Nestle India Q2 Results

Nestle India Q2 Results: Net Profit Slips 1% YoY, Consumer Demand Muted

1. Revenue and Profit Performance:

• Nestlé India reported ₹899.49 crore in consolidated net profit for the quarter ending September 30, 2024, showing a 1% year-on-year (YoY) decline compared to the ₹908.08 crore profit in the same period last year.
• Revenue from operations increased by 1.3%, reaching ₹5,104 crore, compared to ₹5,036.8 crore in the previous year’s quarter.
• On a standalone basis, the company’s net profit rose by 8.6% to ₹986.36 crore, higher than the previous year’s profit of ₹908.08 crore.

2. Operating Profit Margin:

• The operating profit margin fell by 140 basis points YoY to 22.9%, lower than Bloomberg’s estimated 24.4%.
• This decline in profit margins is attributed to increased commodity prices, particularly for coffee and cocoa, which have impacted the company’s cost structure.

3. Share Performance:

• Following the announcement of these results, Nestlé India shares fell by over 3%, trading at ₹2,387.40 apiece on the Bombay Stock Exchange (BSE).

4. Challenges Faced by Nestlé India:

• Muted consumer demand and high commodity prices were the primary challenges during the quarter.
• The company acknowledged that some of its key brands experienced pressure due to weaker consumer demand.

5. Positive Developments:

• Despite challenges, five of the top 12 brands posted double-digit growth, and 65% of the top 12 brands, including MAGGI noodles, showed positive volume growth over the last nine months.
• The Beverages segment showed strong performance, with NESCAFÉ CLASSIC, NESCAFÉ SUNRISE, and NESCAFÉ GOLD posting high double-digit growth, driven by category recruitment and premiumisation.

6. Volume and Commodity Outlook:

• Nestlé India’s volume growth for the quarter stood at 1.5%, below estimates of up to 2% growth.
• Commodity prices for coffee, cocoa, cereals, and edible oils remained elevated, with only milk prices showing relative stability.

Advantages of Nestlé India’s Q2 Results:

1. Steady Revenue Growth:
   • Despite a challenging market environment, Nestlé India reported 1.3% growth in revenue, reflecting the company’s resilience.
2. Strong Brand Performance:
   • Several key brands, including MAGGI noodles and NESCAFÉ products, posted positive volume growth and double-digit growth in the beverages segment.
3. Premiumisation and Category Recruitment:
   • Nestlé’s focus on premiumisation and expansion within certain product categories, such as coffee, helped sustain strong performance in these segments.
4. Resilience Amid External Challenges:
   • The company has managed to sustain profits and keep the business stable, despite the pressures of high commodity prices and muted consumer demand.

Disadvantages of Nestlé India’s Q2 Results:

1. Decline in Net Profit:
   • The 1% decline in net profit YoY reflects the company’s struggle to offset the impact of rising commodity prices and subdued consumer demand.
2. Falling Operating Profit Margins:
   • The 140 basis points decline in operating margins is a significant concern, as it indicates increased operational costs due to commodity price inflation.
3. Muted Consumer Demand:
   • Key brands faced challenges in driving growth due to weaker consumer demand, which could hinder future growth if this trend continues.
4. Share Price Decline:
   • The 3% drop in share prices following the result announcement indicates negative investor sentiment, possibly due to the decline in profit and operating margin.

Conclusion:

Nestlé India’s Q2 results reflect a mixed performance. The company showed resilience in growing revenue and maintaining a strong brand presence despite external challenges such as rising commodity prices and softer consumer demand. However, the decline in net profit and operating profit margins signals that Nestlé India faces significant cost pressures. The company’s strategy of focusing on premiumisation and enhancing its beverages segment has yielded positive results, though challenges remain in managing consumer demand and cost pressures.

FAQs:

1. How did Nestlé India perform in Q2 2024 compared to Q2 2023?
   • Nestlé India’s consolidated net profit decreased by 1% YoY, while revenue from operations increased by 1.3%.
2. What factors contributed to the decline in Nestlé India’s profit margins?
   • The decline in operating profit margins was mainly due to elevated commodity prices, particularly for coffee and cocoa.
3. Which segments of Nestlé India’s business showed strong growth?
   • The Beverages segment, including brands like NESCAFÉ CLASSIC, NESCAFÉ SUNRISE, and NESCAFÉ GOLD, posted high double-digit growth, driven by premiumisation and category recruitment.
4. What were the main challenges faced by Nestlé India in Q2 2024?
   • Nestlé India faced muted consumer demand and high commodity prices, particularly for raw materials like coffee, cocoa, cereals, and edible oils.
5. How did Nestlé India’s share price react to the Q2 results announcement?
   • Following the results, Nestlé India’s share price fell by over 3%, reflecting investor concerns over the decline in profit and operating margins.

Nestle India Q2 Results

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