Nestle India Ltd (Q3 CY13)

India Infoline News Service | Mumbai |

Nestle matched our expectations by recording 11% yoy growth in net sales at Rs23.5bn during Q3 CY13.

CMP Rs5,719, Target Rs5,767, Upside 0.8%
 
  • Nestle matched our expectations by recording 11% yoy growth in net sales at Rs23.5bn during Q3 CY13. Domestic sales recorded muted 8% yoy growth at Rs21.8bn due to intense competition in noodles and beverages category and SKU rationalization. Weakness in urban and discretionary demand further impacted revenue growth. Underlying volume growth remains lackluster. Exports (contributing ~7% to total revenues) increased sharply by 73.9% yoy to Rs1.7bn aided by healthy increase in exports to affiliates and positive impact of rupee depreciation.

  • Operating margins for the quarter remained flat at 21% aided by 90bps decline in raw material cost aided by lower palm oil, sugar and coffee prices which mitigated the higher milk price impact. However, a 40bps/50bps increase in staff/overhead cost restricted further margin expansion.

Cost Analysis
As a % of net sales
Q3 CY13
Q3 CY12
bps yoy
Q2 CY13
bps qoq
Material cost
45.0
45.9
(90)
45.2
(20)
Personnel cost
8.3
7.9
40
8.6
(28)
Other overheads
25.7
25.2
50
24.2
156
Total costs
79.0
79.0
(0)
78.0
109
 Source: Company, India Infoline Research

  • Net profit for the quarter increased by 5.3% yoy to Rs2.8bn 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 amortisation of capitalised borrowing costs) and tax outgo. On the commissioning of new production units, depreciation increased 14% yoy. Effective tax rate for the quarter was higher at 32.7% against 30.3% during Q3 CY12. 

  • We believe Nestle is one of the best plays on the healthy growth potential in the Indian food-processing sector. The strong pricing power and robust brand portfolio will help Nestle expand operating margins. However, weakness in urban and discretionary demand and rising competition are expected to impact revenue growth for the next few quarters. We expect Nestle to witness 13.3%/14.8% CAGR in revenues/net profit respectively over CY12-14. At the current market price of Rs5,719, the stock is trading at 39.2x CY14E EPS of Rs146. We maintain Market Performer rating on the stock with a revised 9-month price target of Rs5,767 (earlier Rs5,475). 

Results table
(Rs m)
Q3 CY13
Q3 CY12
% yoy
Q2 CY13
% qoq
Net domestic sales
21,832
20,207
8.0
20,395
7.0
Exports
1,651
949
73.9
1,737
(5.0)
Net sales
23,483
21,156
11.0
22,132
6.1
Material cost
(10,568)
(9,712)
8.8
(10,004)
5.6
Personnel cost
(1,949)
(1,671)
16.6
(1,898)
2.7
Other overheads
(6,044)
(5,339)
13.2
(5,350)
13.0
Operating profit
4,922
4,434
11.0
4,880
0.9
OPM (%)
21.0
21.0
0 bps
22.0
(109) bps
Depreciation
(835)
(739)
12.9
(887)
(5.8)
Interest
(100)
76
BSE 7,930.00 105.80 (1.35%)
NSE 7,921.05 104.05 (1.33%)

***Note: This is a NSE Chart

 

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