- 29 Jul 2022
- ICICIdirect Research
Nestle India posted Q1FY23 numbersNESTLEIND - 19090 Change: 137.30 (0.72 %)
News: Nestle India witnessed a revenue growth of 16.1% to Rs4036.6 crore led by 8.5% price growth & 7.6% volume growth during the quarter. Some of the important out of home space like hotels, restaurants, education institutes & workplaces opened up completely which aided the growth in Q2. Given most of the commodity prices were at elevated levels for most part of the quarter, gross margins contracted by 304 bps. The company was able to save some costs with 77 bps lower employee spends (% to sales) however, other overhead spends were higher by 81 bps. We believe higher freight cost due to sharp increase in fuel prices has increased this expense. Operating margins contracted by 409 bps to 20.3% during the quarter. Other income was down by 34.3% due to lower liquidity. Net profit de-grew by 4.3% to Rs515.3 crore.
Views: Nestle India witnessed its highest growth in 15 quarters aided by strong pricing growth & sustainable high single digit volume growth (7% in H1CY22). On a three year CAGR basis, revenue growth has been robust 10.4%. We believe opening up of modern trade, out of home space & high pricing growth has led to this strong growth. Though, margins have been adversely impacted by commodity inflation, the trend of softening inflation is likely to result in margin recovery from December-quarter onwards. With the acquisition of ‘PURINA’ in Pet-Food & launch of ‘GERBER’ in nutrition space, the company is increasing its addressable market in its existing & newer category. This would pave the way for long term growth in underpenetrated packaged foods & fast growing pet food category in India. Though, we are positive on long term growth prospects for the company, the stock is trading at premium multiples.