Nestle India declared nearly 15% topline growth in FY02. This makes it one of the fastest growing FMCG companies in India during the year. The company finished FY02 with a significant 46% growth in bottomline, aided by lower provisioning.
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Based on the quarterly performance, the company declared a 6% growth in topline and a 134% growth in bottomline, again aided by lower provisioning YoY. The sluggishness in 4QFY02 topline growth could be attributed to the company's export sales that declined by nearly 9% during the quarter. However, on a YoY basis, exports were up by a healthy 17%.
Despite the strong topline performance in FY01, the company's operating margins stagnated at 16.4%. Infact, in 4QFY02, operating margins declined by 130 basis points to 11.7%. A significant 26% growth in the annual staff costs escalated Nestle operating expenses and thus deflated its operating margins. The staff costs seem to have increased largely on account of increased retirement benefits owing to reduction in long term interest rates.
The company's profit before tax and provisioning for contingencies was up 20% for the full year and only 3% in 4QFY02. Lower provisioning during FY02 aided the company's significant bottomline growth and the net margin improvement.
Though the operating margins seem to be under pressure, Nestle has done well to keep them steady in light of the lower returns on investments in new businesses like water and dairy products. Going forward, Nestle's management of the return on its new businesses will determine the course of its valuations.
At the current price of Rs 506 the stock trades at a healthy 28x FY02 earnings and Mcap to sales of 2.5x. The management's decision to a further 10% equity through the creeping acquisition route will take the management's stake to 64%. While this indicates the confidence of the management in India's growth prospects, over the long run the liquidity in the stock may come under a cloud.
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