Nestle India Ltd’s 9 per cent year on year revenue growth in the September quarter is not much to complain about. However, margin dropped with gross profit margins declining 214 basis points year-on-year to 57.3 per cent.
“The quarter witnessed higher commodity prices particularly in milk and its derivatives, which are likely to continue in the near-term future,” Suresh Narayanan, chairman and managing director, Nestle India.
Nestle India follows a January to December financial year and the September quarter was the third one for the company. Earnings before interest, tax, depreciation and amortisation (Ebitda) margin too contracted, albeit, by a slower 131 basis points. One basis point is one-hundredth of a percentage point.
As mentioned earlier, Nestle India’s revenue growth last quarter was reasonable. Domestic sales, comprising nearly 95 per cent of the company’s sales, increased by 10.5 per cent. “Domestic sales growth looks impressive (we estimate 9 per cent volume growth) in the context of the overall demand slowdown,” pointed out ICICI Securities in a report on 10 November. On the other hand, export sales declined by 7 per cent owing to lower coffee exports to Turkey.
Nestle India’s shares were trading 1 per cent lower on the National Stock Exchange in early morning deals. However, the company’s investors are a happy lot. So far, this financial year, the stock has increased by around 30 per cent. At the same, valuations are pricey and the sharp appreciation may well cap meaningful upsides, going ahead.