High Inflationary Pressures Weighing on Margins
Nestle India is set to release its earnings report for the fourth quarter (Q4) of the fiscal year 2024-25 on April 24, 2025. The company, known for its iconic brands such as Maggi noodles, is facing considerable challenges in the quarter gone by due to surging inflation in key raw materials such as coffee, cocoa, cereals, dairy, and edible oils. These rising costs are expected to put significant pressure on the company’s profit margins, particularly impacting its core product categories like chocolates and beverages.
Key Highlights:
Inflationary Impact: Surge in costs of key ingredients like coffee, cocoa, wheat, and vegetable oil is expected to weigh on margins.
Profit Outlook: Analysts forecast a 6% YoY decline in net profit, with estimates ranging from a slight drop to a more significant fall.
Revenue Growth: Despite the margin squeeze, Nestle India is expected to report a 4.4% YoY rise in revenue, reaching around ₹5,500 crore.
Revenue Growth to be Driven by Pricing Power
Nestle India is likely to show a year-on-year (YoY) revenue increase of 4.4%, bringing its total revenue to ₹5,500 crore for the quarter, up from ₹5,268 crore in the same period last year. This growth will be largely driven by price hikes across several product categories. However, this price-driven revenue boost will be partly offset by weak operational performance and muted demand across key segments.
Analysts expect the volume growth to be low single digits, hovering between 2-3%, as demand from urban areas continues to remain sluggish. The urban slowdown, driven by inflationary pressures and economic uncertainty, has notably impacted Nestle India’s topline growth, as the company has a significant urban-skewed portfolio.
Highlights:
Revenue Growth: Expected 4.4% YoY growth to ₹5,500 crore.
Volume Growth: Analysts expect low 2-3% volume growth, driven by pricing rather than volume increases.
Profit Decline Due to Weak Operational Performance and High Inflation
Net profit for the January to March period is projected to fall by nearly 6% YoY, to around ₹870 crore, compared to ₹924 crore in the same quarter last year. This decline is attributed to several factors, including the inflationary pressures that have significantly increased input costs. Additionally, the company’s operational performance has been weaker, and the decline in other income has further exacerbated the net profit slump.
Analysts’ earnings estimates for the quarter are diverse. The most optimistic projections suggest a modest half-percent decline, while the most pessimistic forecasts predict a much steeper fall of around 9.5% YoY in net profit. These varied expectations reflect the uncertainty surrounding the company’s ability to fully offset the higher costs through its pricing strategy.
Highlights:
Net Profit Decline: Expected 6% YoY drop, potentially reaching ₹870 crore.
Other Income: A sharp fall in other income is likely to contribute to the profit decline.
Margins Under Pressure from Rising Input Costs
Tata Communications’ EBITDA margin is likely to face significant stress in Q4, primarily due to the high inflation in the cost of raw materials such as coffee, cocoa, and cereals. The company has undertaken some price hikes, especially in its chocolate, coffee, and Maggi noodles categories, which are expected to partially cushion the impact of higher input costs. However, these measures may not fully offset the pressures on margins.
Experts point out that while Nestle India’s cost-cutting initiatives and price hikes have provided some relief, the margins are expected to remain under pressure throughout the quarter, due to a high base and continued inflation in commodity prices. The company’s ability to protect its profitability will depend on how well it manages these cost pressures and how effectively it can pass on these costs to consumers.
Highlights:
Margin Stress: EBITDA margins expected to be under pressure from rising input costs.
Price Hikes: Price increases in key products (Maggi, chocolate, coffee) are expected to offer some support.
Competitive Pressures and Weak Demand Trends
Nestle India is facing heightened competitive intensity, particularly in the infant nutrition segment, which has been a key growth driver for the company. Experts point out that this increased competition, along with a trend of downtrading in the coffee business, could further weigh on revenue growth during the quarter. Despite these challenges, Nestle India is expected to benefit from some volume growth in its Maggi portfolio, especially due to the Maha Kumbh 2025 event, which has historically led to increased sales in certain regions.
Demand trends have improved sequentially in urban areas, though they still remain relatively weak compared to previous periods. Experts believe that this urban slowdown will likely continue to impact Nestle India’s overall growth, especially considering its urban-skewed portfolio. However, there is an expectation that demand conditions could gradually improve by Q2FY26, as inflationary pressures subside and consumer confidence recovers.
Highlights:
Increased Competition: Pressure from infant nutrition segment and coffee business.
Volume Growth: Modest benefit from Maggi portfolio and Maha Kumbh 2025.
Demand Recovery: Weak demand from urban areas, expected to improve by Q2FY26.
What to Watch for in the Q4 Earnings Call
As Nestle India prepares to announce its Q4 earnings, analysts will be closely monitoring several key factors during the earnings call. These include:
Management’s commentary on demand and the current material costs.
Insights on raw material prices and their expected impact on EBITDA margins.
Updates on the competitive pressure across the company’s key product categories.
Any strategic initiatives or cost-saving measures being implemented to counter the rising costs.
Nestle India’s ability to navigate these inflationary challenges and competitive pressures will be crucial for its performance in the upcoming quarters, especially as it looks to regain momentum in the face of weaker demand.
Highlights:
Focus Areas: Management commentary on demand, material costs, and EBITDA margins.
Analyst Attention: Increased focus on competitive pressures and cost-saving strategies.
