Nestlé’s Indian arm invests US$83.9M in joint venture with Dr Reddy’s

INDIA – Nestlé India has announced a US$83.9 million investment in its joint venture with Hyderabad-based pharmaceutical giant Dr Reddy’s Laboratories.

The investment, revealed in a recent stock-exchange filing, sees Nestlé India retain a 49% stake in the venture, with Dr Reddy’s holding the remaining share. Dr Reddy’s has made a parallel investment of Rs7.34bn in the venture.

Initially announced in April, the collaboration aims to address various health and wellness categories, including metabolic health, hospital nutrition, healthy aging, general wellness, women’s health, and child nutrition.

Nestlé India also disclosed that it has signed a business transfer agreement for the slump sale of its existing medical nutrition and nutraceuticals business to the joint venture, valued at a lumpsum consideration of Rs2.19bn.

This transfer is expected to streamline operations and integrate resources more efficiently within the new venture.

The joint venture began operations in the second quarter of Nestlé India’s 2024/2025 financial year, which commenced on April 1.

For the quarter ending June 30, Nestlé India reported a 7% year-on-year increase in profit, rising to Rs7.47bn from Rs6.98bn in the same period last year. Revenue also saw a 3.3% increase, reaching Rs48.14bn.

Despite external challenges, Suresh Narayanan, Chairman and Managing Director of Nestlé India, expressed satisfaction with the company’s performance.

“I am pleased to share that despite external challenges such as lower consumption growth, concerns on continued food inflation, and volatile commodity prices, we have delivered growth across our product groups,” Narayanan said.

He highlighted that prepared dishes and cooking aids maintained growth momentum, with innovations contributing to approximately 30% of the quarter’s growth.

Notably, Maggi Korean Noodles and Masala-Ae-Magic experienced double-digit growth, and KitKat also delivered double-digit growth.

Earlier this year, Nestlé India was cleared by the country’s consumer court of government allegations related to the 2015 lead contamination scare that affected the Maggi brand.

Despite this positive development, Nestlé India’s first-quarter profit and revenue figures fell short of expectations due to price hikes that pushed consumers towards cheaper alternatives. This resulted in the company’s slowest revenue growth in eight years.

The first-quarter net profit for the three-month period ending June was Rs7.47bn, missing analysts’ expectations of Rs8.16bn. This led to a 2.6% drop in Nestlé India’s shares, making it the top loser in the Nifty FMCG index, down 0.8%.

In recent years, Nestlé India and other consumer goods giants have raised prices for chocolates and milk products to offset rising raw material costs, including cocoa and milk.

However, this strategy caused a shift in consumer preference towards cheaper, unbranded products, eroding market share and necessitating increased advertising expenditures to win back shoppers.