Nestle India posts double-digit growth, but shares fall nearly 9% in two sessions

what happened

According to ET Intelligence Group, Nestle India delivered double-digit revenue and profit growth in the September quarter, with revenue up 20.3% and net profit up 35.9%. Investors were unimpressed, however, and the stock lost nearly 9% over two trading sessions. The company flagged persistent inflation in key commodities, especially cocoa. It expects coffee and wheat prices to stay range-bound, sugar and edible oils to hold at elevated levels, and milk to stay firm before possibly easing as supply improves.

EBITDA margin widened to 23.8% from 22% a year earlier but narrowed by 40 basis points sequentially, while marketing spending rose 46%. Analysts see limited room for further margin expansion. JM Financial Institutional Securities attributes the recent run to GST rate rationalisation and distribution expansion. Most brokerages kept 'buy' ratings while trimming target prices by 7-17%.

why it matters

The P/E has fallen to 59, below the five-year average of 73, reflecting investor concern about margins. Festive-season volume demand and commodity costs are the key factors to watch for the stock and Indian FMCG sector.

market impact

Indian FMCG: higher commodity costs pressure Nestle India's margins and sentiment across the sector

tags

instruments