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Informist, Monday, Apr. 21, 2025

 

By Anand JC

 

NEW DELHI – Uneven recovery of urban demand and inflation in agriculture-based inputs likely hurt Nestle India Ltd.'s top line growth for the March quarter, analysts said. They expect the company to post mid-single digit sales growth in Jan-Mar, driven by a mix of price hikes and limited volume growth. Nestle India will report its earnings for the latest quarter Wednesday.

 

The net profit of the Swiss giant's Indian subsidiary for the quarter ended Mar. 31 is expected at INR 8.70 billion, as per the average of 13 analyst estimates. On a year-on-year basis, the bottom line is expected to fall 6.9% but may grow 25% sequentially. The on-year fall in the bottom line is likely to be higher due to lower other income in the March quarter, caused by lower cash balance after the company invested INR 7 billion in its joint venture with Dr. Reddy's Laboratories Ltd., Kotak Institutional Equities said in a report.

 

Indian companies complained about the slack in urban consumption throughout 2024-25 (Apr-Mar), but hoped for recovery towards the end of the financial year. But this did not play out as expected. Demand remained under pressure in urban areas, and while the recovery in rural demand was stable, it did not accelerate, analysts at Systematix Shares and Stocks (India) Ltd. said in a note. To make matters worse for the KitKat maker, over 75% of its revenue comes from the urban market.

 

Nestle India's March quarter top line is likely to grow only 4.1% to INR 54.81 billion, according to a consensus of 13 analyst estimates. However, it is expected to grow 15% sequentially. Increased competitive intensity in the infant nutrition space, along with down trading in the coffee business likely weighed on the Nescafe maker's revenue growth, analysts at HDFC Securities Ltd. said in a note. Down trading is when consumers switch to cheaper alternatives from the expensive variants.

 

From the data available with Informist, Systematix's forecast for Nestle's March quarter revenue is the highest, while Nirmal Bang's estimate is the lowest. Elara Securities' forecast for Nestle India's bottom line is the highest, while Nirmal Bang's is the lowest.

 

Nestle India's earnings before interest, taxes, depreciation, and amortisation for Jan-Mar is expected to be INR 13.10 billion, according to an average of 12 analyst estimates. The operating profit is expected to grow 17.4% on year and 18.4% sequentially.

 

PRICE HIKES

The fast-moving consumer goods major hiked prices to pass on inflation in key agricultural commodities such as wheat, sugar, cocoa, coffee, and palm oil. Analysts at Kotak noted that inflation in cocoa, coffee, and palm oil was in the range of 50-70% in the March quarter.

 

According to Nuvama Wealth Management, Nestle India likely took price hikes of 2% in the reporting quarter - higher than the 1% price hike in the December quarter, but lower than the 4% in the base quarter. Recently, the fast-moving consumer goods bellwether hiked prices of Maggi instant noodles' 70 gram pack by a rupee to INR 15.

 

While these price hikes will support its top line for the March quarter, these may weigh on the company's margins, analysts said. Nirmal Bang Equities Pvt. Ltd. expects a 140-basis-point on-year decline in the gross margin, while Kotak, IIFL Capital Services Ltd., and Nuvama expect a decline of 185 bps, 150 bps, and 20 bps, respectively. Nestle India's gross margin in the base quarter was at 58.6%, while its EBITDA margin was at 24.5%.

 

VOLUME GROWTH

The lack of any meaningful improvement in demand for consumer staple companies, food inflation, and price hikes are expected to restrict Nestle India's volume growth for the March quarter to 0-4%, according to multiple analysts. As per Nirmal Bang, the six-year compounded annual growth rate of Nestle India's volume growth was 6.5%.

 

While analysts at Systematix, Nuvama, and Kotak expect a volume growth of 3% on year for the March quarter for the Nescafe maker, IIFL expects a growth of only 1.5%. On the other hand, Nirmal Bang has forecast a volume contraction of 4% for Nestle India.

 

At 1259 IST, shares of Nestle India traded 0.2% lower at INR 2,410.90 on the National Stock Exchange.

 

Following are the Jan-Mar earnings estimates for Nestle India Ltd. based on reports from 13 brokerage firms in descending order on the estimate of net profit:

 

Brokerage	Net sales (in INR mln)	Net profit (in INR mln)	EBITDA (in INR mln)
Elara Securities (India) Pvt. Ltd.	54,886.00	9,292.00	13,587.00
HDFC Securities Ltd.	52,544.00	9,241.00	13,501.00
Equirus Securities Pvt. Ltd.	56,047.00	9,101.00	13,608.00
Nuvama Wealth Management Ltd.	55,322.00	9,067.00	13,720.00
IIFL Capital Services Ltd.	54,819.00	8,847.00	13,282.00
Kotak Institutional Equities	55,534.00	8,775.00	13,066.00
Motilal Oswal Financial Services Ltd.	55,145.00	8,731.00	12,986.00
Sharekhan Ltd.	55,260.00	8,700.00
PhillipCapital (India) Pvt Ltd.	55,566.00	8,618.00	13,116.00
Prabhudas Lilladher Pvt. Ltd.	55,825.00	8,490.00	13,120.00
Systematix Shares and Stocks (India) Ltd.	56,165.00	8,482.00	13,245.00
Morgan Stanley	54,125.00	8,378.00	12,391.00
Nirmal Bang Equities Pvt. Ltd.	51,270.00	7,388.00	11,569.00
Average	54,808.31	8,700.77	13,099.25

 

End

US$1 = INR 85.04

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Tanima Banerjee

 

 

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