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Nestle: Growth on strong domestic performance - Views on News from Equitymaster

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Nestle: Growth on strong domestic performance

Jul 31, 2009

Performance summary
  • Top line grew by 17% YoY led by strong growth of 20% in domestic sales.
  • Operating (EBITDA) margins expanded to 21% of sales on account of lower raw material cost as a percentage of sales.
  • Bottom line improved by 34% YoY, stand at 13% as a percentage of sales.

Financial snapshot
(Rs m) 2QCY08 2QCY09 % change
Net Sales 10383.9 12149.3 17%
Expenditure 8437.1 9638.9 14%
Operating profit (EBDITA) 1946.8 2510.4 29%
EBDITA margin (%) 19% 21%  
Other income 39.5 33.7 -15%
Interest 13.8 5.7 -59%
Depreciation 223.6 264 18%
Profit before tax 1748.9 2274.4 30%
Tax 538 654.2 22%
Profit after tax/(loss) 1210.9 1620.2 34%
Net profit margin (%) 12% 13%  
No. of shares (m) 96.4 96.4  
Diluted earnings per share (Rs)*   63.5  
Price to earnings ratio (x)*   35.2  
* On a 12-month trailing basis

What has driven growth in 2QCY09?
  • Net sales have increased on account of strong volume and realization growth in the domestic market. Export sales were lower due to lower exports to Russia and Bangladesh. However, the lower export sales were partially offset by a depreciating Rupee.

  • Operating profits increased by 29% YoY due to higher realizations. This was partially offset by higher provisioning for retirement benefits

  • Net profit increased on account of higher sales, improved operating margins, export incentives and lower tax expense.

What to expect?
At a price of Rs. 2,233, the stock is trading at a multiple of 26 times our estimated CY11 earnings. The company has show strong growth this quarter. However, due to the recent run up of the stock, we are maintaining a cautious view.

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