Nestle reported net sales, operating profit, and adjusted PAT growth of 22%, 8.5%, and 11.4%, respectively, which compares with our expectations of 20%, 18%, and 19% growth, respectively. Domestic FMCG growth was robust at 23% during the quarter. Nestle reported a 250bp decline in GPM due to a steep increase in prices of key commodities like milk solids, green coffee, vegetable fats, wheat flour, and sugar.
The calibrated price hikes taken by Nestle could only partially offset the cost pressures being faced by the entire FMCG industry. However, we continue to believe that Nestle is the best way to play the growth story in the packaged food industry in India, given its strong brand equity, differentiated products, wide global experience, and strong local knowledge.
Packaged foods in India is at an inflection point and is likely to deliver around 1,000bp growth ahead of disposable income growth for the next 10 years, driven by rising disposable income, changing consumer habits, and an evolving modern trade structure. Nestle is very well placed to capitalize on this growth potential.
Nestle is expected to report an EPS of Rs 70 for FY09.