1. Research
  2. Sector

  3. FMCG

Nestle India Ltd (Q3 CY12)

India Infoline News Service  | November 19, 2012 12:06 IST

Nestle India Ltd (Q3 CY12)

CMP Rs4,709, Target Rs5,096, Upside 8.2%

  • Nestle recorded 7.8% yoy growth in net sales at Rs21.2bn during Q3 CY12 marginally below our expectations of Rs21.8bn. Impacted by product portfolio and channel optimization, domestic sales recorded mere 7.6% yoy growth. We believe the volume growth would have been flat due to weak demand environment, steep price hikes and rationalization of the portfolio. Exports (contributing ~5% to total revenues) increased by 10.5% yoy as exports to affiliates declined by 4.7%. Third party exports increased by 29.7% yoy (rupee depreciation benefit of 11.6%).

  • Operating margins remained stable at 21% aided by a 230bps drop in raw material cost aided by lower coffee bean and HDPE prices. Milk, milk powder, wheat and vegetable oil prices however remained firm. Nestle has implemented steep price hikes over the past 2-3 quarters in the prepared food and dishes segment to mitigate the input cost impact. A 60bps/150bps increase in staff (led by increase in headcount to support capacities for business expansion)/overhead cost restricted further margin expansion.

Cost Analysis
As a % of net salesQ3 CY12Q3 CY11bps yoyQ2 CY12bps qoq
Material cost45.948.2(225)45.448
Personnel cost7.97.3658.4(48)
Other overheads25.223.715524.666
Total costs79.079.1(6)78.466
Source: Company, India Infoline Research

  • Nestle booked an interest income of Rs76mn (interest expense of Rs12mn in Q3 CY11) due to a write-back of Rs179mn owing to capitalization of exchange losses that were expensed in interest costs in earlier quarters. Net profit (post provision for contingencies of Rs74mn) recorded mere 2.3% yoy increase at Rs2.7bn marginally below our expectations of Rs2.9bn. The growth could have been even better but for the higher depreciation (due to significant expansion in production capacities over past year) and tax outgo (30.3% against 29.7% in Q3 CY11).
  • The total amount outstanding of ECB (from Nestle SA for 5 years) under the approval from RBI to fund its capex plan of ~Rs20bn (for capacity expansions) as at September 30, 2012 is US$192mn (~Rs10.1bn) (No additional debt during the quarter). With the rupee depreciating by 9.4% during the loan period upto September 2012, cumulative cost of this borrowing has increased by 15.6% yoy (Rs1.4bn) on an annualized basis.

  • After factoring in lower domestic and exports growth for H2 CY12, we have lowered our revenue/PAT estimates for CY12 and CY13 by 3.8%/7.5% and 4%/7.2% respectively.

Changes in estimates
(Rs mn)CY12ECY13E
 NewOldChange (%)NewOldChange (%)
Net sales83,99687,287(3.8)99,447103,601(4.0)
EBITDA17,84918,898(5.5)21,53022,689(5.1)
OPM (%)21.321.7(0.4)21.721.9(0.2)
PAT10,51511,365(7.5)12,76213,757(7.2)
EPS109.1117.9(7.5)132.4142.7(7.2)
Source: India Infoline Research

  • We believe Nestle is one of the best plays on the healthy growth potential in the Indian food-processing sector. To meet the rising consumer demand, Nestle is expanding capacity across product lines (would almost double capacity in categories like noodles, confectionaries and chocolates). The capacity expansion plan is on track and the company has already invested ~Rs20bn (~Rs4bn in CY10 and ~Rs16bn in CY11) over the past two years. Due to this high capex, the dividend payout ratio is likely to remain below normal over the next two years. We expect Nestle to witness 15.2% CAGR in revenues and net profit over CY11-13. The strong pricing power and robust brand portfolio will help Nestle expand operating margins. At the current market price of Rs4,709, the stock is trading at 35.6x CY13E EPS of Rs132.4. We maintain Market Performer rating on the stock with a revised 9-month price target of 5,096 (earlier Rs4,923).

Results table
(Rs m)Q3 CY12Q3 CY11% yoyQ2 CY12% qoq
Net domestic sales20,20718,7727.618,6838.2
Exports94986010.51,182(19.7)
Net sales21,15619,6317.819,8666.5
Material cost(9,712)(9,454)2.7(9,024)7.6
Personnel cost(1,671)(1,424)17.4(1,666)0.3
Other overheads(5,339)(4,650)14.8(4,882)9.4
Operating profit4,4344,1038.14,2953.2
OPM (%)21.020.96 bps21.6(66) bps
Depreciation(739)(394)87.9(718)3.0
Interest76(12)-(220)-
Other income17312143.111353.2
PBT3,9443,8193.33,47013.7
Tax(1,197)(1,134)5.6(1,085)10.3
Effective tax rate (%)30.329.7-31.3-
Provision for contingencies(74)(74)0.475-
Reported PAT2,6732,6122.32,4608.7
PAT margin (%)12.613.3(67) bps12.425 bps
Ann. EPS (Rs)110.9108.42.3102.08.7
Source: Company, India Infoline Research

Financial Summary
Y/e 31 Dec (Rs m)CY10CY11CY12ECY13E
Revenues62,54774,90883,99699,447
yoy growth (%)21.919.812.118.4
Operating profit12,49715,52817,84921,530
OPM (%)20.020.721.321.7
Pre-exceptional PAT8,1879,61510,51512,762
Reported PAT8,1879,61510,51512,762
yoy growth (%)25.017.59.421.4
     
EPS (Rs)84.999.7109.1132.4
P/E (x)55.547.243.235.6
Price/Book (x)53.135.625.518.1
EV/EBITDA (x)36.129.726.121.4
Debt/Equity (x)0.00.80.90.4
RoE (%)114.090.368.859.5
RoCE (%)155.190.655.754.3
Source: Company, India Infoline Research



 

 
 
 
Calendar
Mon Tue Wed Thu Fri Sat Sun
18 19 20 21 22 23 24
 
Housing Loan EMI Calculator

Taking a Housing Loan? Check how much will be your EMI

Loan Amount (Rs.)
Interest rate
Tenure