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Nestle: Topline strength continues - Views on News from Equitymaster
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  • Aug 1, 2003

    Nestle: Topline strength continues

    Nestle India continues on its growth path. In the June quarter, the company has reported a 7% topline and nearly 15% bottomline growth. Overall, the company has finished first half of FY04 with a 10% topline and over 18% bottomline growth.

    (Rs m) 2QFY03 2QFY04 Change 1HFY03 1HFY04 Change
    Net sales 5,115 5,461 6.8% 10,415 11,442 9.9%
    Other Income 87 65 -26.0% 133 175 31.3%
    Expenditure 4,053 4,293 5.9% 8,106 8,961 10.5%
    Operating Profit (EBDIT) 1,062 1,168 10.0% 2,309 2,481 7.4%
    Operating Profit Margin (%) 20.8% 21.4%   22.2% 21.7%  
    Interest 22 6 -74.8% 53 16 -68.9%
    Depreciation 123 117 -5.0% 246 230 -6.4%
    Profit before Tax & extraordinary items 1,005 1,111 10.6% 2,144 2,409 12.4%
    Tax 326 358 9.8% 697 790 13.3%
    Extraordinary items -95 -83 -13.1% -249 -203 -18.7%
    Profit after Tax/(Loss) 583 670 14.8% 1,197 1,417 18.3%
    Net profit margin (%) 11.4% 12.3%   11.5% 12.4%  
    No. of Shares (eoy) (m) 96.4 96.4   96.4 96.4  
    Diluted Earnings per share* 24.2 27.8   24.8 29.4  
    Current P/e ratio   20.2     19.1  

    Nestle's growth was lower in the quarter as compared to the March quarter owing to slow domestic sales growth. The company's domestic sales was up 4.6% during the quarter. The company attributed this slowdown to the 10 day transporter's strike in April. The company's exports were however, up a strong 23% led by enhanced realisations from instant coffee exports to Russia, as the green coffee prices in the current period have been higher than last year.

    Sales stats...
    (Rs m) 2QFY03 2QFY04 Change 1HFY03 1HFY04 Change
    Domestic sales 4,502 4,709 4.6% 9,129 10,032 9.9%
    Exports 614 752 22.5% 1,287 1,410 9.6%
    Total sales 5,115 5,461 6.8% 10,415 11,442 9.9%

    Nestle's operating margins improved by a marginal 60 basis points led by a dip in other expenses. However, on a half yearly basis, operating margins have shown some signs of stress. This is owing to the higher material (commodity) and staff (mainly pension provisions) costs as compared to last year. The company continues to extract the benefits of a lower interest regime, as its debt servicing costs continue to decline.

    Cost break-up
    (Rs m) 2QFY03 2QFY04 Change 1HFY03 1HFY04 Change
    Material cost 2,035 2,263 11.2% 4,066 4,618 13.6%
    Staff cost 337 381 13.0% 659 769 16.8%
    Other expenditure 1,682 1,649 -2.0% 3,382 3,574 5.7%
    Total expenditure 4,053 4,293 5.9% 8,106 8,961 10.5%

    At Rs 562 the stock trades at 21.4x our estimated FY04 earnings, market cap to sales of 2.6x. The fact the Nestle has continued its growth momentum so far in FY04 has not really reflected on the valuations. This may be because Nestle already trades at the higher end of FMCG valuation spectrum. But over the long term, Nestle India would continue to occupy premium positioning in the investor's FMCG folio.



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