In a recent investor call, Nestle India expressed its unwavering commitment to expanding its portfolio through acquisitions, emphasizing the importance of valuations in the decision-making process. The Managing Director of the renowned packaged foods company, Suresh Narayanan, conveyed the company’s dedication to this endeavor, stating, “The quest for acquisitions continues. But we are looking for the right fit and valuations.”
Nestle India, recognized for popular products like Maggi instant noodles and KitKat chocolate, had been a strong contender for the acquisition of Capital Foods, the manufacturer behind brands like Ching’s Secret and Smith & Jones condiments and ingredients. However, Tata Consumer Products Ltd (TCPL) is now leading the race to acquire Capital Foods, according to industry insiders. Nestle had also explored the possibility of acquiring GSK Consumer, a health foods manufacturer, but it was eventually purchased by Hindustan Unilever.
As with other Fast-Moving Consumer Goods (FMCG) companies, Nestle India, the Indian arm of Nestle SA, the world’s largest food company, is grappling with heightened competition from local rivals in segments such as noodles and coffee. In response to inquiries during the investor call, Suresh Narayanan acknowledged the local competition, stating, “We do have local competition in categories like noodles, and we are moving fast enough to mitigate any impact.” He emphasized the importance of quality and safety in these sensitive categories.
When it comes to coffee, Narayanan noted that local players are not posing significant competition, primarily due to the surge in coffee bean prices, which they are finding challenging to sustain.
Narayanan also highlighted that within FMCG categories, both Premiumization and downtrading are occurring. Inflation-affected consumers in select markets are on tighter budgets, while aspirational demand is driving up discretionary spending. To address this, Nestle is introducing bridge packs to cater to different consumer segments.
The entry-level Maggi noodles by Nestle are now available in packs priced at Rs 7, 10, and 14, in addition to larger packs.
Nestle reported an impressive 37% increase in net profit for the September quarter, reaching Rs 908.08 crore, primarily driven by core brands such as Maggi noodles and KitKat chocolates. This quarter marked a significant milestone as the company achieved a turnover of over Rs 5,000 crore for the first time in any single quarter.
The company attributed its growth to the increasing preference for its brands in small towns and large villages.
Nestle also expressed concerns about the potential impact of deficient monsoons on the production of maize, sugar, oilseeds, and spices, which could lead to price fluctuations. Additionally, coffee prices remain volatile due to a global supply deficit, and adverse weather conditions during the harvesting of the Indian Robusta crop may affect coffee production.
Despite the rising costs of essential items like vegetables and dairy products, Indian consumers, particularly in urban areas, have shown a willingness to invest in budget-friendly indulgences like chocolates and biscuits. As a result, Nestle has achieved double-digit sales growth in its domestic business, with prudent pricing strategies contributing to its success.
In a post-earnings report, Nuvama Institutional Equities acknowledged Nestle’s robust performance, noting that it is one of the few companies to achieve close to double-digit sales growth on a consolidated basis in the September quarter.