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%).
Year ended December 31
Profit Before Tax
Profit After Tax
No. of shares (m)
9 mths 98
9 mths 99
9 mths 00
Operating profit margins
Tax / PBT
Net profit margins
Cash EPS (Rs)
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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