Milk prices likely to stay high: Nestle MD

Nestle India has delivered the highest quarterly growth in a decade and is hopeful of sustaining it. In an interview, Nestle India chairman & MD Suresh Narayanan says that milk prices are likely to stay high for some more time and discusses the company’s strategy. Excerpts:
How far is profit growth sustainable?
I don’t think it is relevant on whether we can sustain a 21% or 25% growth. The question is can we sustain a growth momentum despite the circumstances that prevail? That is something that we have managed to do reasonably well. During 20 of last 25 quarters, we have reported double-digit growth. The intrinsic strength of the portfolio is such that we would be able to sustain fairly strong growth, and seen together with a shift of aspirations in the country, especially in smaller towns and rural markets, the growth momentum would be sustained for a longer period of time.

What is your outlook on inflation given that milk remains under pressure?
The only two commodities in our basket where we have some concern are liquid milk and coffee. Coffee seems more like a market posturing, and cyclical, and we will come out of it soon. Milk looks like a more structural issue. An imbalance between milch herd and demand — cost of production that have increased substantially — and a depletion of capital base of the industry because of the lumpy skin disease. I think these three will take some time to recover. These are significant investments that farmers will need to make and they will do it only when they see a strong uptick in margins and profitability. So, milk prices are likely to be exacerbated for some time.

What is the level of increase in milk prices?
Point-to-point it is up by almost 20% y-o-y. It is not easing. We are getting into the summer months, demand will start to shoot up.

Can we expect you to take more price hikes in milk?It’s a tough call. We are hopeful that things may start to improve during the coming flush season, which is from October onwards. If that doesn’t happen, then of course there would be a more worrisome impact.

What is your outlook in the light of El Nino forecast?
Our demand profile in the rural market has been fairly strong. In last quarter, rural India for us has seen doubledigit growth, which is on a base of a fairly strong volume growth. Despite the 20% contribution of rural (sales), the demand evolution is going quite well because aspiring India is seeking availability of products. Unless there’s a serious impact, I dare say a black swan event, unless the El Nino phenomenon becomes so serious that it actually threatens the next crop and the rural incomes, it should be on a fairly even keel.

How is the Rs 5,000-crore investment playing out?
It will go across categories, with large parts going into food and chocolates, with some allocated for coffee and nutrition. About Rs 1,700 crore will be invested this year and next year. Part of the plan is also to look at a 10th factory, we haven’t firmed up the location.

There is this controversy around Bournvita and you have Milo. What is the level of sugar?
What is the way forward on this issue? I would not like to comment on the specific product. But, as a leading industry player in foods, trust, transparency and responsibility go together. So, it is important that manufacturers and consumers start having greater trust, where the manufacturer takes the initiative to ensure that there is transparency in transmission of information on nutrition and what a product does to consumers. As a matter of policy, Nestle does disclose contents on the pack. In Milo, the current exposure of added sugar is less than a teaspoon per serve. Translated into sugar terms, it is 9% RDA. So, if you have a glass of Milo, about 9% of your daily requirement of sugar will be satisfied. We make it out of jaggery and whey protein. Jaggery is seen as better form of sugar uptake than refined sugar. Our fundamental belief is that there is nothing called good nutrition and bad nutrition, it all about having balanced nutrition.
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