During this pandemic season, FMCG sector is one of the few sectors that is showing growth. The company that stands out is Nestle, their Q1 2020 revenue, Ebitda and PAT showed a growth of 10.8%, 5.3%, and 13.4% y-o-y which has surpassed estimates. Nestle has shown double-digit growth for the tenth consecutive quarter now, up by 10.7% y-o-y—this is mostly volume and mix. 12.9% y-o-y growth for export revenue was seen which is the first time in five quarters as there were lower coffee exports to Turkey. Gross margin is being dragged down due to high commodity prices (down 223bps y-o-y). Some cost control measures like a cut in ad spending (other expenditure down 168bps y-o-y) have helped aid Ebitda margin by a small margin, which fell by only 125bps y-o-y.
Nestle continues to outperform all of its peers and might be the only FMCG company to report any positive domestic sales growth in Q1CY20. Its investments in innovation & cluster-based distribution strategies are all on track and this will add to its sustainability in the long term. They have decided to extend MD for another 5 years which is another positive as well.
Outclassing competition
The company showed double-digit domestic revenue growth of 10.7% y-o-y in Q1CY20, this is the 10th consecutive quarter showing double-digit growth. This is probably one of the highest amongst consumer goods companies with regards to volume and mix. It exceeded Godrej Agrovet Creamline’s dairy revenue growth, in Q4FY20 it was at 5% y-o-y.
Despite all the disruptions caused by lockdowns, products like MAGGI, KITKAT, and Nestlé MUNCH has delivered solid performances. But out of home consumption has gone down drastically as it is heavily impacted by the lockdowns which lead to passive performance. The contributions from e-commerce websites have benefited from the lockdowns.
As lockdowns keep extending, raw material prices are going up and this has led to the fifth consecutive quarter of reduction in gross margin.
Outlook: One of the Best quality
Nestle has put in some major investments in innovation, launches, market share, and premiumization which is most likely to boost volume-led growth. The success of new launches, entry into new segments, and more improvements to margin aided by premiumization have helped in re-rating their stock to an impressively high PE.
