Nestle India Limited — Q1 FY23 earnings call

Call held 28 Jul 2022

Management summary

Nestle India's H1 CY2022 results showed 13.3% value growth with a healthy 7% volume component, though profits declined ~3% as the company prioritized growth investment over margin protection in a steep inflationary environment. Management emphasized that growth is the multiplicant for future value creation and that margin management would follow once growth is secured. All town classes showed double-digit growth, validating the broad-based penetration strategy.

Highlights

  • H1 value growth of 13.3% with ~7% volume growth and ~6.3% pricing growth

  • Volume and mix growth of 8.1% maintained despite steep inflationary environment

  • Profit from operations declined 2.9% and net profit declined 2.7% as company invested to protect growth

  • 22 consecutive quarters of positive growth maintained

  • Double-digit growth across all town classes including rural markets

  • Penetration-led volume growth strategy reaffirmed as core DNA

  • Company investing behind growth even at cost of short-term profitability

Concerns

  • Steep commodity inflation across key inputs

Key financials

2 periods

Headline

  • Volume and Mix Growth
    8.1%
  • Profit from Operations Growth
    -2.9%
  • Net Profit Growth
    -2.7%

H1

  • Value Growth
    13.3%
  • Volume Growth
    7%
  • Pricing Growth
    6.3%

What they filed

Q1 FY27: revenue up 25.2%, net profit up 48.2% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue5,104 4,780 5,504 5,096 5,644 +11%5,667 +19%6,748 +23%6,378 +25%
EBITDA1,164 1,095 1,376 1,087 1,227 +5%1,181 +8%1,768 +28%1,522 +40%
Net profit899 688 873 647 743 −17%998 +45%1,111 +27%959 +48%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Town Class Performance
    — All Town Classes

Guidance & targets

Strategy

  • Growth Priority Strategy · Ongoing · High confidence Sustainable volume-led growth over short-term margins
    penetration led volume growth...If there is no penetration there is no volume, there is no growth, there is no sustainability

    — Suresh Narayanan

Margins

  • Margin Approach Margins · Medium-term · High confidence Protecting growth engine, margins to follow
    if growth is not there on the cards, there is no multiplicant...protect its engine for growth

    — Suresh Narayanan

Risks & concerns

  • Steep commodity inflation across key inputs

    high

    Pricing growth of 6.3% required to partially offset commodity inflation; company absorbing some impact on margins

    Management acknowledged

  • Profit decline of ~3% as company invests to protect growth

    medium

    Deliberate management choice to prioritize growth investment over margin protection; expects margins to recover

    Management acknowledged

  • Volume growth sustainability if pricing continues to increase

    medium

    Volume growth at 7% healthy but at risk if further price hikes needed; 22 consecutive quarters of positive growth maintained

    Analyst acknowledged

Q&A highlights

3 direct
Growth vs profitability trade-off in inflationary environment Direct
zero growth, you can have the highest margins and yet you will have a declining business...It is not managing for the quarter, it is managing for the medium term

Management explicitly chose growth over margins, accepting 3% profit decline to sustain 7% volume growth

Asked by Not specified

Broad-based growth across town classes Direct
mega, metro, town class 1, 2 to 6 and villages, all on double digit growth

Universal double-digit growth across all geography tiers validates the penetration strategy

Asked by Not specified

Volume vs pricing growth decomposition Direct
7 percent on volume...6.3 percent on pricing...securing the growth each year

Pricing contribution rising to 6.3% signals inflation headwinds growing; volume still the majority component at 7%

Asked by Not specified

1 min read 4 chapters

Detailed narrative

Growth Over Margins in Inflationary Times

Nestle India chose to prioritize growth investment over margin protection in H1 CY2022, resulting in 13.3% value growth but 2.9% profit decline. Management articulated this as a deliberate medium-term strategy, emphasizing that growth is the multiplicant for value creation. Volume growth of 7% was maintained alongside 6.3% pricing, keeping the penetration-led model intact.

Broad-Based Penetration Success

All town classes achieved double-digit growth in H1 CY2022, demonstrating the success of the RUrban strategy. This broad-based performance validates the distribution infrastructure investments made since the MAGGI crisis. Volume and mix growth at 8.1% indicates healthy underlying demand despite the inflationary environment.

Inflation Management

Management approach to inflation was multi-layered: procurement efficiencies first, manufacturing cost management second, distribution optimization third, and pricing as last resort. Pricing contribution of 6.3% was necessary to partially offset steep commodity inflation. Margins deliberately compressed to sustain growth engine for medium-term value creation.

Consistency Track Record

22 consecutive quarters of positive growth maintained through H1 CY2022, underscoring management execution consistency. The company's penetration-led volume growth CAGR of 8%+ from 2016-2022 period provides a strong foundation. Management expressed confidence that margins would follow once the growth engine was fully secured.

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