Nestle India’s Jan-Mar quarter profit fell marginally to Rs 594.7 crore, falling short of street estimates, as inflation and high raw material prices ate into the company’s margins. Analysts expected Nestle India to clock Rs 625 crore net profit, according to a CNBC TV18 poll. Nestle, the maker of Maggi noodles, KitKats and Nescafe, said that input costs hit a 10-year high during the quarter, and the surge is expected to continue in coming days. Shares of Nestle fell 3 per cent in intraday trading.

The company’s revenue rose 10.2 per cent year-on-year at Rs 3,980.7 crore in the first quarter of the calendar year. Nestle said revenues improved on the back of double-digit growth in its key brands including Maggi noodles, KitKat, Nestlé Munch, Nescafé Classic and Sunrise this quarter. However, operating margin fell by 200 basis points in Q1. The company said earnings per share fell to Rs 61.68 from Rs 62.46 in the same quarter previous year. Nestle India follows the January-December calendar while reporting its quarterly results.

Input costs heat up: Edible oil, coffee and other commodities prices may rise

The FMCG company expects prices of key commodities such as edible oils, coffee, wheat, and fuel to remain high, adding that the costs of packaging materials will continue to increase amid supply constraints, rising fuel and transportation costs. “Input costs are expected to be on a bullish trend both globally and locally. Fresh milk costs are expected to remain firm with continued increase in demand and rise in feed costs to farmers,” the company said.

“As highlighted in previous quarters, cost of key raw and packaging materials are witnessing 10-year highs, and costs continued to surge this quarter which has impacted profit from operations,” Nestle said. “Continued inflation is likely to be a key factor in the short to medium term. We are confident of facing this turbulence with strategies of scale, efficiencies, mix and pricing all of which we will deploy judiciously,” it added.

“As far as revenue growth is concerned, largely what we were expecting and what we believe that the growth is – came from the pricing part; volume would have been a smaller part of the growth and that too from the Maggi portfolio,” Sanjay Manyal, Research Analyst, ICICI Direct, told CNBCTV18. “And though Nestle’s overall raw material basket is more skewed towards the agri side of the commodities rather than the crude and the palm which probably is a bit of solace, I believe still Nestle would also see the margin pressure probably one more quarter,” he added.