(Reuters) -Nestle India posted a 12% decline in first-quarter profit on Thursday, as higher raw material costs and expenses tied to its manufacturing expansion weighed on margins, sending shares down more than 5%.
Profit fell to 6.59 billion rupees ($76.4 million) for the quarter ended June 30 from 7.47 billion rupees a year ago, the Indian arm of Swiss food major Nestle said in a regulatory filing.
“The quarter was impacted by elevated consumption prices across the commodity portfolio,” Chairman and Managing Director Suresh Narayanan said. Narayanan will retire on July 31 and will be succeeded by Manish Tiwary.
Total expenses rose 9%, while the company set aside 65 billion rupees to expand capacity between 2020 and 2025.
Nestle India has been grappling with cost inflation in key commodities such as cocoa and milk, staples in its popular KitKat chocolates, and has jacked up select prices to cushion the blow.
The price hikes, however, curbed demand in its milk products and nutrition division, which accounts for more than a third of its total sales through brands like Cerelac infant cereals and Milkmaid condensed milk.
The company did not specify which products underperformed.
Despite the margin pressures, revenue from operations grew 6% to 50.96 billion rupees, helped by improved demand in the country’s urban markets after several quarters of lull.
Nestle India said milk prices are likely to ease, while coffee prices are expected to remain steady and low.
Shares in Nestle India, which had gained 13% this year as of last close, fell as much as 5.3% after the results.
Earlier in the day, parent Nestle reported better-than-expected first-half organic sales growth.
($1 = 86.3020 Indian rupees)
(Reporting by Ananta Agarwal in Bengaluru and Praveen Paramasivam in Chennai; Editing by Sumana Nandy and Sherry Jacob-Phillips)
