Nestle Q1 Preview: Analysts eye strong revenue growth, margin expansion

Nestle India experienced robust revenue growth during the quarter. The company, analysts believe, gained from enhanced distribution. Thus, it is expected to see margin expansion of over 100 bps.

Nestle Q1 preview: Fast moving consumer goods (FMCG) player Nestle India will release its June quarter of financial year 2025 (Q1FY25) results on Thursday, July 25, 2024.

Analysts said that demand in the FMCG sector has strengthened, driven by strong performance in the Summer portfolio. While demand was initially weak early in the quarter, it steadily improved in the latter part. Rural markets surpassed urban markets, largely due to a favourable comparison with a low base from previous periods.

That said, Nestle India, in particular, experienced robust revenue growth during the quarter. The company, analysts believe, gained from enhanced distribution. Thus, it is expected to see margin expansion of over 100 basis points year-on-year (Y-o-Y).

Analyst further opined that beverage and discretionary categories, along with companies expanding their geographical footprints, are expected to outperform other FMCG peers. From this perspective, analysts foresee Nestle posting strong revenue growth.

Earlier this month, Nestle India said its shareholders have approved to continue paying royalty to its parent firm at the current rate of 4.5 per cent of the net sales.

Meanwhile, on the bourses, Nestle stock was trading 1.45 per cent lower at Rs 2,543.10 per share, at 9:25 AM. In comparison, BSE Sensex was trading marginally lower at 80,380.40 levels.

Against this, here’s what brokerages are expecting from Nestle in the June quarter results:

Axis Securities
 

According to Axis Securities analysts, Nestle India is set for a 9 per cent revenue growth driven by factors such as price increases, expanded distribution in rural areas, and new product development. 

They anticipate a considerable improvement in earnings before interest, taxes, depreciation and amortisation (Ebitda) margin by 237 basis points year-over-year, attributed to lower prices of palm oil and milk, price adjustments, and operational efficiencies from increased scale.

Key areas of focus, analysts said, include the demand dynamics between rural and urban markets, competitive pressures, and trends in raw material costs.

Based on these factors, Axis Securities projects Nestle India's Q1FY25 revenue to come in at Rs 5,033 crore; profit of Rs 781 crore; Ebitda of Rs 1,166 crore; and Ebitda margin of 23.2 per cent

Kotak Securities

Kotak Securities forecasts approximately 10 per cent year-over-year growth in Nestle India's net revenues, driven by a strong 10 per cent growth in domestic sales and a robust 20 per cent increase in exports, partially offset by a decline in other operating income.

Analysts anticipate a 5 per cent growth in volume (tonnage), similar to the previous quarter, suggesting a slight uptick in pricing growth compared to earlier periods. This increase, they believe, is likely influenced by price adjustments in products like Maggi and coffee.

Kotak Securities projects a 45 basis points year-over-year expansion in gross margin, reaching 55.3 per cent. This represents a contraction of 155 basis points quarter-over-quarter, primarily due to anticipated moderation in the sharp inflation of coffee, cocoa, and milk prices that had driven major margin expansion in the previous quarter. 

Ebitda margin is expected to stand at 23.7 per cent, reflecting a 95 basis points increase year-over-year but a 175 basis points decrease quarter-over-quarter.

Thus, Kotak Securities expects a revenue of Rs 4,658.5 crore; Ebitda at Rs 1,058.8 crore; Ebitda margin of 22.7 per cent; and profit after tax of  Rs 698.3 crore from Nestle this quarter.

Elara Capital

Elara Capital analysts said that essential commodities like crude oil and palm oil remained stable in Q1 compared to the previous quarter. However, they noted a sequential increase in prices for tea, coffee, milk, and cocoa. 

Despite this, overall commodity prices were seen as favourable for the sector. Additionally, companies have concentrated on increasing promotions to drive volume, while maintaining minimal price reductions.

Based on these observations, analysts anticipate Nestle's Q1 revenues to reach Rs 5,048 crore, with profits around Rs 823 crore, and Ebitda expected to be approximately Rs 1,172.8 crore.

Nuvama Institutional Equities 

According to Nuvama, “Revenue/Ebitda/volume shall grow 7.1 per cent/13.1 per cent/4 per cent Y-o-Y (15.4 per cent/25 per cent/7 per cent in June 2024 (23; 9 per cent/20.5 per cent/5 per cent in March 24). We expect gross/Ebitda margin to expand 149 bps/127 bps Y-o-Y to 56.3 per cent/24 per cent.”

Despite concerns over cocoa and coffee costs, analysts expect these to gradually pass through to end-consumers.

Thus, Nuvama predicts Nestle to report revenue of Rs 4,988 crore, profit after tax (PAT) of Rs 811.7 crore, Ebitda of Rs 1,197.1 crore, and an Ebitda margin of 24 per cent.