Nestle India's Q2 Net Profit Climbs 8.6% Amid Challenging Environment; Revenue Rises Marginally by 1.3%

Nestle India has reported its Q2FY25 financial results, showcasing a moderate yet resilient performance. The company’s net profit for the second quarter increased by 8.6%, reaching ₹986 crore from ₹908 crore in the same period last year. While the profit growth remained strong, revenue from operations saw a marginal rise of 1.3% year-on-year (YoY) to ₹5,104 crore, up from ₹5,037 crore in Q2FY24.

Performance Highlights: Profit Grows Amid Cost Pressures

Despite a modest revenue growth, Nestle India’s performance stands out in the current challenging economic environment, marked by muted consumer demand and elevated commodity prices, especially for coffee and cocoa. The company's ability to grow profits by 8.6% highlights its operational resilience, even though it faced pressure on margins due to increasing costs.

At the operational level, EBITDA (earnings before interest, tax, depreciation, and amortization) fell by 4.7% to ₹1,168 crore, down from ₹1,225 crore in the same quarter last year. The EBITDA margin weakened by 130 basis points (bps) to 22.9% from 24.2% YoY, indicating the impact of rising input costs on profitability.

However, on a consolidated basis, net profit slipped marginally to ₹899 crore, compared to ₹908 crore in Q2FY24.

Resilience Across Top Brands

Nestle India’s growth is being driven by its top-performing brands, with 5 out of 12 of its leading brands showing double-digit growth. According to Suresh Narayanan, Chairman and Managing Director of Nestle India, brands such as MAGGI noodles have seen positive volume growth over the last nine months, reflecting their strong market positioning.

The beverages segment performed particularly well, achieving double-digit growth across the NESCAFÉ CLASSIC, NESCAFÉ SUNRISE, and NESCAFÉ GOLD brands. This growth can be attributed to premiumization and a successful focus on category recruitment, driving strong consumer interest in these products.

Other key contributors to the company’s strong brand performance include:

MILKMAID, which recorded high double-digit growth.

Masala-Ae-Magic, which continues to thrive with high double-digit growth.

The toddlers' range, which also saw double-digit growth.

KITKAT, which posted high single-digit growth.

Petcare business, a newer category for Nestle, demonstrated single-digit growth, marking another positive outcome in the company's expanding product portfolio.

In addition to these successes, the company's Out-of-Home business also achieved strong double-digit growth, further contributing to its overall performance in Q2.

Commodity Prices Weigh on Margins

Nestle India continues to navigate a tough commodity price environment, especially for coffee and cocoa. According to the company, prices for cereals and edible oils have also risen due to recent market developments, which have put further pressure on operating margins. However, the company did note relative stability in milk prices and packaging costs, providing some relief in its cost structure.

Nestle remains focused on addressing these challenges, as indicated by Suresh Narayanan, who highlighted robust action plans to support brands experiencing softer consumer demand.

Nestle India's Market Performance and Share Price

Despite the company's relatively stable financial performance, Nestle India's shares faced some pressure in the market, trading 2.93% lower at ₹2,390.00 per share on the BSE by 1:30 PM on October 17, 2024. The drop in share price could be attributed to the weaker EBITDA margins and concerns about the prolonged impact of elevated commodity prices.

Future Outlook

Looking ahead, Nestle India remains optimistic about its long-term growth prospects, driven by its focus on innovation, brand strength, and robust operational execution. The company plans to continue leveraging its strong market position in key categories like beverages and food, while addressing cost pressures through strategic initiatives.

For investors, the outlook for Nestle India remains positive despite near-term challenges. The company's ability to deliver profit growth amid a difficult environment signals strong fundamentals, and its diversified portfolio of leading brands provides confidence for long-term stability.

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