Ltd |
53,894.00 |
8,514.00 |
12,665.00 |
|
Sharekhan Ltd |
53,140.00 |
8,560.00 |
--- |
|
YES Securities (India) Ltd |
53,385.00 |
8,872.00 |
13,079.00 |
|
Average |
53,220.56 |
8,768.11 |
12,915.13 |
At 1354 IST, shares of Nestle India were trading at INR 2523.40 on the National Stock Exchange, down 2.3% from its previous close. End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Avishek Dutta
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