Nestle Q3 results preview: PAT, revenue growth seen marginal as muted demand weighs on earnings

FMCG major Nestle India is likely to see muted revenue and profit numbers in the third quarter as the growth continues to be impacted by muted consumer demand and elevated commodity prices.

Revenue from operations are likely to improve 4% year-on-year (YoY), according to an average estimate of four brokerages, while profit after tax (PAT) is seen rising by a marginal 1% YoY.

The revenue growth will be driven by a minor bump in volumes and price hikes. The company has implemented a price hike in response to rising commodity prices.


Analysts reckon that EBITDA shall inch down 3% YoY owing to high base, sharp inflation in coffee and palm oil and lack of operating leverage.

Here's what to expect from Nestle Q3:

Axis Securities

Revenue is expected to grow at 4% led by 2% volume growth and price hikes. EBITDA margin to decline 189 bps YoY to 22% on account of subdued GM performance. Key Monitorables include demand outlook on rural versus urban, competitive intensity and raw material trends.

Kotak Equities

We expect 4.1% YoY revenue growth, led by 4%/5.5% YoY growth in domestic/exports markets. We expect volume (tonnage) growth at 2% versus a low-single digit decline in 2Q; growth continues to be impacted by muted consumer demand and elevated commodity prices. Price-mix growth of 2% is led by price hikes in chocolates, coffee, and Maggi (we had recently observed 7% price hike in select SKUs in online channel).

Gross margin could contract 215 bps YoY to 56.5%, impacted by sharp inflation in coffee, cocoa, cereals, dairy, and edible oils. We expect EBITDA margin to also decline by 225 bps YoY to 22%, largely on account of GM contraction. Net-net, we expect EBITDA to decline 5.6% YoY but PAT decline could be higher due to lower other income.

Nuvama

Revenue/volume shall grow 3%/1% YoY. In our view, Nestle is experiencing a slowdown in Maggi noodles as at the lower end of consumption, some consumers are preferring cheaper snacking options such as biscuits and namkeen.

Gross/EBITDA margin is likely to decline 230bp/138bp YoY to 56.3%/22.5%. Cocoa, coffee and palm oil costs remain a worry, but we estimate a gradual pass-through to end consumers.

Motilal Oswal

Expect sales growth of 5% YoY; expect demand to improve. We model moderation in GP and EBITDA margins due to a rise in RM prices. Nestle focuses on expanding its distribution reach.

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