NESTLEIND - Nestle India Ltd. Share Price

Management Outlook:
Nestlé India remains committed to penetration-led volume growth, targeting rural (RUrban) expansion and premiumization. The company anticipates India's rising middle class and packaged food demand (currently 3-4x below peers) to drive long-term opportunities. Near-term challenges include commodity inflation (coffee +75%, cocoa +40-50%) and urban consumption slowdowns. Management is confident in mitigating cost pressures through operational efficiencies (Project Shark) and calibrated pricing, prioritizing volume retention. Investments in AI, digital transformation (51% media spend digital), and supply chain agility (quick commerce optimization) are key focus areas.

Major Points:

1. Growth Strategy: Volume-driven via rural expansion (200k+ villages covered) and premium segments (16% CAGR in premium portfolio).
2. Category Focus: Coffee (market leader), chocolates (KITKAT scaling), health sciences (Dr. Reddy's JV), and pet care (30M+ pets in India).
3. Innovation: 6.5% sales from new products; targeting 10%. Launched 150+ innovations in 9 years.
4. Cost Management: Operational efficiencies saved 2% of sales annually; pricing as last resort.
5. Sustainability: Plastic neutrality since 2020, 61% GHG reduction (vs. 2008), stubble-to-energy initiatives.
6. Financials: 11.2% sales CAGR (2015-2024), 15.1% profit CAGR, industry-leading ROE.
7. Risks: Commodity volatility, regional competition in noodles, and rural recovery pace post-inflation.

Question 1: "Given the lack of data that we have in the recent quarters, we have seen milk and nutrition category seems to have declined probably versus one was expecting it to be quite resilient. What is ailing the category? Is it competition? Is it consumption due to high prices? And if you can share any steps that you are taking to tackle it, any insights will be helpful, Sir."

Answer Summary: The decline in the milk and nutrition category is attributed to price inflation impacting consumer demand and competition from cooperatives. Nestlé India has reduced sugar content in baby food products and focused on scientific differentiation to address nutrition needs. The category's maturity and shorter consumer lifecycle compared to other segments also contribute to slower volume growth, but the company remains confident in recovery with strategic adjustments.

Question 2: "It appears that the price hikes in the recent past quarters have been quite modest, maybe a function of low volume growth and to avoid further pressure. If you can share, what is a quantum of price hike that is still required to protect margins or maintain margins? How should one think about pricing growth going forward?"

Answer Summary: Pricing decisions are category-specific, with coffee facing significant inflationary pressures (75% YoY cost increase). Nestlé prioritizes cost efficiencies (e.g., capacity expansion, procurement) over price hikes to mitigate margin pressures. Future pricing will depend on commodity trends, but hikes are expected to be lower than 2022"“2023 levels, except for categories like coffee where unrelenting inflation may necessitate adjustments.

Question 3: "When I see every FMCG company tries to balance channels through SKUs and discounting, how is Nestlé differentiating here? How is profitability and working capital in e-commerce vs. traditional trade?"

Answer Summary: Nestlé balances channels by curating promotions, managing SKU portfolios, and capping discounts to avoid channel conflict. E-commerce margins are comparable to traditional trade, with no significant profitability trade-offs. The company avoids over-reliance on quick commerce (8.5% contribution) to protect its core traditional trade (~80% sales), emphasizing fair terms and supply chain adaptability to meet evolving demands.

Question 4: "You vacated the Rs.10 price point in urban areas. Would you need it to revive growth? In confectionery, have you reduced grammage due to cocoa inflation?"

Answer Summary: The Rs.10 price point remains strategic in specific geographies and channels as a value pack, though not ubiquitous to prevent down-trading. In confectionery, Nestlé maintains value stability (e.g., grammage) despite cocoa inflation, focusing on product differentiation and regional affordability rather than compromising on pack size.

Question 5: "How are market shares trending in noodles, chocolates, and baby foods? What steps are taken to counter regional competition in noodles?"

Answer Summary: MAGGI noodles maintain ~60% market share despite regional competition and price pressures. Chocolates (KITKAT, MUNCH) hold the No. 2 position with growing wafer-based shares. Baby food shares remain stable, supported by innovation (e.g., no refined sugar). Regional strategies include localized activations, cluster-based targeting, and innovation to address competition.

Question 6: "What is the medium-term outlook for milk and nutrition volume growth? Does the category need macroeconomic improvements to recover?"

Answer Summary: Volume growth in milk and nutrition hinges on easing inflation, higher female workforce participation, and wage growth. Premium segments show resilience, while mid-tier faces pressure. Nestlé expects gradual recovery as affordability improves but acknowledges the category's inherent limitations (shorter lifecycle vs. staples) for high volume growth.

Question 7: "How will margins evolve given pricing pressures and investments in affordability? Is current profitability sustainable?"

Answer Summary: Nestlé aims to sustain operating margins (20"“21%) through cost efficiencies and calibrated pricing. Commodity volatility (coffee, cocoa, wheat) remains a risk, but current profitability reflects optimal balance between growth and margins. The company avoids sacrificing margins for growth but may absorb short-term hits if inflation escalates.

Question 8: "How is premiumization shaping innovation? Is Nestlé shifting to smaller bets over large launches?"

Answer Summary: Premiumization drives niche innovations (e.g., NESPRESSO, Pet Care), but Nestlé prioritizes core categories (60% of growth). Innovation focuses on smaller, scalable bets (6.5% sales contribution) rather than single large launches. The organization adapts via R&D, digital tools, and supply chain flexibility to manage complexity while protecting core brand investments.