Nestle India’s 60-70% Coffee Cost Hike Bites Into Profits

Nestle India stock falls below SMAs

Nestle India’s 60-70% Coffee Cost Hike Bites Into Profits On the last trading day, Nestle India shares opened at ₹2349.95 and closed at ₹2257.10. During the session, the stock reached a high of ₹2349.95 and a low of ₹2256. As of 12:01 PM today, shares are trading at ₹2257.10, marking a decline of 3.01% from the previous closing price. The Sensex is currently at ₹80043.54, down 0.05%.

From a technical perspective, the stock is trading below its short-term simple moving averages (SMAs) for 5, 10, and 20 days, as well as longer-term SMAs for 50, 100, and 300 days. The current SMA values are as follows:

– 5 days: ₹2379.48
– 10 days: ₹2442.65
– 20 days: ₹2557.10
– 50 days: ₹2542.54
– 100 days: ₹2534.11
– 300 days: ₹2534.59

Pivot level analysis indicates that the stock has key resistance levels at ₹2361.0, ₹2395.35, and ₹2415.8, while support levels are at ₹2306.2, ₹2285.75, and ₹2251.4. Additionally, mutual fund (MF) holdings have increased from 4.05% in June to 4.28% in the September quarter.

As for foreign institutional investor (FII) holdings, there was a change from the previous quarter, although specific percentages were not provided. Overall, Nestle India shares are down 3.01% today, while its peers show mixed performance: Britannia Industries and Tata Consumer are declining, whereas Patanjali Foods and Adani Wilmar are experiencing gains. The broader market, with benchmark indices Nifty and Sensex, is also down by 0.08% and 0.05%, respectively.

Nestle India’s 60-70% Coffee Cost Hike Bites Into Profits Suresh Narayanan, Chairman and Managing Director of Nestle India, stated that tier-1 towns and smaller towns have remained relatively stable, while rural areas are also holding steady. However, he highlighted that consumers in mega cities and metropolitan areas are experiencing stress due to rising food inflation, which is negatively impacting the growth of the fast-moving consumer goods (FMCG) sector. He noted that the middle-income segment is feeling pressure, even as high-end consumers continue to drive demand for premium products.

While 60% of Nestle India’s portfolio has seen double-digit growth, certain categories, such as milk, nutrition, and parts of the chocolate and confectionery segments, are facing weaker demand. At a recent media roundtable, Narayanan pointed out that the overall market is experiencing muted demand, with growth in the food and beverage sector dropping to 1.5-2% from double-digit growth in previous quarters. He attributed this slowdown to rising food inflation, particularly sharp increases in prices for fruits, vegetables, and oil. If raw material costs remain high, companies may have to raise prices. Nestle India is already facing challenges with coffee and cocoa prices.

Coffee prices have surged by 60-70% over the past year, and cocoa prices have increased 2.5 times. As a result, Nestle India has raised prices for its coffee products by 15-30% for larger packs while maintaining lower prices for smaller items.

Nestle India’s 60-70% Coffee Cost Hike Bites Into Profits Narayanan mentioned that while premiumization is a strong trend among higher-income consumers, the middle-income segment is under stress, which is becoming a significant challenge for many FMCG companies. However, he believes this situation is not a long-term issue. Regarding future prospects, he emphasized the importance of monitoring the effects of the monsoon and kharif crop on rural incomes. Improvements in rural income and a resurgence of consumption in mega cities could signal a recovery. He anticipates moderate growth in both volume and value in the future.

Nestle India is focusing on volume growth through increased penetration, leveraging economies of scale, and adopting a cautious approach to future price increases. The company is also taking decisive action to address weaker demand for certain brands, such as Munch, which is facing intensified regional competition.

In e-commerce, Nestle India reported a 38% growth, with this channel now accounting for nearly 8.3% of its domestic sales, half of which comes from quick commerce. Narayanan noted that quick commerce has been a significant growth area for the company in the past two quarters.

Nestle India’s 60-70% Coffee Cost Hike Bites Into Profits Nestle India’s e-commerce segment experienced significant growth of 38% during the quarter, with nearly 50% of this volume coming from quick commerce. Chairman and Managing Director Suresh Narayanan remarked that the FMCG sector is facing sluggish demand, characterized by a shrinking middle class and a strong demand for premium products. He noted a shift in larger cities, where consumers increasingly prefer e-commerce and quick commerce channels.

Speaking to reporters at the company’s Samalkha facility, Narayanan explained that the traditional middle segment, which has been the focus for many FMCG companies, appears to be diminishing. This segment is being replaced by a market segment that prioritizes price over quality. As a result, companies offering reasonable value in the middle market are temporarily struggling. Nestle’s demand trends reflect this; while its chocolate business has been particularly hard hit, premium chocolate offerings have shown strong growth.

Narayanan pointed out that previously, such demand fluctuations would last about a quarter, but now they have persisted for two to three quarters. Last week, Nestle India reported its slowest quarterly growth in eight years, primarily due to weak demand and high raw material costs. He noted that the pressure is particularly evident in mega cities and metropolitan areas, indicating that the company feels as though it is operating in “two Indias.”

Nestle India’s 60-70% Coffee Cost Hike Bites Into Profits The categories most affected include milk and nutrition, as well as chocolate and confectionery. However, core products like Maggi, KitKat, and Milkmaid continue to grow in double digits. Regarding raw material costs, Narayanan mentioned that coffee prices have risen by approximately 60% over the past year. In response, the company has increased coffee prices by 15-30%, but he warned that further price hikes may be necessary if inflation remains high.

Despite the challenges, Narayanan emphasized the importance of maintaining a balanced approach across all sales channels. He expressed optimism for growth during the festive season, highlighting that while general trade is performing reasonably well and e-commerce is thriving, organized trade has shown decent growth but still has potential for more. He hopes to see positive outcomes from the festive season in the current quarter.