Nestle India reports Q1 net earnings of 2.59B rupees, down 7% from year-ago amid high cost of milk solids; sales rise 2.9% to 23.13B rupees

NEW DELHI , May 14, 2014 () – Nestle India Ltd, the local unit of the world's biggest food company, on Tuesday reported a 7% drop in first quarter net profit, as high cost of milk solids crimped operating margin for the maker of Maggi noodles and Nescafe coffee, even as the company bore huge expenses to promote its brands.

Net profit fell to Rs.259 crore in the three months ended 31 March from Rs.279.1 crore in the year-earlier quarter, the company said. Sales rose 2.9% to Rs.2,313 crore over the same period.

Etienne Benet, managing director Nestle India, said the company will continue to take "right decisions in the short and medium term to ensure that we consistently move towards our ambition of being recognized as the leader of nutrition, health and wellness in India while maintaining healthy overall performance".

Urban consumers have been cutting back on spending and moving to cheaper product variants in the face of persistently high inflation and slower economic growth.

According to a May report by ZyFin, which measures consumer confidence across urban households, consumer outlook declined to 40.6 in April 2014, from 42.2 in the previous month, largely driven by a decline in the Indian consumers' willingness to spend over the past four months, despite a mild uptrend in employment and stabilising inflation sentiment.

Nestle's local sales grew by 3.4%, while export sales declined by 4.4 % as capacity was prioritized for the domestic business. During the quarter, the company increased demand generating spends on the base of a stronger quarter last year.

The company posted a disappointing set of numbers, said Gautam Duggad, an analyst at Motilal Oswal Financial Services Ltd. "While Nestle continues to have a good product mix and is a relevant brand in the Indian market, a tough macro-economic environment is not conducive for high growth."

In February, Benet had said "tough decisions" and "swift adaptations" will be undertaken by the company as it "evolves its product portfolio, that is more focused on premium and value-up ranges, while protecting our current business base".

Shares of Nestle India rose 0.56% to Rs.4,851.35, while the benchmark Sensex gained 1.36% to 23,871.23 points. Published by HT Syndication with permission from MINT. For any query with respect to this article or any other content requirement, please contact Editor at htsyndication@hindustantimes.com

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