Nestle India flagged inflation and rising commodity prices as challenges on Thursday after resilient demand for Maggi instant noodles and Nescafe coffee helped drive a 36% jump in its second-quarter profit.
Consumption tax cuts and selective price increases have supported sales growth for Indian consumer goods makers, even as they face mounting input cost pressures, especially for packaging, edible oils and agricultural commodities.
The Indian arm of Switzerland’s Nestle said it is focusing on new and improved products, investing in its brands and managing costs to counter food inflation and higher commodity costs.
“Rising inflation, particularly food inflation, is a reality,” Chairman and Managing Director Manish Tiwary said, citing “a challenging environment” due in part to higher commodity costs.
India’s retail inflation accelerated to 5.54% in September, data showed on Monday, nearing the upper end of the central bank’s tolerance band as war in the Middle East and a weak monsoon pushed up prices.
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Net profit was 10.27 billion rupees ($108.03 million), while revenue rose 20% to 67.88 billion rupees.
Despite the sharp profit increase, earnings were broadly in line with estimates, disappointing investors who had anticipated a stronger beat, Systematix Group analyst Chetan Mahadik said. He added that the market may also be factoring in slower revenue growth in coming quarters.
Shares slumped roughly 9% after the results.
In the September quarter, sales volume grew at a double-digit pace, with Nestle India citing higher rural penetration for Maggi, sustained growth on quick-commerce platforms and launches under the KitKat and Munch brands.
The results also come as India pursues an unprecedented food safety crackdown, including proposed warning labels for packaged foods and nationwide inspections of eateries, as concerns over hygiene and quality intensify.
Nestle India did not directly address the developments.
Tiwary, however, said: “At Nestle India, food safety and quality are the foundation of consumer trust.”