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.
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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.
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.
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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