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Nestle India?s marketing budget Rs 450 crore for FY-2014?

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BENGALURU: One of the biggest spenders on advertisement and sales promotion in India is nutrition, health and wellness company Nestle India Limited (Nestle). The company which owns brands such as Nestle, Maggi, Everday, Barone, Munch, Kitkat, Milkybar, Polo, Alpino among others is expected to spend in excess of Rs 400 crore towards advertising and sales promotion (ASP) during the current calendar year that ends on 31 December 2014 (FY-2014).

Notes: 100,00,000 = 100 Lakhs  = 10 million = 1 crore.

Let us look at the company?s numbers over the last ten years starting FY-2004 until FY-2013.

As per Figure 1 below, Nestle?s total revenue from operations (TIO) has had a compounded annual growth rate (CAGR) of 16.93 per cent from Rs 2227.57 crore in FY-2004 to Rs 9109.05 crore in FY-2013. Its ASP has grown by 14.04 per cent CAGR from Rs 121.26 crore (5.4 per cent of TIO) to Rs 395.48 crore (4.3 per cent of TIO) during the same period. Using 14.04 per cent ASP growth as a yardstick, the company is expected to spend around Rs 450 crore in FY-2014 towards ASP.

Background: Over the last 10 years, the company?s ASP has always increased in absolute rupees with an average y-o-y growth of 14.4 per cent. However, ASP in 2004 was 10.9 per cent lower than the ASP in FY-2003, which was 9.7 per cent lower than the ASP in FY-2002, which in turn was lower by 3.0 per cent as compared to the ASP in FY-2001.

If Nestle?s TIO rows at 16.93 per cent, it would be reach around Rs 10,640 crores for FY-2014. Assuming ASP as 4.3 per cent of TIO, Nestle should spend around Rs 460 crore towards marketing. Nestle?s TIO in FY-2014 grew at 9.2 per cent as compared to the Rs 8334.53 crore in FY-2012. Assuming a growth of 9.2 per cent and ASP as 4.3 per cent of TIO, the corresponding numbers of TIO and ASP for FY-2014 are about Rs 9940 crore and Rs 432 crore.

While in absolute rupee terms the company?s ASP shows a linear increasing trend, in terms of percentage of TIO, the linear trend is downwards. Across 10 years, the company?s average ASP is 4.82 per cent, of TIO, with a maximum of 5.5 per cent of TIO in FY-2005 and a minimum of 4.3 per cent of TIO in FY-2011, FY-2012 and FY-2013. Hence, company?s ASP across the last 3 years of 4.3 per cent is much below the 10 year par.

Disclaimer: Being a part of a multi-national group, the company is generally quite tight lipped about sharing financials unless it has to legally do so. Details about the company?s advertisement spends are not indicated even in the company?s annual reports ? what you have is a combination of the advertisement and sales promotion spends declared as a single entry in the notes forming the part of the company?s annual financials. There is really no way that one could pin an exact number for these spends unless one has an inside track on the company?s marketing budgets. The projections in this report are pure conjecture based on the historical annual numbers revealed by the company in its annual reports. The author has no knowledge about Nestle?s strategy, past or present.

The numbers deduced in this report may be quite similar or way off the mark from the numbers that the company will reveal in its annual report for FY-2014 early next year. The company?s financial year ends on December 31, hence Q1-2014 and Q2-2014 means quarter ended March 31, 2014 and June 30, 2014 respectively in this report.

Some more: For Q2-2014, the company reported y-o-y growth of 9.4 per cent in TIO at Rs 2431.97 crore from Rs 2222.71 in Q2-2013, and 4.8 per cent more than the Rs 2321.51 crore in the immediate trailing quarter. Nestle?s HY-2014 TIO at Rs 4753.48 crore was 6.2 per cent more than the Rs 4478.06 crore reported for HY-2013. Even if one were to go by the lowest figure of 4.8 per cent growth, TIO for FY-2014 would be Rs 9534.09 crore. Maintaining ASP of 4.3 per cent of TIO, the company?s marketing spend for FY-2014 works out to about Rs 414 crore.

Given the fact that the company has been witnessing consistently lowering rate of growth since FY-2011 past few years, a marketing push would help Nestle reverse the trend, besides other strategies like launch of new products or revamping of old or existing products.

The company, in its Q2-2014 earnings release, says that it has recently launched Nestle Sweet Lassi, Nestle Buttermilk and Ayurvedic Herbs and Spices and Maggi Oat Noodles to its portfolio.

Based on the above numbers and launches, marketing spend in range of Rs 450 crore with a variation of + 10 per cent seems a reasonable number for FY-2014.

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