Helping You Build Wealth With Honest Research
Since 1996. Try Now

MEMBER'S LOGIN

MEMBER'S LOGINX

     
Invalid Username / Password
   
     
   
     
 
Invalid Captcha
   
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Nestle - Efficient cost management

Sep 4, 2000

Nestle India has been consistently improving its bottomline growth led by higher operating margins and efficient working capital management. The favourable raw material prices have also contributed to the profit growth. The raw material cost as a percentage to sales has consistently declined from 1995 to 1998. However during the last year, higher international cocoa prices have inflated, Nestle's raw material cost, resulting in slower growth in the profit margins. Currently the cocoa prices have been hovering around $ 900 as compared to the high of $ 1,750 in the last year. The total raw material and packing cost during the first half of FY01 further declined to 46.4% of net sales. Nevertheless it is still higher than 43.8% in the first half of FY00.

Cost as a percentage to sales
Year End December FY96 FY97 FY98 FY99 FY00
Raw material consumed 45.1% 43.2% 41.7% 39.7% 48.4%
Packing material 12.2% 13.2% 12.2% 11.9% 12.5%
Total 57.3% 56.3% 53.9% 51.6% 60.9%

Apart from cost of production, efficient net working capital management (arising as a result of declining interest cost) has had a positive impact on its bottomline. Net working capital to sales ratio declined to 0.6% in FY00 compared to 12.3% in FY97. Also during the 2QFY01, there was a significant reduction in inventory compared to corresponding previous quarter. Reduction in the net working capital has enabled the company to increase its returns year over year.

Particulars FY98 FY99 FY00
RONW 28.7% 31.2% 34.1%
ROA 9.4% 11.4% 13.8%
ROIC 21.7% 24.5% 31.1%

At the current market price of Rs 461, Nestle is trading at a P/E of 34 times its 2QFY01 annualised earnings. Historically the company's stock had traded in a P/E range of 40-45 times. Its valuations are expected to improve further with excellent financial performance boosted by higher export sales. Also favourable cocoa prices will lead to better cost management for the company.

Equitymaster requests your view! Post a comment on "Nestle - Efficient cost management ". Click here!

  
ABOUT EQUITYMASTER

Since 1996, Equitymaster has been the source for honest and credible opinions on investing in India. With solid research and in-depth analysis Equitymaster is dedicated towards making its readers- smarter, more confident and richer every day. Here's why hundreds of thousands of readers spread across more than 70 countries Trust Equitymaster.

PREMIUM PRODUCTS
QUICK LINKS
POPULAR TOPICS
TRENDING TOPICS
FREE NEWSLETTERS
EQUITYMASTER SUPPORTS
  • HelpYourNGO
  • You Tube
  • Linkedin
  • Twitter
  • Telegram
  • Google Play

Copyright © Equitymaster Agora Research Private Limited.

Whitelist | Refer | Terms | Privacy | Contact | About | Sitemap

Phone +91-9136015013

Equitymaster Agora Research Private Limited (Research Analyst)
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Email: info@equitymaster.com. Website: www.equitymaster.com.
CIN:U74999MH2007PTC175407

Name of the Compliance & Grievance Officer: Ms Sonal Ramachandran
Telephone: +91-22-61434003 | Email: compliance@equitymaster.com

LEGAL DISCLAIMER:
Investment in securities market are subject to market risks. Read all the related documents carefully before investing.
Registration granted by SEBI and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

All rights reserved. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.