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Nestle: Good numbers but... - Views on News from Equitymaster
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  • Nov 1, 2001

    Nestle: Good numbers but...

    Nestle India has done it yet again! In an environment when companies are struggling to grow Nestle has recorded an encouraging 13.5% growth in topline and 39% growth in bottomline during 3QFY02. In the period from January to September (9m FY02) the company has grown by 18% in topline and 33% in bottomline.

    (Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
    Net sales 4,694 5,330 13.5% 12,370 14,529 17.5%
    Other Income 28 31 10.7% 75 88 17.3%
    Expenditure 3,853 4,408 14.4% 10,209 11,944 17.0%
    Operating Profit (EBDIT) 841 922 9.6% 2,161 2,585 19.6%
    Operating Profit Margin (%) 17.9% 17.3%   17.5% 17.8%  
    Interest 42 26 -38.1% 120 77 -35.8%
    Depreciation 93 110 18.3% 276 324 17.4%
    Profit before Tax 734 817 11.3% 1,840 2,272 23.5%
    Tax 243 235 -3.3% 615 709 15.3%
    Extraordinary expenses 112 55 -50.9% 194 193 -0.5%
    Profit after Tax/(Loss) 379 527 39.1% 1,031 1,370 32.9%
    Net profit margin (%) 8.1% 9.9%   8.3% 9.4%  
    No. of Shares (eoy) (m) 96.4 96.4   96.4 96.4  
    Diluted Earnings per share* 15.7 21.9   14.3 18.9  
    Current P/e ratio   22.8       26.4   

    However, 11.6% increase in profits is due to a change in accounting policy due to implementation of accounting standard AS-22 in line with SEBI guidelines. The balance increase of 27.4% is mainly due to increased sales, lower commodity prices and improved asset rotation which have been partially offset by the costs associated with water, liquid milk/chilled dairy businesses. The lower provision for contingencies and reduction in income tax rate also contributed to the increase in net profit.

    Cost break-up
    (Rs m) 3QFY01 3QFY02 Change
    Material cost 2,037 2,235 9.7%
    Staff cost 264 330 25.0%
    Other expenditure 1,552 1,843 18.8%
    Total expenditure 3,853 4,408 14.4%

    The company's profit before tax increased by 11% during 3QFY02. Nestle's expenditure increased at a faster clip than sales during the quarter, putting pressure on operating margins. However, on a nine month basis, the company managed to improve operating margins, albeit marginally.

    Export statistics
    (Rs m) FY01 FY02 Change
    First quarter 548 805 47.0%
    Second quarter 613 671 9.5%
    Third quarter 759 946 24.6%
    9m FY02 1,920 2,422 26.2%

    The topline numbers were also aided by a significant export growth (25% in 3QFY02). If we exclude exports, then domestic sales improved by 11.4% YoY during the quarter. Out of the total exports over 80% are exports to Russia. On a nine month consolidated basis, exports improved by over 26%.

    Despite such an encouraging performance the company's management has warned that the coming quarter may not be as good. Post the 3QFY02 results Nestle India chairman & managing director, Mr Carlo Donati commented and we quote, "The continuing excellent performance of Nestle India reflects the integrity of the Nestle culture. The focus on consumer and the professionalism of our executives has sustained innovation and renovation within the company and their pragmatic attitude has ensured excellent top-line and impressive bottom-line contribution for Nestle India. However despite these strengths, the uncertain and difficult domestic and international market environment coupled with the seasonality factors will impact our performance in the fourth quarter."

    At the current price of nearly Rs 500 the stock trades at a P/E of 26x annualised 9m FY02 earnings.



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