Nestle India Limited — Q3 FY23 earnings call

Call held 16 Feb 2023

Management summary

Nestle India delivered its highest organic growth in a decade at 14.8% in CY2022, with approximately 6-7% from volume growth and the balance from pricing necessitated by steep commodity inflation. While Q4 volume growth moderated to 3-4%, the company maintained ~20% operating margins through efficiency programs. Management emphasized that securing growth was paramount even if margins faced short-term pressure, and expressed confidence in returning to higher volume growth as inflation moderates.

Highlights

  • Full year organic growth of 14.8% - highest in the decade; Q4 growth at 14.9%

  • Volume and mix growth of 6-7% for full year; Q4 volume growth of 3-4% with rest from pricing

  • Profit from operations margin maintained at ~20% despite steep commodity inflation

  • Net profit growth of 12.8% on reported basis; operating margins improved in Q4 after dip

  • 8%+ volume-led growth CAGR over 2016-2022 period

  • Operating margins expanded despite inflation through procurement efficiencies and cost management

Key financials

2 periods

Headline

  • Full Year Organic Growth
    14.8%
  • Full Year Volume Growth
    7%
  • Profit from Operations Growth
    4.2%
  • Net Profit Growth
    12.8%
  • Operating Margin
    20%

Q4

  • CY22 Growth
    14.9%

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.

Guidance & targets

Growth

  • Growth Strategy Growth · Ongoing · High confidence Penetration-led volume growth securing market shares
    growth is what ensures...if there is no penetration there is no volume, there is no growth

    — Suresh Narayanan

Margins

  • Margin Management Margins · Ongoing · High confidence Balanced between growth investment and profitability
    margins will start to come back, but if growth is not there on the cards, there is no multiplicant

    — Suresh Narayanan

Risks & concerns

  • Volume growth moderating from 7% to 3-4% in Q4 as pricing catches up

    medium

    Q4 volume growth at 3-4% vs full year 6-7%; pricing contribution increasing from commodity pass-through

    Management acknowledged

  • Steep commodity inflation requiring repeated price hikes affecting consumer demand

    medium

    Multiple price hikes taken during the year; management investing behind brands to protect growth despite margin pressure

    Management acknowledged

  • One-off charge impacting net profit margin slightly

    low

    Net profit margin dipped slightly from 14.4% to 14.2% due to one-off charge

    Management acknowledged

Q&A highlights

3 direct
Volume growth sustainability amid inflation Direct
roughly about 6 to 7% is coming out of volume growth and the balance is coming out of pricing growth

Decomposition of growth into volume (6-7%) and pricing (~8%) shows increasing pricing contribution as inflation persists

Asked by Not specified

Operating margin resilience Direct
still managed to keep the profit levels at about 20%...operating margins actually have turned the tide, have improved

Maintaining 20% OPM despite steep inflation validates the efficiency and cost management programs

Asked by Not specified

Growth model prioritization Direct
It is not managing for the quarter, it is managing for the medium term

Confirms management willing to sacrifice short-term margins to protect volume growth engine

Asked by Not specified

1 min read 4 chapters

Detailed narrative

Decade-High Organic Growth

CY2022 delivered 14.8% organic growth, the highest in the decade, built on a non-trivial 10.7% base from prior year. Full year volume growth of 6-7% with 8% pricing. Q4 growth maintained at 14.9% though with lower volume contribution of 3-4% as pricing effects caught up. Operating margins at ~20% showed improvement in Q4 after mid-year dip.

Growth Over Margins Philosophy

Management articulated clear priority: securing growth over protecting margins in inflationary environment. Net profit grew 12.8% with margins at 14.2% vs 14.4% prior year. Profit from operations grew 4.2% from Rs.32 billion to Rs.33.7 billion. One-off charge created minor drag. Management emphasized that zero growth with highest margins yields no value; growth must be protected.

Volume-Led Growth Track Record

CIL maintained 8%+ volume CAGR from 2016-2022, demonstrating consistent penetration-led strategy execution. Growth balanced across all town classes with 15% domestic sales CAGR. Pricing was used as last resort after procurement efficiencies and cost management measures exhausted through Nestle Business Excellence program.

Innovation and Category Development

Innovation continued as growth driver with R&D Centre India contributing to product development pipeline. Premiumization trends growing across prepared dishes, coffee, and confectionery. Company maintained focus on securing growth across all categories while managing the inflationary headwinds through efficiency and targeted pricing.

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