Nestle India Limited — Q2 FY24 earnings call

Call held 25 Oct 2023

Management summary

Nestle India's annual analyst meet showcased consistent 15%+ growth over 9 months with the RUrban strategy driving penetration. CMD Suresh Narayanan emphasized the company's DNA of penetration-led volume growth, noting ~7% volume CAGR from 2018-2022 though slightly tempered by recent inflation. The company massively expanded rural infrastructure with 18,000+ distribution touch points and 191,000 villages covered. Innovation pipeline remains strong with R&D Centre India contributing to global product development.

Highlights

  • 9-month domestic sales growth of 15.1% consistent with prior year's 15% growth

  • Volume CAGR of ~7% from 2018-2022; slightly lower in recent period due to inflation-driven price hikes

  • 5.2 million outlets reached (from 4 million post-MAGGI crisis); 3.6 million indirect, 1.6 million direct

  • Rural reach expanded to 191,000 villages and 108,000 villages with 2,000+ population (target 120,000 by 2024)

  • Distribution touch points more than doubled from 8,500 to 18,000+ since 2020

  • HAAT activations up from 2,500 in 2021 to 18,000 in current period; 20,000 last full year

  • Digital spend at 40-50% of total media in some brands; consumer promotion reduced from 25-30% to <10% for NESCAFE

  • R&D Centre India contributing to global innovation with access to 23 global R&D sites

Key financials

2 periods

Headline

  • 5-Year Value CAGR (2018-2023)
    11.3%
  • 5-Year Volume CAGR (2018-2022)
    7%
  • Total Outlet Reach
    52,00,000 outlets
  • Villages Covered
    1,91,000 villages
  • Distribution Touch Points
    18,000 points

9M

  • Domestic Sales Growth
    15.1%

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 Growth (3Y CAGR)
    15.4% Mega Cities21% Metros10.2% Town Class 111.2% TC2 to TC626.6% Rural

Guidance & targets

Strategy

  • Growth Model Strategy · Ongoing · High confidence Penetration-led volume growth
    penetration led growth will not fall off even for a day

    — Suresh Narayanan

Distribution

  • Village Coverage Target Distribution · 2024 · High confidence 120,000 villages with 2,000+ population

    From 108,000 today

    120,000 is what is the ambition we have said that we will cover by 2024

    — Suresh Narayanan

Innovation

  • Innovation Pipeline Innovation · 2018-2023 · High confidence 125+ products launched in 5 years
    125 new products launched

    — Suresh Narayanan

Risks & concerns

  • Inflation-driven price hikes moderating volume growth below historical 7% CAGR

    medium

    Volume growth lower than historical due to price hikes; management confident of recovery as inflation moderates

    Management acknowledged

  • Competitive intensity in RUrban markets from regional players

    medium

    Regional competition increasing in noodles and other categories; company responding with price points, innovation and activation

    Management acknowledged

  • Geopolitical risks from multiple global conflicts affecting supply chains

    low

    Russia-Ukraine and Middle East conflicts creating supply chain and commodity uncertainty

    Management acknowledged

Q&A highlights

3 direct
Sustainability of volume growth amid inflation Direct
roughly 7% CAGR between 2018 and 2022...I am confident that we will come back to the growth sooner than later

Volume growth moderated from 7% to lower levels due to inflation; management's confidence in recovery is key for valuation

Asked by Not specified

Rural growth strategy and penetration Direct
my growth is pretty neat, 26.6%...the RURBAN journey that we have taken is a logical journey

Rural growth at 26.6% 3Y CAGR is the fastest segment, validating the RUrban strategy as key growth driver

Asked by Not specified

Digital transformation and media strategy Direct
digital spend in some categories is as high as 40-50%...consumer promotion reduced from 25-30% to less than 10%

Shift from promotion-led to equity-building spend should support long-term brand health and margins

Asked by Not specified

1 min read 4 chapters

Detailed narrative

Consistent Growth Engine

Nestle India maintained 15.1% domestic sales growth in 9M 2023, consistent with prior year. Value CAGR of 11.3% over 2018-2023 period with ~7% volume CAGR. Growth broad-based across town classes with rural leading at 26.6% 3Y CAGR. Metros showed strongest absolute growth at 21% CAGR driven by premiumization and e-commerce.

RUrban Distribution Transformation

Post-MAGGI crisis rebuild expanded outlets from 4 million to 5.2 million. Distribution touch points doubled from 8,500 to 18,000+ since 2020. Rural village coverage reached 191,000 with 108,000 having 2,000+ population (target 120,000 by 2024). Salesmen expanded 50% from 2,200 to 3,100. HAAT activations scaled 7x from 2,500 to 18,000+.

Digital and Media Strategy Evolution

Digital media spend reaching 40-50% in some brands. NESCAFE consumer promotion reduced from 25-30% to <10% in favor of equity building. AI and data analytics being deployed for demand forecasting, outlet-level selling prescriptions (NESmitra app), and marketing ROI optimization.

Innovation and R&D Capability

125+ new products launched in 5 years. R&D Centre India (wholly-owned subsidiary of Nestle SA) contributing to global innovation pipeline with access to 23 global R&D sites and 4,000+ employees. Innovation spanning premiumization (NESPRESSO, premium confectionery), health (Dr. Reddy's JV upcoming), and convenience categories.

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