Nestle India Q2 preview: Net profit could rise up to 20% YoY, say analysts

Better supply chain compared to base quarter would lead to strong sales in products such as Maggie, Kit Kat, and infant products, brokerage Sharekhan said

A low base last year and continued demand for in-home consumption products like Maggi, Kitkat, Nescafe are likely to drive Nestle India's growth in the June quarter (Q2FY21), believe analysts. In year-on-year (YoY) terms, the company is expected to post a 14-19 per cent jump in profit after tax (PAT) and 13-21 per cent increase in revenues. Although, sequentially, the performance is likely to remain muted. 

The company follows the January-December financial year and will post its second quarter numbers for the financial year 2021 on Wednesday, July 28.

Outlook on consumption trends, raw material price trends, price hikes along with commentary on recovery in trade channels and new product pipeline are among key monitorables, as per the analysts.

Here's what key brokerages are projecting for Nestle in the June quarter:

ICICI Direct

As per the brokerage, Nestle is expected to post a 21.5 per cent YoY revenue growth at Rs 3,707.4 crore on the back of muted sales in the base quarter. Though packaged food categories were positively impacted by the lockdown, the company faced supply constraints during the peak of the lockdown, the brokerage said. On a sequential basis, it expects revenue to rise 2.7 per cent.

Nestle's revenue stood at Rs 3,050.48 crore in the June quarter last year and Rs 3,610.82 crore in the March 2021 quarter.

Milk prices have risen sharply in the last three to four months. Hence, we believe the benefit of low cost SMP inventory would have been exhausted, the brokerage said, adding that it expects a small gross and operating margin contraction during the quarter. It pegs net profit growth at 19.9 per cent YoY to Rs 583.4 crore from Rs 486.60 crore reported in the same period last year. On a quarter-on-quarter (QoQ) basis, however, its expected to decline by just 0.6 per cent from Rs 602.25 crore in the preceding quarter.

IDBI Capital

The brokerage expects overall revenue to grow by 17 per cent YoY to Rs 3,558.8 crore driven by continued demand for in-home consumption products like Maggi, Kitkat, Nescafe etc and sequentially improving out of home consumption. Although, sequentially, revenue could decline 1.4 per cent.

It pegs PAT growth at 13.6 per cent YoY at Rs 533.1 crore but sees a QoQ decline of 8.2 per cent.

"Inflationary raw material prices will lead gross margin contraction by 34 bps YoY to 56 per cent. Cost of packaging material rose by c. +60 per cent YoY during the June quarter. However, price of milk powder and wheat prices declined by 5 per cent and 4 per cent YoY, respectively. EBITDA margin amid this is likely to contract by ~100 bps YoY to 23.5 per cent," the brokerage said. EBITDA margins were at 25.8 per cent and 24.5 per cent in the March quarter and June 2020 quarter, respectively.

Sharekhan

Better supply chain compared to base quarter would lead to strong sales in products such as Maggie, Kit Kat, and infant products, the brokerage said. Amid this, it projects revenue growth at 12.8 per cent YoY for the quarter under review at Rs 3,439.5 crore but may decline 4.7 per cent QoQ.

PAT, it said, is likely to grow by 15 percent on a yearly basis during the quarter to Rs 561.1 crore but drop 6.8 per cent QOQ.

"Operating margin is expected to be higher by 72 bps YoY to 25.2 per cent, led by relatively stable input prices and efficiencies. Volume growth is expected to be at high single digit," it observed.

Axis Securities

This brokerage expects an increase of 18.7 per cent in June quarter profit at Rs 577 crore. Further, revenue could grow 17 per cent YoY at Rs 3,558. On a QoQ basis, PAT could de-grow 4.1 per cent and revenue a little over 1 per cent as per its estimates.

Revenues to see good traction driven by domestic volume growth led by key brands and focus on rural penetration, the brokerage said.

Further, it expects gross margins to expand 150 bps YoY owing to benign agri-commodity prices. However, EBITDA margins are to be flattish YoY owing to rise in other Expenses and staff costs. It pegs Q2FY21 EBITDA at 25 per cent.