Nestlé to raise chocolate, coffee capacities in India

“If you look at from 2020 till the first half of 2023, about ₹2,100 crore has already been spent on capital investments. These are in terms of augmentation of manufacturing capabilities. About a third of it has gone into culinary investments; about another third has gone into chocolates and confections. The balance has gone into nutrition and beverages. Another ₹4,200 crore is being spent from 2023 to 2025. This includes roughly ₹900 crore in the new factory investment in Odisha,” Suresh Narayanan, chairman and managing director of Nestlé India, said on Friday.

Earlier this month, Nestlé India received in-principle approval from the Industrial Promotion and Investment Corp. of Odisha Ltd (IPICOL) to build its 10th factory in the country at an investment of ₹894 crore. The factory will start operations over the next two years and will make noodles, chocolates, and confectionery.

“We are creating capacities because we’ve seen that underlying demand is fairly robust,” Narayanan said.

The announcement aligns with the company’s existing plans to allocate ₹5,000 crore to build new research centres and factories in India by 2025.

“There will probably be two or three areas where investments will go. One, of course, is the new factory in Odisha. Then there is a further expansion of facilities in the coffee and beverages business. There is what we call phase-three and phase-four of the Sanand (Gujarat) factory where we will be setting up, apart from noodle lines, confectionery lines as well. Then, there is some expansion in Moga; and also in our factory in Ponda, the chocolate factory,” he added.

Nestlé India on Thursday reported a 37% increase in standalone net profit and a 15% increase in revenue from operations for the June quarter. Narayanan said domestic volumes rose 4-5% during the quarter, including high single-digit growth in the milk and nutrition portfolio, similar growth as in the previous quarter for the chocolates and confectionery portfolio, and double-digit growth in value-added noodles. However, demand for low-priced packs was weak, which Narayanan said is now recovering.

Companies such as Nestlé have been battling high inflation that has touched multiple parts of the company’s business, from coffee procurement to packaging.

Narayanan said prices of several commodities Nestle uses are cooling. “Milk and wheat prices have been stable so far. One doesn’t know the impact of El Nino and how it will impact us,” he said. Cost of packaging materials and fuel have been“benign”, he said.

Food inflation, however, remains a matter of concern, he said.

“While headline inflation has been in control, food inflation will continue to wobble for a while, not just because of expectations on crops but also the whole climate piece. What impact [rains] will have on the winter crops is anybody’s guess…[T]he spectre of food inflation is going to remain. It’s not something we can wish away that quickly. Fortunately, for us, fuel and packaging costs are fairly under control today,” he said.

Narayanan expects the gap between volume and price-led growth to narrow in the coming quarters as the company prioritizes volume-led growth. “The underlying philosophy of the company continues to be penetration-led volume growth,” he said.

Narayanan said parts of rural India are witnessing “economic pain”. However, growth in rural markets at 20-25% surged ahead of urban markets in the June quarter for the company. Rural markets contribute 20% to the company’s sales.

Updated: 29 Jul 2023, 12:32 AM IST