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Nestle: Good numbers again… - Views on News from Equitymaster
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  • Jul 30, 2002

    Nestle: Good numbers again…

    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.

    (Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Net sales 4,683 5,115 9.2% 9,199 10,415 13.2%
    Other Income 36 87 142.8% 57 133 134.0%
    Expenditure 3,794 4,053 6.8% 7,536 8,106 7.6%
    Operating Profit (EBDIT) 889 1,062 19.4% 1,663 2,309 38.8%
    Operating Profit Margin (%) 19.0% 20.8%   18.1% 22.2%  
    Interest 23 22 -5.2% 51 53 3.5%
    Depreciation 106 123 15.7% 214 246 14.8%
    Profit before Tax & extraordinary items 796 1,005 26.2% 1,455 2,144 47.3%
    Tax 301 326 8.3% 474 697 47.0%
    Extraordinary items -48 -95 98.5% -138 -249 80.7%
    Profit after Tax/(Loss) 447 583 30.5% 843 1,197 42.0%
    Net profit margin (%) 9.5% 11.4%   9.2% 11.5%  
    No. of Shares (eoy) (m) 96.4 96.4   96.4 96.4  
    Diluted Earnings per share* 18.5 24.2   17.5 24.8  
    Current P/e ratio   21.1     20.5  

    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.

    Sales stats...
    (Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Domestic sales 4,012 4,502 12.2% 7,723 9,129 18.2%
    Exports 671 614 -8.6% 1,476 1,287 -12.8%
    Total sales 4,683 5,115 9.2% 9,199 10,415 13.2%

    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.

    Cost break-up
    (Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Material cost 1,897 2,035 7.2% 3,749 4,066 8.4%
    Staff cost 314 337 7.3% 622 659 5.9%
    Other expenditure 1,583 1,682 6.2% 3,151 3,382 7.3%
    Impairment of fixed assets 0 0 - 14 0 -
    Total expenditure 3,794 4,053 6.8% 7,536 8,106 7.6%

    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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