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Nestle: Momentum continues - Views on News from Equitymaster
 
 
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  • Aug 1, 2001

    Nestle: Momentum continues

    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.

    (Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
    Net sales 4,198 4,683 11.6% 7,676 9,199 19.8%
    Other Income 19 36 89.5% 47 57 21.3%
    Expenditure 3,391 3,794 11.9% 6,356 7,536 18.6%
    Operating Profit (EBDIT) 807 889 10.2% 1,320 1,663 26.0%
    Operating Profit Margin (%) 19.2% 19.0%   17.2% 18.1%  
    Interest 40 23 -42.5% 78 51 -34.6%
    Depreciation 91 106 16.5% 183 214 16.9%
    Profit before Tax 695 796 14.5% 1,106 1,455 31.6%
    Tax 252 301 19.4% 372 474 27.4%
    Extraordinary expenses 72 48 -33.3% 82 138 68.3%
    Profit after Tax/(Loss) 371 447 20.5% 652 843 29.3%
    Net profit margin (%) 8.8% 9.5%   8.5% 9.2%  
    No. of Shares (eoy) (m) 96.4 96.4   96.4 96.4  
    Diluted Earnings per share* 15.4 18.5   13.5 17.5  
    *(annualised)            
    Current P/e ratio   29.1     30.9  

    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.

    Cost break-up
    (Rs m) 2QFY01 2QFY02 Change
    Material cost 1,683 1,843 9.5%
    Staff cost 259 314 21.2%
    Other expenditure 1,377 1,583 15.0%

    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%.

    Export statistics
    (Rs m) FY01 FY02 Change
    First quarter 548 805 47.0%
    Second quarter 613 671 9.5%
    First half 1,161 1,476 27.2%

    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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