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Nestle: Strong overall performance - Views on News from Equitymaster

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Nestle: Strong overall performance
Oct 31, 2009

Performance summary
  • Top line grew by 18% YoY during the quarter while for 9mCY09, the top line grew by 17% YoY. This growth comes on the back of 18% YoY and 19% YoY growth in 3QCY09 and 1HCY09.
  • Operating (EBITDA) margins expanded to 21% of sales in 3QCY09 and 22% in 9mCY09 on account of lower raw material cost as a percentage of sales.
  • Bottom line improved by 39% YoY during the quarter while during 9mCY09, the same improved by 31%.


Financial snapshot
(Rs m) 3QCY08 3QCY09 % change 9mCY08 9mCY09 % change
Net Sales 11,104 13,072 17.7% 32,420 37,923 17.0%
Expenditure 9,012 10,336 14.7% 25,968 29,635 14.1%
Operating profit (EBDITA) 2,092 2,736 30.8% 6,452 8,288 28.5%
EBDITA margin (%) 18.8% 20.9%   19.9% 21.9%  
Other income 54 38 -29.2% 133 125 -6.0%
Interest -   2   15 9 -38.1%
Depreciation 233 286 23.0% 667 806 20.9%
Profit before tax 1,913 2,487 30.0% 5,904 7,598 28.7%
Tax 596 659 10.6% 1,774 2,177 22.7%
Profit after tax/(loss) 1,318 1,828 38.7% 4,130 5,421 31.3%
Net profit margin (%) 11.9% 14.0%   12.7% 14.3%  
No. of shares (m) 96.4 96.4   96.4 96.4  
Diluted earnings per share (Rs)*         68.8  
Price to earnings ratio (x)*         37.4  
* On a 12-month trailing basis

What has driven growth in 3QCY09?
  • Net sales of the company have increased on account of both higher volumes and price realisation.

  • Operating margins have improved due to better product mix and lower commodity prices barring milk and sugar.

  • Net profit of the company improved boosted by higher sales, higher operating profits, tax benefits and backlog of export incentives. The profits could have been higher but for lower other income as a result of lower market rate of returns.

What to expect?
At a price of Rs. 2,573, the stock is trading at 28 times our estimated CY11 earnings. The company has shown strong growth this quarter. However, due to the recent run up of the stock, we are maintaining a cautious view.

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