India is Nestle's fastest-growing key market, says Suresh Narayanan

India unit CMD Suresh Narayanan says business is growing despite rural distress and inflationary pressure

Nestlé India, the local unit of Nestlé SA, has emerged as the fastest growing key market for the Swiss food and beverages major in 2018, said Suresh Narayanan, chairman and managing director of the company's India unit.

The Gurugram-based firm had posted a 10.8 per cent top line growth rate during the year. In 2018, its revenue grew to Rs 11,292.30 crore from Rs 10,192.20 crore year-on-year.

The India unit, which is now among the top 15 markets for Nestlé, is also expected to improve its ranking in the coming years, he said. However, the local market’s contribution to the global conglomerate’s Rs 634,782 crore sales remains minuscule at 1.78 per cent.

Nestlé India’s sales grew by double digit in January-March 2019 quarter backed by strong volume growth. 

Nestlé India’s domestic sales, which comprises over 90 per cent of its total sales (which includes exports), grew 10.2 per cent in value and 9.3 per cent in volume.

According to Narayanan, its cluster approach, adopted a year ago, has contributed to the firm’s healthy growth in the recent quarters. Products under the brand Maggi, chocolates as well as confectionery items posted double digit volume growth while beverages saw high single digit growth in volume.

However, in the coming quarters, Nestlé’s growth may come down due to rising inflationary pressure and slowing pace of growth in rural markets may impact sales in the short-term. 

Cost of materials like cereals, milk and packaging items are on the rise. “The cost of these items have gone up by 160 to 200 basis points in the last few months. If the monsoon remains below normal, as predicted initially, then the situation may deteriorate,” he said.

Moreover, a crunch in credit flow is impacting the wholesale channel that caters to rural markets in remote areas. The significance of the wholesale channel is immense for companies with higher share of rural sales. It usually caters to areas that are not covered by direct distribution. Nestlé India gets a fourth of its sales from the rural market.

To keep its growth momentum intact, the firm is planning to launch close to 35 products this year. Currently, Nestlé is getting 4 per cent of its sales growth from product launches. To capitalise on the superior growth of organic foods, Nestlé has ventured into the space with organic breakfast cereals. It plans to expand the horizon with similar products in other categories.

In the past three years, Nestlé India launched close to 40 products out of which 25 have been a hit so far, according to Edelweiss Securities’ estimates. “Success of launches, entry into new segments, proactive management and further margin improvement led by premiumisation” have improved the firm’s financial performance in recent quarters, it said.

However, the flurry of launches has led to a surge in its advertisement and promotional (A&P) expenses. In the January-March quarter, its A&P cost surged 22.5 per cent y-o-y and stood at 5.9 per cent of sales, compared to 5.3 per cent during the year-ago period.

Road ahead

 

| Revenue from India, one of the top 15 markets for Nestle, is just 1.78% of its global sales

| Nestlé, after 107 years of operating in India, continues to penetrate deeper into the market

| Growth may come under pressure in the coming quarters, with rising commodity costs and slowing rural demand

| Ventures into organic foods market, plans to launch 24-36 new products to keep growth momentum intact