Nestle announces Q2 results!
Last updated: 29 Jul, 2020 | 12:10 pm
- Profit below estimates: Nestle India has reported a 11.2% on-year rise in net profit to ₹487 crore. Analysts had anticipated a net profit of about ₹530 crore.
- Lower tax aids profit: While the revenues grew at a tepid 1.7% on-year to ₹3,050 crore, lower corporate tax aided Nestle’s bottom-line. Its margins, too, expanded to 24.5% from 23.7% a year ago, in line with the 24.6% forecast.
- Covid-19 impact on specific segments: “Nestle said that the demand in all ‘Out of Home’ consumption channels experienced a sharp decline due to the lockdown.” However, the company saw a healthy demand for “in-home consumption” products such as EVERYDAY Dairy Whitener, Nestlé a+ Milk, NESCAFÉ Classic and NESCAFÉ Sunrise, all of which performed well this quarter. MAGGI also witnessed solid growth towards the end of the quarter after initial supply constraints.
- E-commerce shines: Nestle delivered a strong performance in the ‘e-commerce’ channel which grew by 122% this quarter and now contributes 3.6% to domestic sales.
While the pandemic has hurt businesses across sectors, FMCG focussed business such as HUL and ITC have posted decent numbers in the quarter. In fact, food and other FMCG essential services witnessed panic buying and hoarding during the early onset of the pandemic.
Predictably, in-home packaged food consumption has spiked as comsumers spent more time at home during the pandemic. Packaged food companies such as Nestle India Ltd are expected to perform far better than consumer firms whose products are somewhat discretionary (even within essentials) in nature.
Our VGQM model has a HOLD rating on the stock.