Nestle India may raise prices by up to 15%

NEW DELHI: Processed foods major Nestle India is likely to raise product prices by up to 15% due to the steep hike in input prices.

Mayank Trivedi, general manager - dairy, said, “We may increase prices by between 5% and 15% for different products because of escalation in raw material costs and inflation, etc, depending on the situation.”

The company will, of course, try to absorb as much input cost escalation as possible, he said.

Nestle has raised dairy product prices at different times. “For Probiotic dahi (curd), we tried to hold on to prices (for a long time) and raised it two months ago by Rs 2,” Trivedi said.

Two analysts covering the firm believe it is capable of raising prices to offset cost escalation and maintain its margins. 

Religare analyst Abneesh Roy said in a note to clients, “Nestle has high pricing power which empowers it to take steady price increases to offset input cost pressures. Nestle has strong long-term sourcing relationships for key ingredients.”

India Infoline analyst Pragati Khadse also expects Nestle’s margins to remain stable even after a price hike. “We expect margins to stay stable despite high raw-material costs, as Nestle’s strong product positioning and robust underlying demand growth enable it to enforce further price hikes.”

Internationally, raw material prices have almost doubled in the last two-and-a-half years.

Nestle has already raised prices of most of its products by more than 11% last year and also reduced weights of some products by 9-12% to absorb the escalations.

“Input price rise is a critical issue for us, prices are raised every time there is an input price trigger,” Trivedi told DNA Money.

Meanwhile, Nestle India launched its new milk product Nesvita Pro-Heart, targeting the health conscious consumers, which is in addition to its existing milk portfolio of Nestle Slim milk.

The carton or packaged milk, which has a much longer shelf life than regular milk, contributes “significantly” to its dairy and nutrition product portfolio. In 2007, this portfolio contributed 43% to its revenue.

However, Trivedi agrees that there could be some overlap between the two milk products.

“There is a possibility of overlap between the two products, some cannibalisation… However, the market is big enough for both of them,” Trivedi added.
vivek_s@dnaindia.net