Nestle | Nestle’s pricing power to play rescue act in trying times

In CY21, gross margin dipped y-o-y, but lower ad spends helped Ebitda margin improve. Costs outlook is firm in CY22, but Nestle’s strong pricing power should help.

Akey takeaway from Nestlé India Ltd’s CY21 annual report released recently is that advertising & sales promotion (A&P) costs as a percentage of sales has dropped further. The company follows a January to December financial year. Nestlé provides the A&P details in its annual report only. The ad spends-to-sales ratio has seen a consistent decline in recent years.

“While the covid-19 pandemic in CY20 understandably led to a 70 basis points (bps) decline year-on-year (y-o-y) in ad spends-to-sales ratio, we were not expecting a further decline in CY21 (to 5.5%),” said Motilal Oswal Financial Services’ analysts in a report on 21 March.

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