Nestle’s performance has been spectacular in the last decade. During this time the company has been successful in increasing the operating margin. Its market share in noodle category is 60 per cent. It is second in chocolate. However, in the first 9 months of this financial year, the company has faced an increase in raw material prices and weak demand in cities. However, the company is likely to support more margin milk and nutrition business. The growth in the premium segment has been good, but the growth of the mid-pris segment has shown lethargy. On 1 February, Finance Minister Nirmala Sitharaman made big announcements to increase conjunctivity. Nestle will benefit from this.
More focus on coffee will benefit
Inflation has affected the demand for coffee. Despite this, Nescafe is a market leader. Nestle Has doubled its capacity of coffee. The company is planning to develop and sell Starbuck’s ready-to-drink coffee. This will expand the company’s product portfolio in India. This partnership will help the company take advantage of the growing market of coffee. Coffee demand is expected to increase as people’s income in India increases.
Strong brands like Maggi have been getting the benefit
Nestle has been benefiting from Maggi’s tremendous brand power. However, increasing inflation has also affected Maggi. Its volume growth is dull. Apart from this, Nestle is also getting competition from other brands of noodle. Nestle is ready to face this challenge. He has increased the focus on innovation. The company is also increasing the focus on the market where there is a possibility of good growth. The company has increased the focus on e-commerce channels. In 2016, the share of e-commerce was 1 per cent of the total sales, which has increased to 8.5 per cent in 2024. In the first 9 months of this financial year, growth year after year is 32 percent.
More focus on rural areas
The company will get the benefit of increasing focus on innovation. On getting the right opportunity, the company will also use the opportunity of acquisition. This will help in increasing growth. The company has increased the focus on rural areas. The company wants to increase its distribution to 60 lakh outlets in these areas. Right now it is 50 lakhs. Its focus in small cities is on the Traditional Channel. The channel holds a stake in total sales between 75–80 per cent. In the last 10 years, the company’s operating margin has increased from 16.5 per cent to 22 per cent.
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Should you invest?
Nestle shares have been poor in the last one year. During this time the stock has fallen by 8.66 percent. Despite this, its shares are being traded at 62 times the estimated Earnings of FY25. The company has a strong penetration in the packaged food business. This will give it the benefit of recovery in demand in urban areas. The company’s shares can be invested in long -term terms.