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Nestle India: Positive outlook - Views on News from Equitymaster
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  • Dec 18, 2000

    Nestle India: Positive outlook

    Nestle India, the second largest food company, has reported encouraging financial performance for the nine months ended September 2000. Favourable raw material prices, a revival in Russian coffee prices and a healthy growth in the domestic product categories (chocolates and coffee) helped the company post a sharp improvement in bottomline.

    The company’s profits (excluding extraordinary item) jumped by more than 50% yoy during the nine months ended September 2000, led by operating efficiencies and better working capital management. Even the stock markets have noticed the performance of the company. Nestle’s stock price, which was hovering in the range of Rs 290-310 in March 2000, surged to the current level of Rs 509 (a capital appreciation of more than 70%).

    Financial Overview
    Year ended December 31 Nine Months 3 years
    (Rs m) 1998 1999 2000 CAGR
    Domestic Sales 8,942 9,524 10,097 6.3%
    Exports Sales 3,220 1,685 2,275 -15.9%
    Total sales 12,162 11,209 12,372 0.9%
    Other Income 101 57 75 -13.8%
    Total Income 12,263 11,266 12,447 0.7%
    Operating Profit 1,660 1,720 2,242 16.2%
    Interest 360 217 120 -42.3%
    Depreciation 226 285 276 10.5%
    Profit Before Tax 1,074 1,218 1,846 31.1%
    Extraordinary Items 129 2 200 24.5%
    Tax 281 411 615 47.9%
    Profit After Tax 664 805 1,031 24.6%
    No. of shares (m) 96 96 96  

    Key Ratios
    Particulars 9 mths 98 9 mths 99 9 mths 00
    Operating profit margins 12.8% 14.8% 17.5%
    Tax / PBT 26.2% 33.7% 33.3%
    Net profit margins 5.4% 7.1% 8.3%
    Cash EPS (Rs) 12.31 15.07 18.07
    EPS (Rs) 10.97 11.16 17.02

    Although, the company has posted a satisfactory performance in domestic sales, its exports in the last three years witnessed a negative compounded annual growth rate (CAGR) of 16%. The decline in instant coffee exports to Russia has been the key problem area for the company’s performance. However, revival in the Russian coffee prices led to a record 35% jump in Nestle’s exports for the nine months ended September 2000.

    In the past three years the company has managed to increase domestic sales to compensate for the decline in export sales. New product launches (‘Perrier’ – mineral water brand, ‘Pure Milk’ – plain milk brand and ‘Nestle Frappe’ – a blend of coffee powder and vanilla which makes cold coffee helped) Nestle to achieve a yoy growth of 6% in its domestic sales.

    At the current market price of Rs 509 Nestle is trading at a P/E multiple of 30 times its 9 months annualized earnings. We have projected a profit growth in the range of 40% for the year ended December 2000. Since the last quarter of the year has traditionally been the peak period for chocolate and coffee sales, the company is expected to sustain its performance at the current level for the fourth quarter ending on December 2000.



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