Nestle Q1 Results: Profit Beats Estimates, Higher Costs Hurt Margin

Nestle India Ltd.'s first-quarter profit rose, beating estimates, aided by price hikes, but margins contracted because of higher costs.

Net profit of the maker of Maggi instant noodles and KitKat chocolates—that follows calendar-year financial reporting—rose 25% over a year earlier to Rs 736.64 crore in the three months ended March 2023, according to its exchange filing. That compares with the Rs 675.58 crore consensus estimate of analysts tracked by Bloomberg.

It is the first company in the FMCG pack to declare its quarterly results.

For the full fiscal, the company recorded revenues of Rs 16,897 crore, benefiting from price hikes and steady demand for Nescafe and chocolate brands like Munch and Kitkat.

Q1 CY23 Highlights (YoY)

• Revenue jumped 21% to Rs 4,830.5 crore (Bloomberg estimate: Rs 4,361.8 crore).

• Operating profit rose 19% to Rs 1,095.5 crore (Bloomberg estimate: Rs 1,025.4 crore).

• Margin came in at 22.7% versus 23.1% on higher expenses (Bloomberg estimate: 23.5%).

• Total expenses rose 21% to Rs 3,873.8 crore.

• The cost of materials consumed jumped 18.24% to Rs 2,182.7 crore.

During the quarter, Nestle India's domestic sales increased 21.2% over a year ago to Rs 4,612.7 crore, while exports rose 24.9% to Rs 195.7 crore.

"All our product groups delivered double-digit growth, a notable feature in these past four quarters in a row," said Suresh Narayanan, chairman and managing director at Nestle India.

The January-March period marked the highest quarterly growth for the company in the last 10 years, excluding the exceptional quarter in 2016, which was off a low base in 2015, he said.

Rural growth was also "strong, secular, and robust" being volume-led, according to the company. "This gives greater confidence and impetus to our efforts to further enhance our rural footprint," said Narayanan. The move to expand rural penetration lifted Nestle's rural sales over the last few quarters, defying the general slowdown in the packaged foods space.

The out-of-home business continued to accelerate rapidly during the quarter. "We continued with portfolio transformation, continued expansion, route to market focused on relevant geographies, channel prioritisation, and the opening of new kiosks in key locations," the chairman said, adding that the company's strong performance in e-commerce continued during the quarter with significant growth in quick commerce.

Nestle India said it is witnessing early signs of softening in commodities such as edible oils, wheat, and packaging materials. However, the cost of fresh milk, fuel, and green coffee is expected to remain firm in the short to medium term because of the continued increase in demand and volatility.

Shares of Nestle India were trading 0.22% lower after the results were announced, as compared with a 0.18% gain in the benchmark Nifty 50.