Nestle's net takes a hit on inflation, tepid demand

Nestle, one of the largest packaged foods companies India, continued to battle inflationary pressures impacting its net profit, which rose a marginal 2.35 per cent during the July-September 2012 quarter to Rs 267 crore. Net sales were also somewhat sluggish during the quarter, growing just 7.8 per cent to Rs 2,124 crore versus Rs 1,969 crore last year.

Analysts had said that packaged food companies would continue to feel the pinch on account of a slowdown in discretionary spends in the September quarter. The signs were visible in the June quarter itself, when most packaged food companies saw their volumes come off a bit by three to four per cent.

Nestle’s chairman and managing director Antonio Helio Waszyk said that 2012 remained a challenging year.

“While some of our actions such as portfolio rationalisation, channel prioritisation and focused innovations have started to yield results, other corrective actions on demand generation in specific categories will take some time,” he said.

For the quarter under review, Nestle saw its domestic sales growth suffer due to the price rises it undertook to offset inflationary pressures in food. An attempt to optimise its channel and portfolio mix during the quarter also saw a tepid response from consumers leading to lower domestic sales growth, Nestle said. The company did not elaborate what these measures were.

Nestle's total expenditure rose nearly 10 per cent to Rs 1,753.5 crore in the September quarter, compared to Rs 1,598 crore last year, thanks to a 9.6 per cent increase in raw material costs.

But the company also had to cough up more on employees benefits, which rose 17.39 per cent.

The company has said that it has completed its nearly Rs 2,500-crore manufacturing expansion during the quarter and has also extended distribution reach to 4 million outlets. According to analysts, benefits of these measures, especially on the distribution front, are likely to accrue in the forthcoming quarters.

Helio said that the company continued to be committed about India and stood by its strategy of long-term sustainable profitable growth.

The company in the past few months has pushed small packs of its Maggi Noodle brand, priced at Rs 5, in the hope of catching consumers who are scaling down consumption of packaged food products. While Rs 5 packs of Maggi noodles have been in the marketplace for over a year now, Nestle began pushing it aggressively only recently, owing to the slowdown in discretionary spends.

The Maggi campaign with actor Amitabh Bachchan has been well received, Nestle said.

Nestle stock was down 0.93 per cent on the Bombay Stock Exchange (BSE) to close at Rs 4,820 on Monday. Intra-day high was Rs 4,885, while the intra-day stood at Rs 4,801.