Nestle Dec quarter net down 9% to Rs 167 cr; note ban erodes Maggi share

Higher tax, contingency provisions take toll; Maggi share now 60%, from 78% pre-ban

 

Fast moving consumer goods (FMCG) major Nestlé India’s net profit went down 8.7 per cent year on year (y-o-y) in the December quarter to Rs 167.3 crore, from Rs 183.2 crore earlier. This is its lowest quarterly net since the September quarter of 2015, when sales were severely hit after a ban on its flagship product, Maggi instant noodles.

Net sales grew 16.2 per cent over a year to Rs 2,261 crore, backed by 16.9 per cent growth in domestic sales, while exports grew 7.9 per cent. Sales were hit by the demonetisation of currency notes, the company said.

Profit suffered due to Rs 81 crore of provisioning for contingencies; during last year's quarter, it was nil. This was mainly for costs on litigation and related disputes, it said. And, tax expenses grew 36 percent y-o-y. Its margin at the operating level grew slightly, with double-digit growth in raw material and employee costs and other expenses (including advertisement and promotional costs) offsetting the increase in sales.

Nestlé, which follows a calendar year format, declared its net sales for 2016 grew 12.8 per cent y-o-y to Rs 9,159 crore. In 2015, these had declined 17 per cent, due to the absence of Maggi noodles, which used to contribute about 26 per cent of its total sales, from the domestic market for nearly five months. Net profit jumped 64.5 percent to Rs 926.5 crore, from Rs  563.3 crore in 2015.

“The year saw Nestlé India’s single-minded commitment to build back Maggi. Innovation and renovation has been the key platform and the year saw us launch a historic and unprecedented over 30 new products and variants, across all categories. Our digital capabilities, our distribution and supply chain efficiencies, and continued focus on food quality have contributed,” said Suresh Narayanan, chairman and managing director, Nestlé India.  He said increased focus on health, wellness and nutrition remained “key pillars of growth”.

 

Net profit and margin, however, continue to remain below the pre-Maggi ban level, more than a year after relaunch of the noodle brand. In 2014, the last full year when the impact of the ban was not accounted in, it had Rs 1,185 crore net profit, with net profit margin at 12 per cent. In 2016, the latter margin was 10.1 per cent.

In the past few years, Nestlé has been trying to bring back volume growth, as all its categories, except products under the Maggi brand, showed declining volume growth. Maggi, which includes most of its products in the ready-to-cook food items, had been growing by volumes till the June 2015 ban. Instant noodles from Nestlé used to have 78 per cent share of the Rs 3,800-crore market. We regained 60 per cent market share in 2016, Narayanan said.