Nestle India Q1 Results: Profit Falls As Inflation Continues To Bite

Nestle India Ltd.'s quarterly profit fell, missing estimates, as sustained inflation pressures offset benefits from price hikes.

Net profit of the maker of Maggi instant noodles and KitKat chocolates—that follows calendar-year financial reporting—fell 1.25% over the year earlier to Rs 594.7 crore in the three months ended March, according to its exchange filing. That compares with the Rs 629.5-crore consensus estimate of analysts tracked by Bloomberg.

Nestle India Q1 CY22 Highlights (YoY)

• Revenue jumped 10% to Rs 3,980.7 crore, compared with the Rs 3,959.98-crore forecast.

• Operating profit fell 1% to Rs 924.7 crore, against the projected Rs 955.2 crore.

• Margins came in at 23.2% versus 25.8%. Analysts had pegged the metric at 24.1%.

• Cost of materials consumed escalated 22% to Rs 1,845.9 crore.

Nestle India's domestic sales rose 10.2% over a year ago to Rs 3,794.3 crore driven by volume and product mix, while exports fell 1% to Rs 156.6 crore.

The fast-moving consumer goods company faced significant raw material inflation headwinds in dairy, edible oil and is exposed to a potential increase in wheat prices. To counter inflation, the company has taken price hikes of 9-16% in Maggi, Nescafe and milk-based products during the reported quarter.

“The cost of key raw and packaging materials are witnessing 10-year highs, and costs continued to surge this quarter, which has impacted profit from operation,” Suresh Narayanan, chairman and managing director at Nestle India, was quoted as saying in a statement. Continued inflation, he said, is likely to be a “key factor” in the short to medium term.

The cost of key commodities such as edible oils, coffee, wheat and fuel, remains “firm to bullish”, while costs of packaging materials continue to increase amid supply constraints, rising fuel and transportation costs, he said. “Input costs are expected to be on a bullish trend both globally and locally. Fresh milk costs are expected to remain firm with continued increase in demand and rise in feed costs to farmers.”

Category-wise, the company said Maggi sauces and Maggi Masala-Ae-Magic growth was impacted by high base and a gradual shift from in-home cooking to out-of-home consumption, with a progressive opening up of offices and school. Nutrition performed well aided by pricing actions, while milk products continue to face challenges from competition. KitKat and Nestle Munch registered double-digit growth. Nescafe Classic and Sunrise delivered “credible double-digit growth” during the first quarter, it said.

Robust performance in e-commerce continued as the channel grew 71% and now contributes 6.3% of domestic sales. “We will continue to leverage e-commerce further through meaningful shopper insights, data analytics, speed, sharp communication and customization,” said Narayanan.

Share of Nestle India were trading 0.69% higher after the results were announced compared with a 1.16% gain in the benchmark Nifty 50.