Nestle India has continued its stupendous growth from 1QFY03 and carried it to 2QFY03. The company has declared 31% growth in 2QFY03 net profit, led by higher sales (up 9%) and improving cost efficiencies. Lower commodity prices too aided growth.
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The company's domestic sales were up over 12% during the quarter, but a 9% dip in exports tempered the overall growth. Export sales were sluggish largely due to lower realisations from coffee exports to Russia, as green coffee prices have been lower and also because of some restructuring in its tea business.
On a consolidated half year basis, Nestle India has recorded a significant 13% topline growth in 1HFY03 and an even more commendable 42% bottomline growth. The company's operating margins have improved YoY. This makes Nestle one of the very few companies' in the FMCG spectrum who have declared a double digit topline growth during January - June 2003.
Impairment of fixed assets
Despite this strong performance, we note that domestic sales growth has been slower in the second quarter as compared to an over 24% growth witnessed in 1QFY03. This indicates that the growth is reverting to a mean and going forward Nestle's growth engine is likely to slow down. Also, comomdity prices are firming up once again and may affect operating margins going forward.
The chairman & MD of Nestle India, Mr Carlo M Donati's message also hints at growth tempering down in second half of FY03. We quote, "I am happy with the results achieved for the quarter and for the first half of the year, but sustainable growth continues to be under pressure. Difficult market conditions, weak consumer sentiment, particularly in the FMCG area, could be further compounded by the unfortunate possibility of a failing monsoon and may impact the performance for the second half of the year."
The stock trades at 21x annualised 1HFY03 earnings, market cap to sales of 2.4x. The fact the Nestle has continued its growth momentum so far in FY03 has not really reflected on the valuations. This may be because Nestle already trades at the higher end of FMCG valuation spectrum. Concerns over the monsoons are also likely to bear on the markets. But over the long term, Nestle India would continue to occupy premium positioning in the investor's FMCG folio.
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