Nestle India Ltd (Q1 CY13)

India Infoline News Service | Mumbai |

Operating margins expanded by 140bps to 23.7% partly aided by lower overhead cost. Raw material cost as percentage of net sales declined by 65bps largely due to higher sales realizations, partially offset by higher input costs.

CMP Rs4,878, Target Rs5,138, Upside 5.3% 
  • Nestle matched our expectations by recording 9.8% yoy growth in net sales at Rs22.5bn during Q1 CY13. Domestic sales recorded slower 7.7% yoy growth while, exports (contributing ~5% to total revenues) increased by 50.9% yoy to Rs1.5bn (due to higher sales to affiliates).
  • Operating margins expanded by 140bps to 23.7% partly aided by lower overhead cost. Raw material cost as percentage of net sales declined by 65bps largely due to higher sales realizations, partially offset by higher input costs. 
Cost Analysis
As a % of net sales Q1 CY13 Q1 CY12 bps yoy Q4 CY12 bps qoq
Material cost 45.2 45.8 (65) 44.8 38
Personnel cost 7.6 7.6 5 8.1 (52)
Other overheads 23.5 24.3 (76) 24.1 (62)
Total costs 76.3 77.7 (136) 77.1 (76)
Source: Company, India Infoline Research 

  • Nestle has accounted Rs207mn as “net provisions for contingencies – others” for the quarter. The notes to accounts state “to that extent the net profit for this quarter is not comparable with the same period of 2012 as was the case in the quarter ended 31-12-12 due to timing difference of certain provisions arising from regulatory changes”. Adjusted for this amount, net profit growth of 1.2% yoy increases to 8.7% yoy (assuming no tax shield on these provisions).
  • Net profit growth could have been even better but for the higher depreciation (due to significant expansion in production capacities over past year) and tax outgo. Effective tax rate for the quarter was higher at 32.7% against 30.6% during Q1 CY12 due to the revaluation of net deferred tax liabilities consequent to an increase in income tax surcharge from 5% to 10% in the Finance Bill 2013.
  • We believe Nestle is one of the best plays on the healthy growth potential in the Indian food-processing sector. With a favourable base effect on revenues in H2 CY13, we expect Nestle to witness healthy revenue growth. Higher adspends will further drive revenue growth. Since most of Nestle’s capex is over, the company will start generating excess cash, which will result in higher dividend per share. We expect Nestle to witness 14.6%/16.8 CAGR in revenues/net profit respectively over CY12-14. The strong pricing power and robust brand portfolio will help Nestle expand operating margins. At the current market price of Rs4,878, the stock is trading at 32.3x CY14E EPS of Rs151.1. We maintain Market Performer rating on the stock with a revised 9-month price target of Rs5,138 (earlier Rs5,096).
Results table
(Rs m) Q1 CY13 Q1 CY12 % yoy Q4 CY12 % qoq
Net domestic sales 20,953 19,461 7.7 20,414 2.6
Exports 1,528 1,013 50.9 1,112 37.4
Net sales 22,481 20,475 9.8 21,526 4.4
Material cost (10,158) (9,384) 8.2 (9,644) 5.3
Personnel cost (1,710) (1,547) 10.5 (1,750) (2.3)
Other overheads (5,287) (4,972) 6.3 (5,195) 1.8
Operating profit 5,326 4,572 16.5 4,937 7.9
OPM (%) 23.7 22.3 136 bps 22.9 76 bps
Depreciation (821) (528) 55.6 (835) (1.7)
Interest (79) (23) 249.3 (99) (20.0)
Other income 200 136 47.2 211 (5.3)
PBT 4,626 4,158 11.2 4,213 9.8
Tax (1,512) (1,272) 18.8 (1,293) 16.9
Effective tax rate (%) 32.7 30.6 - 30.7 -
Provision for contingencies (323) (129) 151.2 (131) 146.8
Reported PAT 2,791 2,757 1.2 2,789 0.1
PAT margin (%) 12.4 13.5 (105) bps 13.0 (54) bps
Ann. EPS (Rs) 115.8 114.4 1.2 115.7 0.1
Source: Company, India Infoline Research 

Financial Summary

Y/e 31 Dec (Rs m) CY11 CY12E CY13E CY14E
Revenues 74,908 83,023 94,869 109,124
yoy growth (%) 19.8 10.8 14.3 15.0
Operating profit 15,528 18,258 21,393 25,017
OPM (%) 20.7
BSE 7,878.00 [43.60] ([0.55]%)
NSE 7,872.65 [48.40] ([0.61]%)

***Note: This is a NSE Chart

 

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