X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Nestle: Coffee price bonanza - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jan 1, 2001

    Nestle: Coffee price bonanza

    The price of the coffee beans in the international and the domestic markets has been hovering near 30-year lows. Although, this indicates a bad year for coffee growers in the country, for Nestle India it is a win-win situation simply because it derives its revenues from branded coffee. Its brand ‘Nescafe’ enjoys premium positioning in the Indian subcontinent. Raw coffee contributed around 21% to total raw material consumption of the company in 1999.

    The coffee bean prices witnessed a sharp decline due to the increased coffee production in counties such as Brazil, Columbia, Vietnam and Indonesia in the recent years. This, coupled with the stagnant coffee consumption has resulted in prices hitting the rock bottom.

    Raw material mix
    Year ended December 1996 1997 1998 1999
    Milk 34% 34% 34% 42%
    Skimmed Milk Powder 4% 2% 0% 3%
    Sugar 5% 4% 5% 6%
    Raw Coffee 36% 36% 35% 21%
    Chicory 1% 0% 1% 1%
    Tea 4% 5% 8% 6%
    Others 17% 17% 18% 22%
    Total 100% 100% 100% 100%

    Domestic coffee industry is facing severe competition from the imported coffee from Vietnam and Indonesia. Low priced Robusta coffee from these countries has found its way into Indian markets. Also, with the liberalization from April 2001, quantitative restrictions on imports as per WTO agreement will be eased. This could lead to major imports of cheaper Robusta coffee, which is used in making soluble coffee. Thus, Indian coffee will be exposed to tough competition from the world’s major coffee producing countries like Brazil, Colombia and Latin American countries.

    The imported coffee will be in various forms like soluble, roasted, green beans and liquid coffee. Thus, to protect the domestic coffee industry, the Union Government has hiked the import duty on coffee from 15% to 35%. Also to meet the challenges the industry has to become competitive through consolidation and by means of other effective strategies. Favourable raw material prices is expected to improve Nestle India’s operating margins. But the company may have to face competition from cheap imports of soluble coffee since it derives more than 80% of its revenues from domestic markets.

    Nestle has reported excellent profit growth of 53% during the nine months ended September 2000. Its revenues during the period grew by 10% fueled by a robust 35% jump in exports. Revival in the Russian coffee prices led to improvement in the coffee exports. We expect the company to maintain its performance for the quarter ended December 2000, since it is the peak period for chocolates and coffee sales.

    At the current market price of Rs 552 Nestle is trading at a P/E multiple of 38 times its December 2000 projected earnings with a market cap to sales ratio of 3.2 times. Historically, the company has traded in the average P/E range of 40-45 times.

     

     

    Equitymaster requests your view! Post a comment on "Nestle: Coffee price bonanza". Click here!

      
     

    More Views on News

    Nestle India: Sales Traction From New Products (Quarterly Results Update - Detailed)

    Nov 30, 2016

    Nestle India declared results for the quarter ended September 2016. Here is our analysis of the result.

    Nestle India: Sales Recovery Remains an Issue (Quarterly Results Update - Detailed)

    Oct 7, 2016

    Nestle India declared results for the quarter ended June 2016. Here is our analysis of the result.

    GSK Consumer: On the Recovery Path (Quarterly Results Update - Detailed)

    Jun 20, 2017

    While GSK consumer reported muted revenue growth, volumes are seen to be recovering.

    Nestle: Done Well to Regain its Share (Quarterly Results Update - Detailed)

    Jun 9, 2016

    Nestle announced its results for the quarter ended March 2016. The company's revenues declined by 9% YoY, while profits declined by about 19% YoY during the quarter.

    Nestle: Looking to make up the lost ground... (Quarterly Results Update - Detailed)

    Nov 2, 2015

    Nestle announced its results for the quarter ended September 2015. While revenues were down by a third, profits declined by 60% YoY.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    NESTLE SHARE PRICE


    Aug 18, 2017 (Close)

    TRACK NESTLE

    NESTLE 8-QTR ANALYSIS

    Detailed Quarterly Results With Charts

    COMPARE NESTLE WITH

    MARKET STATS