During an investor call on Wednesday, Nestle India’s managing director, Suresh Narayanan, expressed the company’s strong interest in acquisitions. He emphasized that acquisitions remain a focal point for the company, as long as they align with Nestle’s current portfolio and meet the company’s valuation criteria.
“The quest for acquisitions continues. But we are looking for the right fit and valuations,” Narayanan said.
The producer of Maggi instant noodles and KitKat chocolate was a leading candidate for the acquisition of Capital Foods, the company behind Ching’s Secret and Smith & Jones brands of condiments and ingredients. Nevertheless, executives familiar with the situation have indicated that Tata Consumer Products Ltd (TCPL) is currently the leading contender to purchase Capital Foods. In a prior instance, Nestle had engaged in discussions to acquire the health foods manufacturer GSK Consumer, but the company was ultimately acquired by Hindustan Unilever.
Like many other FMCG (Fast Moving Consumer Goods) companies, Nestle SA’s Indian subsidiary, the largest food company globally, is experiencing heightened competition from local competitors, particularly in product categories like noodles and coffee.
Responding to a query during the investor call, Narayanan said, “We do have local competition in categories like noodles and we are moving fast enough to mitigate any impact.” He said there have been some entrants but the “category is fairly sensitive in terms of quality and safety.”
Regarding coffee, Narayanan mentioned that local competitors do not present a significant challenge due to the substantial increase in coffee bean prices, which they are unable to sustain.
Narayanan noted that within FMCG categories, both premiumization and downtrading are taking place. On one hand, consumers in certain markets are grappling with the effects of inflation, while on the other hand, aspirational demand is driving an increase in discretionary spending.
“There is a pressure on budgets for certain sets of consumers. So we are putting bridge packs to take care of this,” he said.
Nestlé’s entry-level Maggi noodles are now available in packs of INR 7, 10, and 14, in addition to multiple large packs.
Nestle announced a 37% rise in net profit for the September quarter, amounting to INR 908.08 crore. This remarkable growth was primarily driven by the strong performance of its flagship brands, Maggi noodles and KitKat chocolates.
Following the January-December fiscal year, the company achieved a turnover exceeding INR 5,000 crore in the quarter, marking the first instance of such a milestone in any single quarter.
The foods maker said “proclivity towards adoption of brands in small towns and large villages has propelled growth”.
Nestle mentioned in a post-earnings management commentary that a shortfall in monsoon rains may have repercussions on the production of maize, sugar, oilseeds, and spices, potentially affecting prices. Furthermore, coffee prices are subject to volatility due to a global supply deficit, and unfavorable weather conditions during the Indian Robusta crop harvest may impact coffee production.
Nevertheless, the company pointed out that despite the increased costs of essential items like vegetables and dairy products, Indian consumers, especially those residing in urban areas, have continued to show a willingness to indulge in affordable indulgences like chocolates and biscuits.
“Nestle’s double-digit sales growth in the domestic business has been broad based, with prudent pricing supported by mix and volume. It is possibly one of the few companies to achieve close to double-digit sales growth on a consolidated basis in the September quarter,” Nuvama Institutional Equities wrote in a post-earnings report.