Nestlé India sees ‘stabilization' in packaged goods market after soft demand

Mint

11 hours ago

The packaged goods industry is stabilizing after a period of soft demand, said Suresh Narayanan, Nestlé India's outgoing chairman and managing director, on Thursday.
While addressing shareholders at the company's 66th annual general meeting (AGM), Narayanan noted that high food inflation had negatively impacted volumes for fast-moving consumer goods (FMCG) manufacturers.
'There has been an overall slowdown in the consumer goods space because of food inflation, evolution of real incomes, unemployment and various other global maladies that have also affected us. Happy to report that things are stabilizing; food inflation clearly impacted our business,' he said.
He acknowledged that commodity inflation has affected the company's volume-led growth, but expects gradual improvement.
Commodities like coffee and cocoa are at elevated levels, at decadal highs, and that clearly puts enormous pressure on managing both penetration-led growth and the company's bottom line.
'There have been short-term pressures. But hopefully we will be getting back to the normal stride in the coming quarters…in the coming months,' he said during his last virtual AGM. Narayanan is set to retire on 31 July.
The company deploys a combination of cost-saving measures, nearly 2% annually, along with buying efficiencies to tide itself over periods of high inflation.
'Sadly, we have had to make quite a few price increases. That clearly has a short-term impact on volumes. Going forward, we would not like to use price increases wherever we can,' he said.
Nestlé sells a range of products in India, including chocolates, milk, ketchup, cooking aids, infant nutrition, cereals, curd, noodles, coffee, and pet food.
Higher prices for key raw materials like coffee, milk, and cocoa directly impact the company's margins. For instance, in the fourth quarter of the last fiscal year, average prices for Arabica coffee were up 97%, while Robusta prices rose 65% year-on-year.
Narayanan said high prices and Nestlé's price hikes impacted the milk and nutrition category, which accounts for 37.9% of its total sales. The company sells packaged milk, yoghurt, and ready-to-drink coffee.
'Overall, food inflation has been quite significant. That obviously has led to strained price lines as far as some of our brands are concerned. We have therefore looked at a series of cost-saving and efficiency initiatives, and only after that, initiated any price increases in a responsible manner to ensure category growth remains. The impact certainly is coming down,' he added.
He also noted that the divestment of the healthcare business to Dr Reddy's Laboratories Ltd will partly reflect in the category's performance.
To be sure, several large packaged consumer companies have been pointing to a stress in urban consumption over the last few quarters.
The Indian FMCG industry reported 11% on-year value growth in the March quarter, driven by a 5.1% volume increase and a 5.6% price hike, according to data released by NielsenIQ. Urban market growth decelerated in the quarter, while rural markets saw an 8.4% volume increase, a little less than the December quarter.
On Thursday, the company announced its first-ever bonus share issue.
Additionally, it recommended a final dividend of ₹ 10 per equity share on its 964,157,160 equity shares for 2024-25.
In the fiscal year, the maker of Maggi noodles and KitKat chocolate reported a total income of ₹ 20,260.42 crore. Its capital expenditure rose from 1.8% of sales in 2015 to 10% of sales in the fiscal year ended March 2025.
Narayanan mentioned that the company has committed ₹ 6,500 crore in capex between 2020 and 2025, with approximately ₹ 5,600 crore already spent. Its upcoming factory in Odisha will involve an investment of about ₹ ₹ 950 crore.
Addressing a shareholder query regarding inventory build-up, he said inventories have almost doubled due to higher stock covers of green coffee.
'As you know, coffee has been on a rampage at 60 to 70 year highs, so we have taken a slightly longer position in the coverage of coffee, which has entailed a greater use of working capital and built derivatives as well—there has been an increase. All of this will get absorbed as we go forward in the operations,' he added.