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Informist, Tuesday, Feb. 4, 2025

By Anand JC

MUMBAI – Grappling with a consumption slowdown and huge commodity inflation in recent quarters has prompted Nestle India Ltd. to focus on its core products and competencies rather than getting into newer areas, the company's Chairman and Managing Director Suresh Narayanan told analysts in a post-earnings conference call on Tuesday.

"In the overarching framework, 50-60% of your growth will still come from the core.... I'll be foolish if I were to divert investments from the core into the small ones and allow the core to collapse. Because the loss I'm going to have there is going to be much more significant," he said.
 

On slowing consumption, Narayanan noted that growth in urban areas has tapered off while rural areas are looking up. "I think the cause for concern on growth remains," he said. "It's not something that we are completely out of the woods. Urban unemployment, tepid real wage growth, and post-COVID moderation are what we see as the three big reasons."

Customers told the company during its marketing research drive that food inflation continues to impact their budgets. "Research after research, consumers tell us we are buying more expensive but consuming less. Hopefully some of the changes that have been made (in personal income tax in the Union Budget) will mitigate the situation," he said. The central government last week announced that individuals earning up to INR 1.2 million will be exempt from paying tax.

"...part of it I hope does come into consumption," Narayanan said. "Some of it might go into savings and paring down debt. That can happen and that probably will happen. But even if some of it comes into consumption, it can be a positive fillip as far as many of the companies, especially the midstream companies, are concerned."

The company's milk and nutrition portfolio has been hit "very strongly" by inflation, Narayanan said. The price hikes by the company to pass on rising input costs to customers have in turn restricted volume growth, he added.

Competition in the segment from co-operatives has also put pressure on the company's volumes and prices. These reasons have led to a short-term impact on the company's business, Narayanan said.

The company expects the pricing pressure in coffee to continue. The managing director refused to rule out any hikes in coffee prices in the coming quarters. However, with the company stepping up its coffee manufacturing efficiency efforts, he expects hikes in coffee prices to be lower than in 2022 and 2023.

Some quarters ago, Nestle India introduced products priced at INR 10. "It is an emerging price point for us," Narayanan said. "Earlier it was INR 5 and INR 10." In regions where the company is selling products priced at INR 10, it is seeing good results. "Our INR 10 packs are geography- and channel-specific, not ubiquitous," he said. "We don't want to see significant downtrading taking place."

The company was forced to increase the price of its Maggi instant noodles from INR 5 to INR 7 due to inflation, which took a toll on volume, Narayanan said.

Nestle India's market share of baby food products has been stable, but could have shrunk a little due to inflation, Narayanan said. The company's share in wafer-based chocolates, where it has brands such as Munch and KitKat, has gone up.

On the company's operating margin, Narayanan said its current run rate of 21-22% places Nestle India in an optimal position to support the company's growth in a sustainable manner. However, if inflation rises, the situation may change, he added.

Nestle India had reported its December quarter earnings on Friday. The fast-moving consumer goods company reported a net profit of INR 6.96 billion for the December quarter on a revenue of INR 47.80 billion. The growth of Nestle India's top line for the December quarter was the slowest for the period since 2015, hit by slower domestic sales.

On Tuesday, the company's shares closed 0.8% lower on the National Stock Exchange at INR 2,299.45.  End

Edited by Rajeev Pai

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