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Commodities inflation hurts Nestle India’s margins in H1, 2022

Commodities inflation hurts Nestle India’s margins in H1, 2022

Operating margin contracted by 3.2 percentage points YoY, despite of 12.7 per cent topline growth.

Commodities inflation hurts Nestle India’s margins in H1, 2022 Commodities inflation hurts Nestle India’s margins in H1, 2022

Country’s largest packaged foods company Nestle India faced severe headwinds due to steep rise in commodities prices during the first half of 2022. As the company reported its financial numbers for the April-June quarter on Thursday, the impact of record high commodities prices became evident during the last six months. 

While its total sales during January-June period grew by 12.7 per cent to Rs 7,960 crore, up from Rs 7,060 crore in the corresponding period last year. The firm’s profit from operations fell 2.9 per cent to Rs 1,560 crore, down from Rs 1,610 crore in Jan-Jun, 2021, as higher cost of raw materials pushed its expenses up significantly. Resultantly, Nestle’s operating profit margin shrank by 3.2 percentage points to 19.6 per cent - from 22.8 per cent last year.

Similarly, its net profit fell by 2.7 per cent year-on-year to Rs 1,110 crore, while net profit margin contracted 2.3 per cent to 13.9 per cent for the Jan-Jun, 2022 period, down from 16.2 per cent.

According to the company, “unprecedented commodity headwinds” impacted its costing during the period. As per its estimates, commodities inflation was at steep 15 per cent, for the products that it consumes, in 2022 compared to 3 per cent on an average during 2018-2022 period. However, “early signs of softening in edible oils and packaging materials” are visible, it said in the earnings call. While prices of “fresh milk, fuels, grains and green coffee costs are expected to remain firm”.

For the April-June quarter, Nestle India reported a 15.7 per cent jump in its total sales to Rs 4,007 crore. However, its net profit slipped 4.3 per cent to Rs 515 crore from Rs 539 crore in the corresponding quarter previous year. 

“Our endeavour this quarter was to secure our ‘engines of growth’ in this inflationary context and to enable sharp overall business recovery when the pressures abate. The growth is broad based and while being primarily driven by pricing, has a healthy underlying volume and mix evolution,” said Suresh Narayanan, Chairman & Managing Director, Nestle India.