Nestle has declared a 21% growth in second quarter net profits to Rs 447 m. This is on the back of a 12% growth in net sales. A huge decline in interest burden, coupled with a jump in other income also contributed to its bottomline growth.
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Operating margins of the company have declined a shade, as expenditure has grown at a faster clip than sales. Nestle's material cost has increased by nearly 10% during the quarter. Its staff costs are also up 21% YoY.
The company's exports increased by nearly 10% to Rs 671 m during the quarter. On a consolidated half yearly basis, Nestle's bottomline has surged by 29% on the back of a significant 20% growth in topline. New businesses, viz. water and milk have contributed to a large extent in maintaining this rate of growth. On a half yearly basis, the company's exports grew by nearly 27%.
Nestle has had the benefit of favourable coffee bean prices, which were hovering near all time lows in the first half. However, this benefit was negated by the costs associated with new businesses of water and liquid milk and increase in fixed costs.
At the current market price of Rs 540 the stock trades at a P/e multiple of 29 times our projected FY02 earnings. The valuations are on the higher side of the FMCG spectrum, in line with the company's past performance and future earnings expectations. Currently, the coffee prices continue to remain sluggish. While this would help Nestle maintain its margins despite continuing to spend on new businesses, there are fears that its exports may suffer in the coming quarters as importing nations may substitute Nescafe with unbranded coffee, which is cheaper.
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