Nestle India To Step Up Promotions To Spur Growth

Nestle India Ltd. plans to launch new products and ramp up its advertising budget to accelerate growth.

The company said in its annual report for 2018 that its operating income grew 11 percent year-on-year to Rs 11,292 crore. It said operating margin rose to 21 percent from 18 percent a year ago. Volumes in tonnage, the report said, rose 11 percent which reflected robust private consumption.

Key Highlights From Nestle India's Annual Report:

Margin Expansion

Margin expanded due to benign input costs and reduction in other expenses despite surge in promotional expenses.

Cost of raw materials-to-sales ratio was 40.9 percent against 43.5 percent a year ago. This led to 260-basis point gross margins expansion to 59.1 percent. Milk and milk derivatives along with low sugar prices which constitute major inputs aided gross margin. Operating costs were curtailed to counter rise in advertising spends.

Elevated Promotional Spends

The company spent Rs 729 crore in advertising and sales promotions, an increase of 44 percent from 2017 with its ratio to operating revenues at 6.5 percent, which was the highest in 15 years. This compares to 5 percent in the year before that. The company brought in new variants in the year, reflecting focus on growth.

Distribution

Highlighting that “it is important to engage many India's within India”, the company has adopted a cluster-based approach to distribution where products are tweaked to the requirements and needs of customers across different regions. The company says this has increased penetration and helped revenues grow. At the same time, the company reduced its distribution centres to 30 from 38 in order to optimise costs.

Key Launches

To ramp up its product portfolio, the company launched 13 products in the year which included a breakfast cereal brand, its maiden move into the category. The company also introduced ‘Nangrow', a nutritious milk drink for children and a ready-to-drink coffee ‘Everyday'. Prepared dishes segment saw the launch of Maggi Special Masala and Maggi Baked Noodles which formed a part of the key launches for the year.

Other Key Metrics

The company's free cash flow for the year grew 16.5 percent to nearly Rs 1,890 crore or Rs 196 per share. Its reserves grew nearly 8 percent with the company's net worth now standing at Rs 3,674 crores. The return on equity ratio stood at over 45 percent, the best in eight years, as per broking firm CLSA.