Nestle Q3-FY24 Result Analysis

Finance Analysis Report on Nestle India

Nestle India, leading FMCG player, recently announced its financial results for fourth quarter ended December 31, 2023. Company's performance during this period & its future prospects have been analysed based on provided information.

Financial Performance

1. Revenue Growth 

Nestle India reported revenue growth of 8.05% year-on-year for fourth quarter, reaching Rs 4,600 crore. However, this growth figure was below market estimates, which projected 11% growth rate.

2. Profitability

a) Net profit for quarter saw modest increase of 4.4% year-on-year, amounting to Rs 655.6 crore. 
b) Growth in profitability was primarily driven by product price hikes & expanded gross margins, which reached 12-quarter high of 58.6%.

3. Operational Efficiency 

Company's Earnings Before Interest Tax Depreciation & Amortisation (EBITDA) rose by 12.54% year-on-year to Rs 1,095 crore, indicating improved operational efficiency.

4. Dividend Announcement

Nestle India declared third interim dividend of Rs 7 per equity share for Financial Year 2023-24, showcasing confidence in its financial position & commitment to rewarding shareholders.

Business Strategy & Expansion

1. RURBAN Strategy

Nestle India has been strategically focusing on its 'RURBAN' strategy, aiming to expand its distribution reach in untapped markets. This approach has contributed to broad-based growth across its brands over past few years.

2. Brand Investments

Nestle increased brand investments across all product groups during quarter, emphasizing its commitment to brand building & market penetration.

3. Acquisition & Divestiture

Nestle India announced slump sale of its Nestle Business Services (NBS) division to Purin PetCare India, subsidiary of Nestle SA, for Rs 79.8 crore. This strategic move is aimed at leveraging specialized capabilities & enhancing operational efficiency.

Market Sentiment & Analyst Recommendations

1. Mixed Reaction

Brokerages had mixed reaction to Nestle India's performance. While analyst maintained "hold" rating on stock, citing concerns over input costs, another expert reiterated neutral stance due to expensive valuations.

2. Investor Confidence

Announcement of third interim dividend & positive market response with 2% increase in share price indicate investor confidence in Nestle India's financial stability & growth potential.

Commenting on results, Mr. Suresh Narayanan, Chairman & Managing Director, Nestle India

1. Strong Domestic Sales Growth

Domestic sales grew by 8.9%, driven by pricing & mix growth, with significant momentum in e-commerce & out-of-home channels.

2. Overall Sales Performance

Total sales for year 2023 exceeded INR 19,000 crore, showcasing growth rate of over 13.3%.

3. Brand Contribution

Key brands & product groups contributed to Nestle India's consistent growth trajectory, with strong performances in NESCAFE CLASSIC, NESCAFE SUNRISE, milk, nutrition, prepared dishes, cooking aids, & confectionery segments.

4. Beverages Segment

NESCAFE CLASSIC & NESCAFE SUNRISE led growth in beverages segment, with double-digit growth & significant market share gains.

5. Nutrition Segment

Milk & nutrition product group achieved double-digit growth, reflecting consumer trust & demand for nutritious products.

6. Out-of-Home Business

Out-of-Home business witnessed rapid acceleration through strategic innovations, geographic expansions, & robust penetration in emerging channels, becoming fastest-growing segment for Nestle India.

7. E-commerce Growth

E-commerce contributed strongly to domestic sales, accounting for 7% of total sales in quarter, reflecting Nestle's adaptability to changing consumer shopping behaviours.

8. Expansion in RUrban Markets

Nestle's strategies in RUrban markets resulted in sustained sales growth, with expanded direct coverage, addition of new villages, & successful engagement through NesMitr app.

9. Innovation & Renovation

Nestle emphasized innovation & renovation as key components of its business strategy, launching 130 new products over past seven years to cater to evolving consumer preferences.

10. Environmental Sustainability

Nestle demonstrated its commitment to environmental sustainability by increasing investments & regularly assessing progress across climate, packaging, sourcing, & water conservation goals.

Conclusion

Nestle India's financial performance for fourth quarter reflects steady growth, driven by product price hikes, operational efficiency improvements, & strategic business initiatives. While revenue growth slightly missed expectations, company's profitability remains robust. strategic divestiture of NBS division & continued focus on brand investments & market expansion are expected to position Nestle India for sustained growth in future.

However, concerns over input costs & expensive valuations warrant cautious optimism. Investors should monitor company's performance closely & consider analyst recommendations before making investment decisions.