Nestle India bucks rural growth trend in Q4 with 9% YoY revenue spike

Smaller contribution of 20-25% from rural sales helped; net profit down 20% due to exceptional item

Contrary to the slowdown in rural demand seen by most of its fast-moving consumer goods (FMCG) peers, Nestle India, the maker of KitKat chocolates managed to grow in the hinterland as only 20-25 per cent of its sales come from small towns and villages.

Nestle India, which follows the January-December accounting year, posted revenue from operations of Rs 3,739.3 crore for the fourth quarter ended December 2021 (Q4) as compared to Rs 3,432.6 crore a year ago, a growth of 9 per cent. Its domestic sales increased by 9.2 per cent in Q4 to Rs 3,559.8 crore.

The company's net profit stood at Rs 386.7 crore compared to Rs 483.3 crore in the year ago period. Its net profit was down 20 per cent due to an exceptional item of Rs 236.5 crore during the quarter. The profit before tax and exceptional items, however, was up 11 per cent at Rs 744 crore.

“We are arguably low intensity as far as rural sales is concerned and get about 20-25 per cent of our sales from rural markets, and yet the villages actually have grown for us,” Suresh Narayanan, chairman and managing director of Nestle India said in its post earnings conference call.

He also said, “This has been a secular growth across town classes, and of course in terms of intensity of growth, skewed towards smaller towns and towards the rural markets,” Adding that the Nestle portfolio is here to stay and has started making inroads into the markets of the future.

In its press release, the company said, “Effective December 1, the Defined Benefit Pension Scheme for certain category of employees is amended and replaced by ‘Future Ready Plan’ which is a combination of amended Defined Benefit Pension Scheme for past period of service and a Defined Contribution Scheme for future service.”

The company's board of directors have recommended a final dividend of Rs 65 per share for CY2021.

Commenting on the company's 2021 performance, Narayanan said, “Nestlé India witnessed broad based, double digit, volume and mix led growth, despite a highly volatile economic environment. Strong growth momentum continued in Maggi Noodles aided by increased availability. KitKat and Munch registered stellar growth throughout the year. Nescafe Classic continued to deliver double digit growth. Growth in e-commerce was fuelled by new emerging formats such as ‘Quick Commerce’ and ‘Click & Mortar’.”

On inflation, the release quoted Narayanan saying that the company continues to witness high inflation in its key raw and packaging materials, where many are at 10-year highs. In the conference call, Narayanan said, “It is important to note that food inflation and commodity inflation is here to stay for a while at least.” During Q4, Nestle India increased prices of its products due to high raw material costs.

In its commodity outlook for the short to medium term, the company said, “Price outlook for key categories like edible oils, coffee, wheat, fuel remains firm to bullish while costs of packaging materials continue to increase amid supply constraints, rising fuel and transportation costs. Input prices are expected to be on bullish trend both globally and to some extent locally.” 

The release also said, “Fresh milk prices are expected to remain firm with continued increase in demand and rise in feed costs to farmers. In an environment of raw and packaging material inflation, we continue to keenly look for opportunities for cost optimisation and efficiencies.”

Nestle India is also leveraging granular growth opportunities by using data and analytics which is a core ambition of its business strategy. “We have harnessed this by building a multi-intelligent data analytics system that sources internal and external data to converge on insights that triggers swift and decisive business actions,” the company said.