- 20 Oct 2022
- ICICIdirect Research
Nestlé posts strong volume led growthNESTLEIND - 18820 Change: -107.70 (-0.57 %)
Nestlé saw strong growth of 18.2% to Rs 4591 crore led by Maggi noodles, Milkmaid & Nescafe classic. Growth was contributed by a mix of price & volume growth. Domestic sales grew 18.3% while export sales were up 15.7% driven by expansion in newer markets contributed by Maggi noodles and confectionary segment. Given most FMCG companies were holding high cost inventories, gross margin continues to remain under pressure with 292 bps contraction. The sharp correction in edible oils & crude related packaging costs would be reflected from Q4CY22 onwards. Milk, grains, green coffee prices continue to remain elevated. Employee spends were down 90 bps (as percentage of sales) during the quarter. Overhead spend was slightly up 29 bps mainly on account of high fuel costs. Operating profit grew 6.6% to Rs 1010.7 crore. Operating margin was down 242 bps to 22%. PAT grew 8.2% to Rs 668.3 crore.
Nestlé is experiencing robust growth across segments driven by ad spends & distribution expansion specifically in rural regions. We believe packaged foods category in India has huge potential to grow given lower penetration levels. Moreover, foray in newer categories, expansion of e-commerce channels & increasing manufacturing capacities is also helping in increasing volumes. The sharp dip in commodity inflation would reflect in improving margins from CY23 onwards. We believe higher volumes & margin expansion would boost earnings for the company. We expect profit CAGR of 12.8% in CY21-24. We also believe the company is increasing its addressable market by foraying in newer categories like breakfast cereals, pet foods & other newer categories. We remain positive on Nestlé from a longer term perspective.