Nestle India Ltd Q4 FY22 Earnings Conference Call Insights

Key highlights from Nestle India Ltd (NESTLEIND) Q4 FY22 Earnings Concall

Management Update:

• [00:07:25] NESTLEIND said that in the past decade, 2022 was the year where it saw the highest organic growth at 14.8%.

Q&A Highlights:

• [00:50:30] Avnish asked about the growth of the confectionary and chocolates market in the last one year and where are the gains happening. Suresh Narayanan MD said that NESTLEIND’s estimated growth of the market is about 10-12%.

• [00:56:04] Avnish enquired that in terms of ecommerce NESTLEIND seemed to be a bit lower than other companies in terms of percentage of domestic sales. Suresh Narayanan MD replied that e-commerce is being looked at as an important channel, but not the only channel for business. Companies are taking a strategic or tactical approach to e-commerce, which can destabilize the equation in terms of trading terms between e-commerce and traditional trade.

• [01:02:12] Tejas queried about if the current run rate of employee cost of about 9.7% as a percentage of sales is sustainable. Suresh Narayanan MD answered that if one is able to grow the business faster than employee cost, the percentage will decline over a period of time.

• [01:02:52] Tejas asked about the general license fees and royalty agreement with Nestle SA going forward. Suresh Narayanan MD said that it comes for renewal in 2024. NESTLEIND added that the logic of royalty has not changed. Also, brands, R&D support, operations support are intrinsic parts of what the company has as an arrangement with Nestle S.A.

• [01:05:26] Avi asked about the domestic demand environment being robust.  Suresh Narayanan MD replied that all the quarters in 2022 have been double digit with underlying positive volume growth. Only 4Q was an issue and the company is coming out of it.

• [01:07:06] Avi enquired about the LUP price hike, if it’s hurting rural expansion. Suresh Narayanan MD answered that there is no such things as 26% has gone up to 27% in a quarter when price increases are happening.

• [01:08:26] Avi asked about the INR2,600 crore capex, if it’s all done and how much is remaining. David McDaniel CFO said that the INR2,600 crore number will exceed in the coming years. And a large number of the spend from that will be coming in the next two years.

• [01:09:36] Anand enquired if the LUP drag has been largely on the Chotu pack or across the parts of portfolio. Suresh Narayanan MD said that it was mainly in Chotu pack category. Looking at the growth in 3Q23, all categories other than noodles in tonnage have been quite strong.

• [01:13:58] Alok asked about the INR5,000 crores investment announcement in India made by global Nestle CEO, if it’s incremental or for the plants. Suresh Narayanan MD replied that it will be invested in the next three years, which is excluding any mergers and acquisitions.

• [01:18:12] Rishi asked why the company hasn’t seen double digit growth in last 6-7 years in infant nutrition. Suresh Narayanan MD answered that there has not been strong growth. NESTLEIND added that Ceregrow has been its fastest growing brand. So it’s about re-calibrating and re-energizing the whole category.

• [01:21:57] Sheela asked about the rural growth trend and how satisfied NESTLEIND is with the trend.  Suresh Narayanan MD said that the growth has been encouraging despite the headwinds NESTLEIND has faced.

• [01:23:41] Sheela asked about the share of overall LUP vs. three years ago and its outlook. Suresh Narayanan MD replied that PPP is about a third of the portfolio. Going forward, the share of PPP will start to come down over a period of time.

• [01:25:41] Sheela enquired that on the NPD side, if the projects in the pipeline are more pertaining to millets or others. Suresh Narayanan MD answered that these are projects in the pipeline apart from millets. It’s projects across categories.