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Informist, Monday, Jan. 27, 2025

By Anand JC

MUMBAI – Subdued consumer demand and higher prices of raw materials likely impacted Nestle India Ltd.'s volume growth in the December quarter, as analysts are expecting the fast moving consumer goods major to report a mid-single digit top-line growth. 

Nestle India's revenue from operations in the December quarter is expected to be INR 48.10 billion, up 4.6% on year, as per an average of 14 brokerage estimates. Sequentially, the top line is expected to fall 5.8%.

The company's top line growth has been impacted by subdued consumer demand and elevated prices of key commodities like coffee, palm oil, wheat, and cocoa. Motilal Oswal Financial Services anticipates that the company took price hikes during the quarter to offset this surge in input prices.

Analysts at Systematix Shares and Stocks (India) expect Nestle India to report a mid-single digit growth in revenue led by pricing and low volume growth. Nuvama Wealth Management and Axis Securities expect the FMCG company to report a 2% on-year volume growth in the December quarter. Nestle India's on-year volume growth was 3% in the September quarter, and 9% in Oct-Dec 2023.

Nestle India's bottom line is expected to grow 8.3% on year in the December quarter to INR 7.10 billion, as per an average of 14 analysts' estimates. Sequentially, the net profit is seen falling 28.1%.

The company's earnings before interest, taxes, depreciation, and amortisation in the December quarter is expected to be INR 10.14 billion, based on an average of 13 analyst views. In the same quarter a year ago, Nestle India's EBITDA was INR 10.95 billion and in the September quarter it was INR 11.68 billion. Nestle India's December quarter EBITDA is expected to decline on-year owing to a high base, sharp inflation in coffee and palm oil prices, and a lack of operating leverage, Nuvama Institutional Equities wrote in a report.

INFLATION TENSION

Analysts expect Nestle India's net sales to show the impact of festival demand while high input cost inflation will turn out to be a drag on the company's margin. "Cocoa, coffee and palm oil costs remain a worry, but we estimate a gradual pass-through to end consumers," Nuvama said in a report.

While Axis Securities expects Nestle India's December quarter EBITDA margin to decline 189 basis points on year to 22%, Nuvama sees it falling 138 basis points to 22.5%. On the contrary, Emkay Global Financial Services and KR Choksey Research expect Nestle India's EBITDA margin to expand 10 bps and 39 bps each.

As per Systematix, elevated advertising and distribution costs will weigh on the operating margin of Nestle India.

CONSUMPTION DIVERGENCE

The majority of companies in India lamented the divergence in demand trends in urban and rural areas. FMCG companies flagged a demand slowdown in urban areas, as rural counterparts raced ahead.

"Nestle is experiencing a slowdown in Maggi noodles as at the lower end of consumption, some consumers are preferring cheaper snacking options such as biscuits and namkeen," Nuvama said in a note.

An increased competitive intensity in infant nutrition, the undoing of price laddering in bundle packs of Maggi noodles, and downtrading in the coffee business are expected to weigh on Nestle India's revenue growth, HDFC Securities said in a report.

On Monday, shares of the FMCG major closed at INR 2,174.8 on the National Stock Exchange, down 1.5%. Nestle India disclosed its September quarter earnings on Oct. 17. Since then, shares of the company have depreciated roughly 8.6%. The company will release its earnings on Friday.

Following are the Oct-Dec earnings estimates for Nestle India Ltd. based on reports from 14 brokerage firms in descending order on the estimate of net profit:

End

Edited by Akul Nishant Akhoury

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