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Nestle: Topline growth continues…

Apr 30, 2003

Nestle India has reported enthusing March quarter results. The company's topline increased by 13% and bottomline growth was 22% during the quarter. The company however, reported a marginal dip in operating margins to 21.9%.

(Rs m) 1QFY03 1QFY04 Change FY03
Net sales 5,300 5,981 12.8% 20,477
Other income 46 111 140.2% 279
Total expenditure 4,053 4,668 15.2% 16,699
Operating profit 1247 1,313 5.3% 3,778
Operating profit margin (%) 23.5% 21.9%   18.5%
Interest 31 11 -64.8% 61
Depreciation 123 113 -7.8% 494
Profit before tax and extraordinary items 1139 1,299 14.0% 3,502
Extraordinary items -154 -120 -22.1% -368
Tax 371 432 16.4% 1,119
Profit after tax 614 747 21.7% 2,015
Net profit margin (%) 11.6% 12.5%   9.8%
Effective tax rate (%) 32.6% 33.3%   32.0%
No. of Shares (eoy) (m) 96.4 96.4   96.4
Diluted Earnings per share* 25.5 31.0   20.9
Current P/e ratio   17.1   25.4
*(annualised)        

The most encouraging aspect of the company's performance was the double-digit topline growth. This comes at a time when the entire FMCG sector is struggling to find growth. Nestle's domestic sales perked up by a strong 15% during the quarter. However, exports continued to be a blip on the company's overall performance. Export sales in volume terms have declined by 5.1% mainly due to lower coffee exports to Russia. The same in value terms is lower by 2.2% mainly due to higher realisation on instant coffee (owing to increased green coffee prices).But the export dip witnessed in March quarter is marginal, as compared to the trend seen in past quarters (see chart).

Sales stats
(Rs m) 1QFY03 1QFY04 Change
Domestic sales 4,627 5,323 15.0%
Exports 673 658.4 -2.2%
Total sales 5,300 5,981 12.8%

The strong sales growth trend is largely a result of Nestle's product push to lower price points, as well as new product introductions. In chocolates for example, it has started giving Cadbury a run for its money. Though Cadbury is still the market leader in the segment by a wide margin, Nestle continues to march forward. Nestle's culinary products (Maggi) too seemed to have contributed to this strong growth trend. Even in the case of the dip in operating margins, a 22% operating margin is higher than the average operating margin of 18.5% witnessed in FY03.

Cost break-up
(Rs m) 1QFY03 1QFY04 Change
Material cost 2,031 2,355 15.9%
Staff cost 322 389 20.7%
Other expenditure 1,700 1,925 13.2%
Total expenditure 4,053 4,668 15.2%

However, if we look closely, the bottomline growth has largely come about due to strong other income growth (140% YoY). Nestle has attributed this increase in other income to interest on income tax refunds received relating to earlier years. Also, if we exclude the extraordinary items, profit before tax growth is only 14%.

At Rs 530 the stock trades at 17.1x annualised 1QFY04 earnings and market cap to sales of 2.1x. Nestle is the only FMCG company that has continously showed an improvement in topline trend even in difficult market conditions like this. This fact alone may keep the stock an attractive investment proposition in the near term.


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